Why my first success in trading was actually a failure.

A thread

So one of my first successes when trading stocks was on $amd. I traded a few stocks and it got me up around $35 in my account.

This doesn't sound like a lot but it was on a $400 account.

Typically you're expected to make 10% a year, and I made it in a matter of weeks.

So what's the problem.

I was able to do what everyone wants in the stock market.

Make gains in a short amount of time and grow my account quickly.

Let's have a discussion about risk.

Risk is a hell of a thing, it's very hard to quantify in a lot of instances.

So here's the break down.

I took around 50% of my account, and invested it in a single stock.

I didn't check or even wait for the stock to decrease in value before finding a position.

I didn't even have a good reason to go in, I believed in $amd on the basis of a hunch that the processor market will increase.

So in other words, I got

Very

Very

Lucky.

Was it a good bet?

Maybe

But you could make a good case as to why it wouldn't be.

Professional traders are professionals for a reason. The main difference between your retail traders and your professionals is a good understanding of risk.

Risk can make or sink a trader over time.

So how do you manage risk.

The easiest way is to diversify your account.

I try to only spend 10-15% of my account on one stock.

Typically that leaves me with 4-6 stocks in my portfolio at any given time.

I also try to carry some access liquidity in case I see a good opportunity.

Secondly, don't invest in a number of stocks all in the same industry.

If you believe in a few stocks from the computer industry it may be easy to say well let's invest in both $intc and $amd.

If you're going to do this make sure that they combine around 10% total.

And third understand how to read balance sheets and income statements.

Balance sheets and income statements are a great way to double check hunches.

You can see the business on paper, how much growth it has had or hasn't.

It allows you to find perspective from above

P.s, there is much more information than those two documents but those are good places to start.

Finally Hot Stocks

Think about any stocks at the top right now, $tsla is a major one.

Any investor with knowledge of the markets, wouldn't touch it.

Some have even shorted it.

Why?

Well it's inflated.

So many people believe in their success that the stock price is too high.

The p/e ratio (price to earnings) is through the roof.

Compared to the other car manufacturers it just doesn't make sense.

Toyota - 13.35
Honda - 24.08
Ferrari - 63.06

Tesla - 834.14

Anyways this thread is long, if I missed anything feel free to comment it.

And thank you for reading!