Money Management 101

Anyone can pick a good stock every now and then. The mechanic I take my cars to is always telling me about some stock option he’s doubled his money on. What he doesn’t ever tell me about are the other 10 trades he loses money on.

Long-term success hinges more on keen money management than the specific investments one chooses. A fundamental tenet of this is the Risk/Return Ratio, which describes how many dollars profit you make on good trades for every $1 you lose on bad ones.

The key is to manage your money so you’re making $3… or $4… or $5 on your winning trades while losing just $1 on the trades that don’t go your way.

There’s a proven reason why this approach works so well… You see, even the best traders lose money on at least 50% of their trades. To counteract this, we try to make big money on our winners and lose small money on our losers.

This table illustrates this clearly…

In the worst-case scenario, to only earn $1 profit for every $1 lost, you must win 50% of your trades. But if you’re able to make $6 on your winners and lose just $1 on your losers, you only need to be right 14.29% of the time.

That’s right. If you make 10 trades and only two of them work out for you, you still make money!

Here’s an example of this in action. This is the U.S. Dollar Index…

See larger image

The yellow line shows the current price you’d pay to buy a futures contract on this index. It’s also a key support level that hasn’t been broken in over a year. This means there’s a good chance prices will go up from here.

The best part is we can place a very “tight” stop loss on this trade. If the U.S. Dollar Index drops by just $0.75, I’d make a tactical exit from the trade. This will keep my loss small.

But the upside potential is far greater. I could earn profits six times the amount I’m risking. That means I only need a winning percentage of about 14% to do well with this approach.

This is just one of the money management principles I rely on to show subscribers how to earn consistent returns over time. So far, Boom & Bust subscribers are enjoying stock returns of 39%, 33% and 30%…

It’s also helping beta-testers of my proprietary trading service, Cycle 9 Alert, earn stock option gains of 113%, 93% and 89%… all in just a couple of months. As a result, one of my beta-testers contacted me recently to say…

“Your weekly summary of market conditions is excellent – very clear, including down-to-earth supporting statements that give me confidence in your research, methods, and in your recommendations. That your recommendations have all panned out virtually spot-on as you predicted is also a confidence builder. You are doing a lot of homework and the results are clear. You do have me sold on the service and on your ability to make consistent winning recommendations.”

I’m in the final phase of beta-testing. Stay tuned for more on this cutting edge investment research service soon.

If you haven’t done so already read the Survive & Prosper issue on “This Chart is Complete B.S. – Do Yourself a Favor… Ignore it.

 

 

What You Need to Know About the Safe-Asset Slaughter!

You’re not going to believe what’s on the horizon…

The final bubble of the recent financial crisis is about to burst. When it pops – it could be as soon as November 2014 – millions of Americans will be financially devastated… But others will have the opportunity to get much richer.

This controversial video reveals how you can end up on the winning side of the coming carnage…

Click to Learn More
Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.