Linton White, a professional trader and business development manager at QuickTrade, has more than 80 000 followers on social media, built up over years of guiding them through the wipe-outs and discouraging defeats that come with trading financial markets.
“When I started trading, I did not really know what I was doing, but I had some amazing early success, and I thought if I just continued doing the same things, I would make fantastic profits. My luck ran out in the third week of my trading career and I lost everything I had made in the previous two weeks,” he says.
“In a way, this was the best lesson I ever learned because I realised I didn’t know what I was doing, so I started studying and perfecting different trading styles.
“I’ve had this conversation with thousands of novice, intermediate and even expert traders over the years. Many traders lose it all time and time again, yet they continue to do so for many years and end up being financially worse off than when they began their trading journey.”
The stats show most traders in the financial markets lose. That’s the bald reality, yet the more serious-minded are able to show consistent wins.
Those traders that repeat the same losing mistakes are unlikely to turn defeat into victory.
“My advice to these traders is to analyse yourself, your strategy and most importantly your discipline as a trader so that you can get better at not doing the things that cause you to lose money,” says White.
The primary mistake traders make is to become mesmerised by the high leverage that amplifies trading losses and wins. They become fixated on the wins, and brush aside the losses.
This causes them to overtrade, take on too much leverage, and risk too much of their capital.
Traders often cannot resist the temptation to jump into a market when they should wait for a proper point of entry. White says they make the fatal mistake of being unable to look at a screen loaded with a chart without pushing the ‘buy’ or ‘sell’ button.
Many brokerages offer 500:1 leverage, meaning price moves are amplified five times the movement in the spot price. “This is like a drug. You see exceptional profits when the trade goes in your direction, but it’s deadly when it goes against you,” he says.
“High leverage can result in the trader making faster profits, but with this comes high risk. This is not sustainable over a longer period of time, and the likelihood of losing all your capital is high.”
The trick to successful trading is to slow things down, adds White. He advises traders to spend time with a compound interest calculator and look at trading as a pastime or career that should last through your entire life.
“The first thing to understand about compound interest is that it is interest upon interest. What this means is that the interest I earn on an investment this year will form part of the capital that my interest is calculated on next year.
He provides the following example:
I invest R100 000 with ABC bank.
The interest rate of my investment is calculated at 7% per annum.
This means that in year one, I will earn R7 000 in interest (R100 000 x 7%).
In year two, my capital has grown to R107 000 (R100 000 + R7 000).
The interest in year two is R7 490 (R107 000 x 7%).
That interest grows to R8 014,30 in year three (R114 490 x 7%). And so on.
After five years, the investment is worth R140 255.
“This is the secret to getting rich slowly and if you apply it to your trading, you will be surprised at how fast this adds up.
How to set up a trade
White primarily trades the Nasdaq index because it provides the volatility and liquidity needed to execute on his preferred style.
“I am a long-term trader who looks to daily and weekly trends in order to enter the market in largely oversold areas,” he says.
“I make use of the Relative Strength Index (RSI) and Williams Percent Range to find the oversold areas and phase into the market at different levels. I will continuously add into my position in order to average out my entry and take advantage of the trend continuation.
“The big difference, in my approach to trading and most of the traders who haven’t learned about the effects of compound interest, is that I take very small positions within the market and in comparison to my capital amount. This means that I am able to be in a number of trades and still not endanger my total capital.”
Waiting for the right trade set-up may keep you out of the market for days or weeks, but patience is one of the trader’s greatest virtues, he says.
What is a good target return for a trader?
Anything above 5%, says White.
“Most traders say that this is far too little and that they achieve much higher results. While this is possible, it’s not likely that it is sustainable over a long period of time. My average over the last number of years has been more than 5% per month. The very important thing to note is that this is a monthly target and not an annual rate of return.”
Starting with a balance of R100 000 and growing it at 5% a month – and assuming no losses along the way – the trading account would be worth R1.87 million after five years.
“The biggest lesson to learn here is that you don’t need to make millions overnight and risk everything all the time. You can have a patient approach to the market which enables stress-free trading and very satisfying long-term results,” says White.
“The patient approach means cutting losses when the trade goes against you, and letting your profitable trades run rather than banking them too early. I see this as the slow way to make profits on the market, and it’s been life-changing for me.”
QuickTrade is a licensed financial services provider and online broker.
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