Is this a really secret of Stock Market?

[mark04]

Dear Fellow Traders,

Everyone related to Stock Market is always focused on the goal of how much they can make buying/selling a stock, they forget to concern themselves with how much they risk loosing. Is it true that “The secret to great wealth in the stock market, is not big gains; its small losses”

Is this a strategy of keeping losses small? If we will win only 1 out of 3 times with our losers loosing 5% and our winners gaining 25% we can make extremely large profits. That’s do the math assuming that there is only 1 out of 3 winners. So if we make 9 trades of USD10,000 each in one month it means we will loose money on 6 and make money only 3. the 6 losers will cost us USD3000 (6*5% loss on each of USD 10,000 Trades) and the 3 winners will net us USD7500 (3*25% gain on each of USD 10,000 Trades) for a profit of USD 4,500

Regards
Mark

[soul786]

It is true.

Remember your profitability is overall profits subtract the losses. You need both numbers. Someone with a system that wins 90% of the time could still be making nothing.

Example: 9 trades won, 10 pip targets each makes +90 pips. System trader uses means he needs to set S/L or 100pips. If he hits that ONCE, he's already lost 100 pips. Overall a -10pips in 10 trades.

Minimizing losses is key to surviving, its not only about a Win/Loss ratio.