Follow Simple Trading Advice For Larger Profit Potential
Most traders are familiar with simple trading advice such as cut your losers quickly and let your profits ride. At one point or another most traders heard or read such advice or something that sounds similar to it. Unfortunately, this type of advice is very general and doesn't really provide too much guidance for traders who are willing to follow the necessary steps to increase their profits and possibly reduce their risk.
Most Simple Trading Advice Is Not Very Simple Or Practical
A few weeks ago I got a call from a trader who sounded very frustrated about his trading performance. He began telling me an interesting story that I can't wait to share with you today. The trader signed up for a beginner's course that promised "simple trading advice" for traders who are just starting out.
While I don't want to name this course or the author of the course in this article, it happened to be a very popular course that's been around about 20 years. Without getting into specifics that would take all day, the course consisted of a handful of trading patterns, trend-line analysis techniques and a large notebook with about 400 pages demonstrating these set ups as they occurred over a 10 year period. There were also 8 videos demonstrating the same patterns as they occurred in real time.
This Simple Trading Course Was Missing The Most Important Piece Of The Trading Puzzle
After asking the trader some basic questions I realized rather quickly that this so called "simple trading course" was missing the two of the most important parts of any trading course. This course had absolutely no discussion about exits, the only comment that was ever mentioned was make sure you cut your losers quickly and let your winners ride.
I want to show you three weird numbers:
0.95… 1.5… and 0.66…
With them you could have turned every $10,000 into $3.31 million since 2010.
The trader who bought this course contacted the author who didn't really offer anything other than telling his new client that the course involved discretion and that every set up required different level of stop loss placement and profit targets. There was no discussion of volatility, ratio of winners to losers or anything useful that could give real guidance to the trader who needed to know where to place stop loss orders and where to place profit target orders.
Exits Are The Most Important Part Of Trading
I have to say that I really felt for the trader who called me. He sounded like a real nice guy and I decided to offer him some quick guidance to make his life a bit easier, especially after finding out he spent over $1,000 on this so called "Simple Trading Course." I pointed him to a few free videos on our channel that explained exits and profit targets. I also explained how to use volatility and ATR (Average True Range) to measure stop loss placement levels and how to use ATR to calculate profit targets as well. The trader was thankful and ended up signing up for our Premium Video Newsletter subscription service immediately. After I hung up the phone I started thinking about other traders who are in the exact same position as the trader who I just finished speaking with. I decided to put together a short list of essential elements that you should look for when selecting your first trading course, workshop or tutorial program.
My Short List Of Essentials Course Topics
1. Every Set Up Should Have A Logical Explanation - Don't trade black box methods or set ups that have no logical basis. You should always know the reason for the set up and how the set up increases your odds of profitability or increases the size of the winners. Without knowing the underlying why the set up is better than random dice rolling you won't believe in it and will abandon it at the worst time.
2. Every Set Up Should Have A Predefined Stop Loss Level - Make sure the set up tells you exactly how to calculate your protective stop BEFORE you enter the position. You always have to know your risk level prior to your entry so that you can calculate your position size. Without knowing what your risk could be you are flying blind.
A 19 year track record. Average annual returns above 50%. No losing years - even in 2008. And, if you started with just $1k - you’d be a millionaire right now.
How does it work? I’m going to show you right now…
3. Every Set Up Should Have A Predefined Profit Target Level - Avoid general terms such as "let your profits run and cut your losses short" and rely on specific price levels. Make sure your ratio of profit is twice as large as your loss level on every trade.
4.Every Set Up Should Have Additional Conditions That Will Improve The Odds Or The Profit Potential Of The Trade - Most good set ups or trading patterns have additional conditions that make the trade more or less likely to achieve success.
5. Learn How To Read Underlying Market Conditions - Don't trade in a vacuum. Know how the rest of the market is behaving when your set ups are triggered. Market analysis is crucial for trading success because most stocks and other markets are not independent of other markets or market conditions. I hope these tips will improve your trading and will yield you bigger profits.