Five Possible Outcomes by Chris Irvin

This is a repost from my former colleague Chris Irvin that I worked with at Wizetrade. You must seriously take this into consideration if you want to be consistently successful in trading the markets.

Kipp

 

Okay, your a trader and you have been struggling with money management. When you use a stop

loss it seems like you are taken out of almost every trade, sometimes prematurely and

sometimes not.  When you don’t use a stop loss you get  some wins and some really big losses.

It is getting very frustrating – not to mention expensive.

 

Here is something to consider.  In any one trade there are five possible outcomes.

 

  1. Big Winner
  2. Small Winner
  3. Even / Flat
  4. Small Loser
  5. Big loser

Only one of these possibilities, “The Big Loser,” has the potential to destroy your account.

The best protection from the big loser is a wisely positioned stop loss that limits your

exposure.  In the book ” Millionaire Traders” by Kathy Lien and Boris Schlossberg, there is an

interview with a trader referring to himself as Indi Jones.  His claim to fame is that he took

at $25,000.00 trading account to $1,000,000.00 before he was 30 years old.  On page 210 Indi

gives us his thoughts on risk.

 

“…the number one rule in trading is the same as the number one rule in boxing, which is to

always protect yourself.  “No capital, no trading, no life,” he states succinctly.  So how do

you protect your capital?  Always know your worst-case scenario.  Before you place the trade,

figure out what you are willing to lose in terms of points, ticks, and dollars.  Check your

risk/reward ratio and make sure that no one trade has the potential to destroy your entire

account.  As a general rule of thumb, Indi Jones does not like to lose more than 5 percent of

his equity on a single trade.  This way, even if the trade becomes a loser, he can still

survive to take another swing at the market.”

 

Indi is really eliminating the big loser.  Once the big loser has been dealt with, you are

left with four possible outcomes in a trade.

  1. Big Winner
  2. Small Winner
  3. Even / Flat
  4. Small Loser

 

With these four possibilities still in play, logically, how does our trading work out?  With

average ability to recognize proper entries, your small winners and small losers should cancel

each other out.  If that happens, you are left with two possible outcomes:

 

  1. Big Winner
  2. Flat / Even

 

If these were your only two outcomes you had do deal with in your trading do you think you

could make some money?

 

Happy Trading.

Online Training

Clear Lines for Medved Trader Training every Tuesday & Thursday from 1:30-2:30 PM EST!

You are invited to join me every Tuesday and Thursday for live-in-the-market Clear Lines/Medved Trader training sessions from 1:30-2:30 PM EST. I will give you a full overview of The Clear Lines indicator running on the Medved Trader platform. I will show you all the ins and outs of this powerful indicator & platform and show you how to trade directly from the charts (if you have Ally Invest, E*Trade, Ameritrade or IB). There will be plenty of time for you to ask me questions as well.  

After spending over 17 years with Wizetrade as their Chief Equities Strategist and Senior Market Strategist, Kipp Cohen developed the Clear Lines indicator to fill a void for the traders and investors that appreciated the simplicity of Wizetrade’s red and green lines. The Clear Lines indicator follows the basic theory of momentum. Buying and selling momentum is captured and displayed in an easy-to-follow red and green line. Green over red indicates that there is more buying momentum. Red over green indicates that there is more selling momentum. The higher the angle of the green line when going up indicates a stronger up trend. The lower the angle of the red line when going down indicates a stronger down trend. The up (green) and down (red) arrows indicate a trend reversal or a trend continuation.   

Clear Lines runs on the Medved Trader platform. Medved was developed by the same team that created the Quotetracker trading platform that was acquired by TD Ameritrade several years back. We selected Medved as our platform partner for many reasons including the ability to create an endless number of customizable layouts, the ease of trading directly from any chart, the support of a multitude of technical indicators and of course the ability for our customers to subscribe to the Clear Lines indicator. The powerful Medved Trader platform integrates with many brokers, including Ally Invest, TD Ameritrade, E*Trade, Questrade (Canada), Gain Capital Futures and Interactive Brokers.    

Clear Lines for Medved Trader Training Sessions
with Kipp Cohen 
Every Tuesday and Thursday from 1:30 PM – 2:30 PM EST  

Please join my meeting from your computer, tablet or smartphone. https://global.gotomeeting.com/join/621013037  

First GoToMeeting? Let’s do a quick system check: https://link.gotomeeting.com/system-check       

Best wishes,  

Kipp Cohen  
kipp@equity-alerts.com  
www.Equity-Alerts.com

Equity-Alerts Core Trading Strategies

We have created a PowerPoint presentation along with a training video of our core trading strategies and the strategy trading rules. You are welcome to watch this training video from our YouTube page and view the screen shots from the PowerPoint that are provided below.

