Trader Secrets™ Mini-Course Part 2: Money Management “Money Management Secrets --The Ultimate Edge of Winning Traders” By Dave Gagné Author of TradingMasterPlan.com eLesson #2 of 5 in the mini-course... "5 Critical Things You Must Know to Make Money in the Stock Market" Important Notice: Don't Miss a 6-Minute Trading Video at the End of this Lesson Dear Fellow Investor, Welcome to Part 2 of the "Trader Secrets™ Mini-Course", where you'll learn "5 Critical Things You Must Know to Make Money in the Stock Market". Today we've got a really, really powerful concept for increasing your trading profits. We're going to examine, "Money Management Secrets -- The Ultimate Edge of Winning Traders." First Let's Answer The Question, What is Money Management? Money Management is a simple set of rules that tell you when to enter, how much to risk and when to exit a trade. Without these rules you are trading blind. Professional traders have been doing it for years. They know that you can't always be right. So professionals have developed trading rules that they follow without fail. How can you expect to win against professionals with years of experience, resources and solid money management rules; when you can't even decide when and how you will enter a stock? Trader Secrets™ Mini-Course Part 2: Money Management Money management once firmly in place is like a safety net that will save you from disaster. Many people buy a stock in hopes of making a profit, but they become frozen like a deer in the headlights when that trade goes against them. When the stock falls dramatically these people become married to that trade and hold it for long periods of time in hopes that it will someday come back to break-even. Does that sound familiar, has that happened to you? Well, some very simple money management rules would prevent that from ever happening to you again. The sole purpose of money management is to minimize your losses and maximize your winners. This is accomplished by using a variety of simple rules that will show you where to enter, how much risk to take on, how to manage the trade and how to exit the trade. "The Fact is if You Can Be Right Only Half The Time You Can Build Enormous Wealth in The Stock Market!" All you need are some dynamite money management rules and the discipline to follow them. How is that possible you say? Easy its simple mathematics if you only win 50% of the time. But you make 2, 3 or 4 times the amount you lose when you win, you will be extremely successful in the markets. Many successful traders have win ratios between 30% and 50%. They aren’t successful because they can predict prices well; they are a success because their profitable trades far exceed their losses. For example if I have ten trades with a 3 to 1 risk to reward ratio and I win only five times out of those ten trades I will still make money. If I make $600 on my winners and limit my losers to $200 I will have five winners’ times $600 for a total of $3000 and five losers for a total of $1000 for a total net profit of $2000. That is being wrong half the time! Actually with a ratio like that you could even lose more often than you win and still be profitable. Think about that for a moment! All this time you have been focused on being right and had limited success. All you really need is to focus on money management rules and accept being wrong half the time or more and still make money! Trader Secrets™ Mini-Course Part 2: Money Management "Are You Starting to See the Power of Money Management Yet?" Once you have these rules in place it becomes much easier to trade. Why? Because you simply have to follow the rules and not worry about unknown factors. Company news or analysts on TV can easily influence your trading decisions when you don't have a plan. The reason for this is that you are looking for validation and guidance in your trading. With solid rules in place you let the market decide who is right and wrong not some talking head on the television. You just need the good judgment to follow the rules you have laid out in your plan. Here are the money management rules you need to implement in order to compete with professional traders: Determine your starting trading balance. First you will need to determine your trading account value. This will be your starting trading float and is important so you can determine how much to risk on your trades. Most Professionals agree that risking 2% in any one trade is an acceptable amount to risk. So if you have a trading float of $50,000 you would be risking only a maximum of $1,000 per trade. Determine your STOP LOSS Next, before you enter any trade it is imperative that you determine your STOP LOSS. A stop loss is a price that you use to sell your stock. You admit you were wrong and "throw in the towel" before any major damage can be done to your trading capital. The price point used for your stop loss is a very difficult number to establish. You can use a variety of methods for deciding on this MANDATORY trading rule. One common area to set a stop loss is just below an area of support. Another popular stop loss point is a