ETF Traders Will Absolutely Fail if they Don't Master This

This is Part 3 of a series. Part 1 is here.

There are many misconceptions about money management. Most think it means trading with stops, but that is only a small part of it. Below is a short part of the complimentary report I want you to have called How to Safely Double You’re Profits in 2009 Trading ETFs. This little tip alone could save your trading account.

Why use risk controls?

Every trader/investor must guard himself against drawdown’s, which refers to the percentage drop in his account size after one losing trade or consecutive losing trades. For example, imagine that after losing a few trades in a row, your $20,000 account is reduced to $12,000; that would be a drawdown of 8,000/20,000 = 40%. If I were to ask some new traders, “In order to be back up to $20,000, what percentage return do you need to generate?” Many would answer, “Since I lost 40%, I have to make back 40%!” This couldn’t be more wrong! Note that after losing 40%, the trader now starts with a lower base, i.e. to undo the $8,000 loss, the return he needs to generate is 8,000/12,000 = 66.6%! That is why I share free training videos on my website to help dispel some of the myths of trading.

The more severe the drawdown, the harder it becomes to undo the damage, as shown in the numbers below.

Drawdown % % Required to get back to break even

10% 11.1% (This is easy to make up in one good trend)
20% 25% (This is also fairly easy to make up)
30% 42.8%
40% 66.6%
50% 100%
60% 150%
70% 233.3%
80% 400%
90% 900%

That is why all professional money managers only risk 1-2% per trade. It’s because no matter how good your trading system is at some point it is a statistical fact you will have 10 losers in a row. Based on risking only 1-2% per trade this is only a 10-20% drawdown and easily recovered. 99% of the hype trading and investing courses in existence don’t say or do this. They say risk 5-10% per trade. It is wrong and will cause you serious financial pain if you follow their advice.

Many of them also use arbitrary stop loss advice. For example, they say, “Place your stop at $100.10 because that is on the other side of a major support or resistance, trend line, MA, etc.”

This makes your risk based on the size of the stop. That is also wrong because the risk can be too large and it’s not the same risk on each trade.

Others reverse this and say risk only 2% total period and let that determine your stop. This is also wrong and will hurt you because it is important to have the correct technical stop.

The answer is to do both. Use a percentage and technical stop together. It works like this. Let’s say the technical stop is $100.10, but based on your entry price that is a 3% risk. Since your plan calls for a 2% risk you simply lower the number of shares you are trading. This lets you stay within your 2% risk and have the correct technical stop. This is exactly what most professional money mangers do.

Some say that this will lower their profits because of trading fewer shares. So what! Study the numbers above again. You know the old quote, “More risk equals more reward.” Well it’s not always true. Sometimes more risk equals more risk! If you lose your money you have no chance to make a profit. Even losing 50% is disastrous because you would then need to make 100% to get back to even.

Like Warren Buffet says, there are only two rules in investing. Rule #1: Don’t lose money. Rule #2: Don’t forget rule #1.

I’d like to add a third rule. Correct money management and position sizing must be mastered to insure your long term success.

The good news is that it is easy to have correct money management and position sizing. I just explained how to use a combo of a % stop and a technical stop. If you want more of an explanation please visit my free video area on my homepage and click on the “Why have risk controls” video.

The system of entries, stops and profits taking is only half of your key to success. The other half is money management. If you get this part wrong you will lose your account every time regardless of how good your system is.

Click here for the newsletter on how to safely average 6% per month trading Exchange-Traded Funds.

Best regards,

Trace

PS- In order to access his powerful F>R>E>E videos you must first opt in for the complimentary report.

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www.Forex-Currency-Trading-Online.com

Why ETF Trend Trading is Better for Your Health

Here's part 1 of the ETF Trend Trading System in this post. This is part 2 on why ETF trading is better for your health. Seriously. Read on.

The second main benefit of this system I shared with you the other day is the fact that it only takes 10 minutes per night to implement once you learn it. One of the obvious reasons this is good for your health is because it greatly reduces trading stress. With it all your trading decisions are made while the market is closed using OCO and OSO orders with stops, entries and targets in place the night before. You won’t have any emotional fly by the seat of your pant decisions to make. For anyone who has traded any period of time you know that emotion is the #1 killer of successful trading. It’s perfect for anyone who has to be somewhere each day from 9-5.

Some of the not so obvious benefits are; more family time, less back aches, easier on your eyes than day trading 8 hours per day.

Click here for the newsletter on how to safely average 6% per month trading Exchange-Traded Funds.

Best regards,

Trace

PS- For those of you that do love day trading, yes you can day trade this system and possibly double your returns.

Where Can I Learn ETF Trend Trading ?

Because of my Forex presence on the internet and contacts in the trading arena I get contacted regularly about every new trading program, system and course that's being released.

For the most part I don’t pass on anything unless I really think it is worth your time. Over the next few days I will send you a total of three short invitations to receive a complimentary newsletter on "How to Safely Double You’re Profits in 2009 Trading ETFs." I’m inviting you because this report and subsequent system really is unlike anything I’ve ever seen.

The three things that set it apart are:

1. Support and live trading examples where trades are called one day ahead of time.
2. It takes only 10 minute per night to implement once you learn it which is great for the part timers.
3. Money management and a “No Hype” approach.

This first post is to cover the support aspect. Many courses leave you high and dry after you buy. If you have the best system in the world, but don’t know how to get your charts or brokerage account set up then it doesn’t matter how good it is.

Yes 6% per month is possible trading this system in ETFs, but I had to list support as the #1 feature because in reality it is. Two, one hour each live webinars with a former money manager is only the start. Add 12 months same day email support, chart support, daily blogs and daily videos and you will feel a full support system designed to help you.

The most impressive part of the support system is the daily blog where he calls each trade down to the penny. Have you ever heard a guru say, “If price moves up a little more buy?” Not only is that vague, but it is outright dangerous. I have personally seen the member blog and it has the stops, entries, exits, where to add on, and the number of shares to trade listed each day. It is the best learning and support tool because it lets you double check your analysis each day. Plus in the end if you don’t want to learn the full system you can always follow the blog.

Click here for the newsletter on how to safely average 6% per month trading Exchange-Traded Funds.