Don’t follow the rabbit

I want to talk about a personal challenge I had starting as a trader and it took me a long time to get over.  I wanted to be the rabbit and make monster gains all the time and get to the finish line TODAY.  The problem with that, is it involves taking on incredible risk and you just need a couple of bad trades to wipe out the work from 30 good trades.  I’m sure many have been through the same dilemma.

Be the turtle

So lets take the path of the turtle and talk about a scenario using a baseline account of $10,000, with the goal to take no more than 2 trades a day and using good risk management.

Scenario:

• Goal: Make 1% ($100)/day, averaging 5%($500)/week,  20%($2,000) a month.
• Risk/Reward: assuming 2 trades/day; risk 0.5%($50) per trade to make 1.5-2% ($150-$200).
• Process:
  • If trade 1 fails, and you lose (0.5%) $50, and trade 2 passes you make (1.5%) $150, you have your 1%($100) gain for the day and no more trades
  • If trade 1 wins, you make 1.5% ($150), great. be done for the day.

This may sound conflicting, but be sure to trade the chart not the gains/losses, and forget green is green.  You need to believe in your targets and hitting the targeted gains vs losses for this to work.  Use the chart and momentum to let you decide if it wants to give you 1%, 3% or 10% gains.  Develop the muscle memory to make these gains consistently.  As a rull of thumb, take some or all of the fast gains on leg 1 of the morning move and then get back in on trend hold for your target.  Sometimes that gain is only 30 or 50 bucks when starting out, but the second trade gets you the other 50-100 bucks you need.

I know you’re not in this profession to make an extra $100 a day.  Making that 1% consistently is the foundation to building a repeatable process.  Let’s talk about where this repeatable process leads.

Results

Starting with $10,000 if you compound that gain at an average of 1%/day, after 200 trading days (about 12 months) you should have around $60k in gains.  Not bad and solid work.  After 18 months, around $180k in gains, at 24 months, $400k in gains.  At this point, you’re like what happened!?!??  It took me 1 year to make 60k, and suddenly 6 months to 120k more, another 6 months for 300k more !!!!

Conclusion

This is the power of 1% gains and compounding interest.  Don’t focus your attention on making specific dollar amounts.  Focus your attention on building a repeatable process where you can risk just 0.5% of your capital to make 1.5-2%.  It doesn’t matter if you are starting small — keep at it, make it repeatable.  Along the way you will see opportunities that will give you 10-20% gains, and those will be nice account bumps, but then you go back to the 1% grind.

If you’ve been following my watch lists, you’ll see not all the ideas pan out or the numbers reach my entry points.  The reason, is, I want these wild entries to give me my .5% risk for a very high probable 1.5-3% gain and if wrong, my loss is easily recoverable..  Out of 6 ideas, I only need 1 or 2 to pan out with good entries to give me that win for the day.  So be patient for you entries, and risk/size appropriately.  And yes, I know some of you are getting monster gains off the daily watchlist beyond the goals I talk about here but lets save that for another day.

Next step, for fun, tweak the numbers to fit your style and risk management skills and you’ll see why the turtle beats the rabbit.  If you can build your consistency to 3% a day gains, the numbers get scary and life changing!

WARNING until your skills improve don’t let the excitement of trying to grow more than 1-2% daily override good sense (I did, and it set me back many months — I didn’t have the skills or money management discipline)

Key Points

I hope this blog leaves you with the following:

• You don’t need to start with big capital to achieve your goals.
• Plan your trading development goals/timeline to be in terms of years vs weeks/months.
• Don’t let bumps in the road dishearten you (remember where you’re headed 18-24 months from now)
• Focus on building the process to get you 1-2% gains daily risking .5%
• If you meet your 1-2% daily goal in first 90 minutes, call it a day! You did great!!!
• Be the steady turtle.
• Build my daily watch list into your process and share the love by retweeting/following @spectre_trades