predetermined number (ie $0.10, or $0.25) below the previous or sometimes the entry day's low. (Of course the reverse would be true if you were short selling. Your stop loss would be somewhere above a resistance point.) Trader Secrets™ Mini-Course Part 2: Money Management Decide on your position size. Most traders take on way too much risk. They buy large numbers of shares expecting a big payoff. What really happens is they have taken on a position that can potentially crush their account! Even with a STOP LOSS in place these large positions can be very damaging. That is why it is important to take trading positions based on the amount of money you're willing to risk. For example, if you have determined that you will risk $1000 on a trade, and you know that your stop loss is $2.00 from the current price. Then you would buy 500 shares of that stock. This ensures that if the price does fall to your STOP LOSS point the most you would lose is the $1,000 you are willing to risk. This is a simple but very effective technique for managing risk! Use a trailing STOP LOSS. The trailing stop is a way of slowly locking in your gains over time. The key to a trailing stop is that you need to continually make adjustments to make sure that the stop is moved in your favor. Once the trailing stop is above your entry price you have effectively locked in a winning trade. As with a regular stop loss, the trailing stop loss can be set and tracked a variety of ways. One common method is to raise your stop loss to a number just below the low of a new high bar. For example, if the stock closed at $50 and had a low of $49 you would raise your stop loss to $0.25 below the low or $48.75. My personal trailing stop method is to use a volatility based trailing stop. The reason why is that this type of stop will measure the average volatility of a stock over a period of time. This volatility would be the average movement of that stock. I would set my stop loss at a point just outside the normal volatility. That way if the price did reach that price it usually means there is some reason for doing so, such as major news or an emotional shift in traders. Trader Secrets™ Mini-Course Part 2: Money Management There, now you have some great money management rules that you can use in your trading right now! Inside Trading Master Plan™ I delve deeper in money management and give you a list of more than twenty-three trading rules that I use in my own trading plan. I also teach you two very powerful trailing stop methods. One for exiting when the price reaches your stop loss, and one for exiting when the price reaches an extremely high level. Just these two rules alone will blast your trading results to a new level. If you're really serious about accelerating your trading skills and skipping the learning curve, you don't have to wait for the next part of your mini- course to arrive. Just Click Here right away to get my complete Trading Master Plan™ secrets (that took me over 3 years to test, fine-tune and perfect) handed to you on a silver platter. Click Here To Watch a 6 Minute Trading Video About Money Management Don't Miss it! Tomorrow look for the next lesson in the series, "How Prices Move --The Secrets of Supply and Demand". Until then, Good Trading! Author Trading Master Plan www.TradingMasterPlan.com Click Here to continue. NOTICE: This is a free mini-course. You may not give away, sell or share the content herein. Please remember that each individual’s success depends on his or her background, dedication, desire and motivation. As with any business endeavor, there is no certain guarantee that you will earn any money by implementing the ideas expressed in this series of articles. © Copyright Strategic Finance & David Gagné Trader Secrets™ Mini-Course Part 2: Money Management ALL RIGHTS RESERVED. No part of this report may be reproduced or transmitted in any form whatsoever, electronic, or mechanical, including photocopying, recording, or by any informational storage or retrieval system without the expressed written, dated and signed permission from the author. DISCLAIMER AND/OR LEGAL NOTICES: The information presented herein represents the view of the author as of the date of publication. Because of the rate with which conditions change, the author reserves the right to alter and update his opinion based on the new conditions. The report is for informational purposes only. While every attempt has been made to verify the information provided in this report, neither the author nor his affiliates/partners assume any responsibility for errors, inaccuracies or omissions. Any slights of people or organizations are unintentional. If advice concerning legal or related matters is needed, the services of a fully qualified professional should be sought. This report is not intended for use as a source of legal or accounting advice. You should be aware of any laws which govern business transactions or other business practices in your country and state. Any reference to any person or business whether living or dead is purely coincidental.
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