How to Successfully Navigate the Markets in 2007 & Beyond---Part II
The Strategies
The most important key to successful trading is without a doubt sound risk management. Of course you need a good trading method as well, but without sound risk management, you will find your trading results will be very disappointing.
There are at least two aspects to risk management. One is well known to most traders which is to always use stop orders to limit your planned risk in the trade. I personally recommend never risking (the amount you would lose if the trade goes against you) more than 2% of your trading account on any one trade.
That means if you have a $20,000 account, do not plan to lose more than $400 on the next trade ($20,000 x 2%). For example, if your long entry point was at $40, and your initial stop was at $38, you would have $2 per share of risk in the trade. Dividing the $2 into $400 (400/2) would give you a maximum of 200 shares for that particular trade.
The Obscure
But the other aspect is pretty obscure to most traders and it is this aspect that will be the focus of this report and the key to successfully navigating the markets in 2007 and all years to come for that matter. What I am going to share with you is something that you can easily master and own for life.
The Hedge Strategy
When in a bull market, the common expectation is that only long trades should be considered because on average long trades should do better than short trades in a bull market.
A Few Caveats
In the preceding scenarios, the trade outcomes could clearly be different than those assumed. Some of the profitable longs and shorts could have been more or less profitable or even losers. And some of the losing longs and shorts could have been profitable or even lost more, but I think you get the point of how a simple hedging program can be used to dramatically reduce risk to the trading account. Important! When using a hedging strategy, always be sure to only consider trades that your trading method tells you to consider. In other words, in a bull market, for example, only put shorts on as a hedge that your trading method tells you are potentially good short opportunities.
Good trading,
Bill Poulos
p.s.If you'd like to download this entire article, just go to http://www.pruntracker.com/Nav2007
To Be Continued in Part III
Bill Poulos has been trading the markets since 1974. He's a retired automotive executive who holds a bachelor's degree in Industrial Engineering, and a Master's degree in Business Administration, with a major in Finance.
In his over 30 years of trading experience, Bill has developed dozens of trading systems and methods. In 2001, he formed Profits Run, Inc. to impart his trading experience and wisdom to others so they could shortcut their learning curve and ultimately potentially skyrocket their earnings in the markets.
Bill now has thousands of students all around the world, from all walks of life, and at all experience levels. He prides himself on providing honest and realistic trading education, and is known for the continuous and ongoing support and follow-up he offers his students.
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