I grabbed it off a video I was watching.

It’s a great summary of how you can manage your risk while working on maximizing your profits…

It works regardless of what you trade or the timeframe you trade in.

To quickly run through…

1. Risk up to 2%

Limit the amount of money risked per trade. In other words, don’t bet the bank on each trade.

2% is a good number, you can even go down to 1% if you’ve got a decent sized account, you could go down to 1% – if you’re really aggressive you could possibly go up to 3%

But keeping your overall risk below 3% gurantees that even when you take losses, you won’t be put out of business.

2. Place stops where the market shouldn’t go.

And this is a big one…

Don’t place your stops at a fixed dollar amount away… or a fixed amount of ticks away. This doesn’t take into account the natural ebb and flow of the market.

Taking it even one step further, I’d say don’t put your stops where they’re likely to be hit.

Unfortunately most people ARE TAUGHT to put their stops in the wrong places. They put them EXACTLY where the market is likely to go. Then they turn around and cry about how their stops were run.

Try this – look at chart – and ask yourself – “If I had the power to move the market and run stops, where would I go?”

And I’ll bet that where YOU’D run stops, is exactly where you were taught to place your stops.

So stop doing that

3. Sell 1/2 your position at a target.

This advice can always been seen two ways… at least for me.

On the negative side, selling half your position at a set target means that if the market moves past that point, you’ll only be holding 50% of the position… but if on the flip side you were to take a loss, you’d be doing it on 100% of the amount.

The counter argument is that by taking off 1/2 your position and locking in profits, psychologically and emotionally, you have at least banked some gains.

I know that it’s psychologically difficult to watch a profitable trade dwindle, so I tend to follow this same technique.

4,5,6 “Erase the risk”

At some price point raise your stop to breakeven and trail out of your remaining position.

This allows you to stay in those trades that keep running.

I wanted to share this slide with you, because it is a key component of successful trading.

You can actually watch this whole video yourself, which may be a bit clearer than what I wrote – as I’m nearing the end of my 18 hour day.

I think it should still be posted up – It covers this idea, and it walks you through 2 examples of how it works on a winning and losing trade.

Check it out:

http://www.click-here-for-details.com/screenshot2.php

Continued Success!
Ray

Categories: Trading

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