Here's a golden nugget for those who are serious about trading independently for a living. In order to be a successful trader (i.e someone who outperforms the index every year) one must be aware of the rules of "benchmarking" and "asset allocation". Assuming you have $100,000 to trade what determines whether you are a successful?

Rule 1: You must outperform the market. Since I usually take each year as it comes, I take the performance of the KLSE from Jan 1, 2006 (some people the tax or financial year but that is up to you). On that date the KLSE closed at 899.7. Today it is at 948.19. That's about a 9% increase. So in order to be 'successful', your 100,000K portfolio must be worth 110,000K. It doesn't matter how many good calls or winners you picked. If you're not averaging over 9% then you're not performing well.

Rule 2: You must not take excessive risk. Hedge funds measure this scientifically using something called the "Sharpe Ratio" but common sense is good enough. If your portfolio is up by 10% this year, that doesn't mean you are a good trader if you put all of it into just one stock, because the performance of that stock could have just as easily have caused you a whopping great loss from you which you may never cover. Therefore you need to ensure that you spread your risks. Are you well positioned for a downturn in the market? Do you have a good proportion of 'safe' stocks compared to 'speculative' stocks'? Are you over-exposed to any particular sector? These are all questions which need to be asked. As a rule of thumb I risk no more that 5% of my capital on speculative stocks and try to makes sure I have a good spread of stocks which are fundamentally good, which are bought from an advantageous technical perspective and which range across several industries.

Remember, in order of preference its:

1. Good Trading and

2. GREAT Risk Management.