by. Ruth Barrons Roosevelt
At the core of trading—indeed investing as well—lies a crucial
enigma. A trader must protect his capital: he must not lose his
medium of investment. At the same time he must take advantage of
the opportunities that come his way, but in so doing, he puts his capital
at risk.
It’s a balancing act. The trader must continually measure risk
with reward and keep the two in a state of counterpoise. Truly, if
nothing is ventured, nothing is gained. If you clutch the bird in the
hand, you will not catch the two in the bush. Too much hesitation
in the face of movement, too much reluctance to enter a market, and
the tide of fortune passes.
At the same time, rushing into a situation before it’s mature
leads to false signals and false hopes. In rushing the bush, you could
lose the bird in the hand.
The trader’s conundrum is to preserve the money she has
while growing it at a rate commensurate with what the markets are
offering.
Once the entry is commenced, the problem is just beginning.
How long does she stay? How does she know when she’s wrong?
How does she know when the move has ended?
Grabbing small profits in a major move is a recipe for mediocrity
at best and failure at worst. We’ve all heard the saying: “the
money is made in the sitting.” And, indeed, great fortunes have been
made staying with a position through its ups and downs.
The Warren Buffet’s of this world have proven that.
On the other hand, we’ve all heard the stories of wealthy
investors who die broke and broken hearted. Recently, I heard of a
man who made $20,000,000. in the run up of the stock market going
into March of 2000. Today he’s lucky if he has $10,000. of it left.