Trading Basics: Evolution of a Trader

USING LEVERAGE: AN EXPENSIVE LESSON!

Leverage gives you the ability to borrow money from your broker and invest it in the market, allowing you to go broke quicker. If you think I am kidding, let me tell you the true story of a trader I will call Nancy.

In the early days, she listened to friends and relied on trading journals, but only 40 percent of her trades made money, and several companies she owned went bankrupt. Then she started to do her own research and results improved.

Two years after entering the markets, the index dropped 56 percent in just over a year, bankrupting several more companies she held in her portfolio. She never thought of taking profits or cutting losses.

After losing heavily on one investment, she stopped trading for nine years. When she got back into the game, she switched from fundamental analysis to technical analysis, using pivot points and support and resistance. Her luck improved. In 50 trades, she lost only eight times (84 percent win/loss ratio), making an average gain of 60 percent per trade.

She entered currency contests sponsored by her broker, placed in the top five, and then made it to number one. Her confidence grew, and with the market trending higher, she made 2.3 times her money in just five weeks.

Then she switched to the currency market where 100-to-1 leverage is available—a mouthwatering amount. With one contract costing $1,000, she could control $100,000 worth of currencies.

If you have underage children in the room, shoo them away ...