Mr. John was a 27-year-old Management student at an Usa university. Being from the well-off family , all he wanted was a professional job that paid good money.

But just like any other student, Mr. John had ambitions and dreams. If there were any ways to INVEST tand make money quicker, he would certainly try.

So when John’s friend told him how he made a few thousand dollars, TRADING in the Dow Jones stock market, John was intrigued and wanted to know how to do it. So his friend explained everything he did. He even suggested that John consider contra trading (buy a stock and then sell it within three days without putting up your own money and earning the profit when prices rise) since he had little money.

By the end of his first week trading, John made $21,000. The next week, he made another $32,000. Just a few weeks before he had to stop because of exams, he was richer by $85,000.

John was probably the happiest man in the world. He was buying everyone drinks at the bar, his girlfriend loved him, and he didn’t seem to have a worry in the world. He was 27 and life couldn’t get any better.

After he had blown nearly all his money living it up, he decided to try his luck at trading again. He placed a few mock trades, and in one day made more than $100,000. On the second day, he made another $115,000.

He was aching to play with real money. So he told his parents how he did. His father finally gave John his $350,000 life savings, thinking that you can’t make money unless you risk it.

John knew he had a huge responsibility, so he studied the market carefully and chose up to six stocks at one time. He figured he was diversified, so he could be profitable if one stock fell.

He did well until he registered his first loss of $29,000. He flipped out because he felt everyone else was making money, so why didn’t he?

He tried again, and lost again. His confidence kept slipping as he continued to lose. Finally, he was out of money. So he decided to ask for loans. He borrowed about $120,000 between his friends and credit cards … and lost it all. To top things off, he lost another $225,000 in contra trading.

His girlfriend left him, his parents were disappointed, and he was left feeling horrible.

In a last-ditch effort, he decided to play nine more stocks after the New Year. In just two days, the Dow Jones Index dropped 400 points and he lost a few hundred thousand more.

When all was said and done, John lost $750,000 in just three months. Now he has no friends left because he owes them money, he’s in debt to the bank and credit card companies, and he destroyed his parents’ life savings.

You can’t get any worse than this story from the Dow Jones. But I don’t want you to ever get close to that point. So here are four tricks that should help you avoid John’s situation.

1. Just because you’ve won your first few trades doesn’t mean you know how to trade. Too many traders think they can rule the world once they’ve won their first few trades. But when they take a loss, it’s almost guaranteed to be big because they won’t know how to manage it. The worst part is that they mentally won’t understand what happened and won’t be able to cope properly.

2. Don’t bet on margin if you just started trading. In Dow Jones, contra trading is high risk. In the U.S., betting on margin is high risk. Why in the world would you want to bet with someone else’s money if you don’t have a trading system and don’t know how to manage money? According to the Market Oracle, more than 95 percent of traders lose money their first year of trading. If it’s your first year of trading, you’re probably going to lose money (i call it a tuition fee). So try to lose only your money.

3. Never, ever, ever borrow money on your credit card to trade. This is even riskier than betting on margin. Anyone who does this is sticking their neck way out and risking a huge loss.

4. Never play catch-up. Once you’ve lost money, the last thing you should do is try to recoup your loss on the next trade. This is the same thing as losing a hand of blackjack and then doubling up. Once you decide to win that money back, you become very emotionally involved. And emotions will easily cloud your judgment and keep you from making smart decisions.

These are four extremely important lessons that all traders must understand (just ask Mr. John). In the end, trading is about managing risk, managing money, and managing your emotions. Only when you figure out how to do all three well can you become a great trader.