Say you are a salesperson in a company and you are given 2 products to sell.
Product A @ $500
Product B @ $100
Commission is 1% net
So if you sell 1 unit of Product A , you get $5 and $1 for selling Product B.
Your boss gives you a monthly target of $100. How would you plan on reaching your target ?
Basically, there are only 2 ways to increase your sales, ie
1. increase your volume of sales
2. increase your value of sales
For 1, you have to sell more units of of either product A or B, maybe something like this
15 units of Product A (gives you $75) and 25 units of Product B (gives you $25).
Your commission is fixed in this case , at 1% but the higher value sales that you get for your Company, ie selling Product A instead of Product B will gives you a higher commission. See, you need to find only 15 customers to get you $75 commission instead of hawking to 25 different customers to get $25.
When this rule is applied in trading and investment, it may not yields the same results. WHY ?
Firstly, if you come from a corporate background, so long as you sell Product A and/or B, you are guaranteed of 1% commission, right ? In trading, by buying/selling a contract, you are NOT GUARANTEED a profit (never mind if it exceeds 1%).
Also, the more you sell, the more you earn in your corporate days so you can burn 18 hours a day , sacrificed your weekend and clock more sales calls to make up the numbers. It does not work this way in trading. Just because you trade frequently, it does not mean your profitability will increase.
For those of you somehow addicted to frequent trading, you may want to face the music, pull out the spreadsheet and see for yourself if you are really in the red or green at month end. Out of say, 50 trades, how many are profitable and how many are losses.
Unless you can take out emotions out of trading and operate like robocop, it is difficult to replicate the algo traders who lack emotions and trade based on a set of rules. You could be winning 5 consecutive trades of 50 pips and lose 2 trades of 120 pips, enough to wipe out all your prior gains.
And the more you lost, the more you want to seek revenge and get back , something increasing your lots size to compensate for the prior losses. The outcome - you know better than anyone. bust accounts , margin call and all.
Some may think it is ok as I am betting on small lots, micro or mini lots so no big deal. Then , the attitude towards trading is one of gambling instead of relying on the probability outcome based on a set of rules and strategies.
Increasing your values in sales here when applied to trading means you increase your position size which of course Mr Market is on your side, you would yield a higher profits (or commission). I would not encourage new traders to try out this method unless you have a big capital base and even so, always limit it to 1 to 2% of your capital.
Think of the 1 -2% of your capital as your chips that you bring to the casino. Unless you are a VIP, you would want to have more chips to last you longer through the night. Those that "show hand" and bet every single chip they have - let them be the heroes or better still, leave that to Stephen Chow, the God of Casino.
Capital management, risk management, winning ratios, RRR, strict SL, proven strategies (eg. trend line with price action) on a consistent basis can yield you the desired commission you want as well. It just takes more time to practise and when done right, you would need lesser time to place positions and have more free time to do what you love.
Product A @ $500
Product B @ $100
Commission is 1% net
So if you sell 1 unit of Product A , you get $5 and $1 for selling Product B.
Your boss gives you a monthly target of $100. How would you plan on reaching your target ?
Basically, there are only 2 ways to increase your sales, ie
1. increase your volume of sales
2. increase your value of sales
For 1, you have to sell more units of of either product A or B, maybe something like this
15 units of Product A (gives you $75) and 25 units of Product B (gives you $25).
Your commission is fixed in this case , at 1% but the higher value sales that you get for your Company, ie selling Product A instead of Product B will gives you a higher commission. See, you need to find only 15 customers to get you $75 commission instead of hawking to 25 different customers to get $25.
When this rule is applied in trading and investment, it may not yields the same results. WHY ?
Firstly, if you come from a corporate background, so long as you sell Product A and/or B, you are guaranteed of 1% commission, right ? In trading, by buying/selling a contract, you are NOT GUARANTEED a profit (never mind if it exceeds 1%).
Also, the more you sell, the more you earn in your corporate days so you can burn 18 hours a day , sacrificed your weekend and clock more sales calls to make up the numbers. It does not work this way in trading. Just because you trade frequently, it does not mean your profitability will increase.
For those of you somehow addicted to frequent trading, you may want to face the music, pull out the spreadsheet and see for yourself if you are really in the red or green at month end. Out of say, 50 trades, how many are profitable and how many are losses.
Unless you can take out emotions out of trading and operate like robocop, it is difficult to replicate the algo traders who lack emotions and trade based on a set of rules. You could be winning 5 consecutive trades of 50 pips and lose 2 trades of 120 pips, enough to wipe out all your prior gains.
And the more you lost, the more you want to seek revenge and get back , something increasing your lots size to compensate for the prior losses. The outcome - you know better than anyone. bust accounts , margin call and all.
Some may think it is ok as I am betting on small lots, micro or mini lots so no big deal. Then , the attitude towards trading is one of gambling instead of relying on the probability outcome based on a set of rules and strategies.
Increasing your values in sales here when applied to trading means you increase your position size which of course Mr Market is on your side, you would yield a higher profits (or commission). I would not encourage new traders to try out this method unless you have a big capital base and even so, always limit it to 1 to 2% of your capital.
Think of the 1 -2% of your capital as your chips that you bring to the casino. Unless you are a VIP, you would want to have more chips to last you longer through the night. Those that "show hand" and bet every single chip they have - let them be the heroes or better still, leave that to Stephen Chow, the God of Casino.
Capital management, risk management, winning ratios, RRR, strict SL, proven strategies (eg. trend line with price action) on a consistent basis can yield you the desired commission you want as well. It just takes more time to practise and when done right, you would need lesser time to place positions and have more free time to do what you love.