 

 

 

Clear Lines Indicator Overview Session

Clear Lines Indicator Overview Session with Kipp Cohen 12/12/2018 at 5:00 PM EST!

You are invited to join me for a Clear Lines Indicator Overview session on Wednesday, Dec. 12th at 5:00 PM EST. I will give you a full overview of The Clear Lines indicator running on the Medved Trader platform. I will show you all the ins and outs of this powerful indicator & platform and show you how to trade directly from the charts (if you have Ally Invest, E*Trade, Ameritrade or IB). There will be plenty of time for you to ask me questions as well.

Clear Lines Indicator Overview Session with Kipp Cohen 

Wed, Dec 12, 2018 5:00 PM – 6:00 PM EST

If you missed it live, here is the recording!

Money-money

Stacking the Trading Odd’s in Your Favor

Stacking the Trading Odds (lowering our risks)

1.  Trade with the trend of the market. 

2.  Trade with the trend of the stock. 

3.  Avoid common pitfalls.

4.  Use good money management.

5.  Don’t forget to properly time your entry.

6.  Always follow a trading plan.

7.  You can use fundamentals if you want.

8.  Positive attitude is everything!!

Common Pitfalls:

  • NEVER, EVER, EVER trade without a Stop Loss.
  • Never over leverage your account.
  • Always trade with money you can afford to lose.

Helpful hints to becoming a better trader:

  • Make realistic goals that can be achieved within reason.
  • Accept your losses and move on to the next trade
  • Trust your trading tools and your trading plan.
  • Protect your profits when your position is profitable.
  • Look at the overall trend (daily, weekly and monthly) and trade with that trend.

By Kipp Cohen

invest and relax

Development of a Trading Plan

Do you want to be in the top 5% of investors?

Take heart from the words of Warren Buffett:

“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound framework for making decisions and the ability to keep emotions from corroding that framework”.

A trading plan can provide you with the framework that you need to succeed in the stock market.

KEY COMPONENTS OF A TRADE PLAN

  1. Self Assessment
  2. Personal Goals
  3. Trade Style / Strategies
  4. Entry & Exit Rules
  5. Risk Tolerance
  6. Six Golden Rules of Money Management
  7. Emergency Plan
  8. Trade Journal
  9. Update your Trading Plan

SELF ASSESSMENT

What type of trader are you? Aggressive, moderate or conservative?

Are you comfortable holding stocks overnight?

How do you react to fluctuations in your portfolio?

Are you consistently reaching your goals?

Can you control your emotions?

Are you mentally prepared to trade?

Are you disciplined and decisive?

PERSONAL GOALS

Why are you trading?

What is your $ or % Goal (Daily, Monthly, or Yearly)?

Are your goals realistic?

How much time do you want to devote to trading?

TRADE STYLE

What type of trader are you?  Active, Swing, Position

Do you trade more than one style?

What strategies do you trade?

What time intervals do you use for entry and exits?

ENTRY RULES

How do you time your entries?

Which time intervals do you need a fresh cross on the Clear Lines?

What other indicators do you use and did they give you a signal?

Will you scale into a position?

Did you check volume, support & resistance, and the ATR?

EXIT RULES

How do you time your exits?  Are they based on money management, charts or both?

Which interval do you exit with?

Will you scale out of your position?

What type of order do you use to exit?

RISK TOLERANCE

What percent of your trading account are you willing to put into a single trade?

How much are you willing to lose in a single trade?

Are you willing to compromise the bigger interval trends?

Do you trade volatile stocks?

What ATR range’s do you consider?

Are you comfortable trading stocks that may gap?

Are you willing to trade during amateur hour?

6 GOLDEN RULES OF MONEY MANAGEMENT

1. Protect your gains and never enter into a position without setting a stop loss

-Swing and position traders should consider setting stops outside of the daily ATR

-Stop loss protects your trades while you are away from your computer.

2. Always trade with a risk reward ratio of 1 to 1 ½ or better

-Your profit goal should always exceed your stop loss

-The riskier the trade, the higher the reward

3. Never over leverage your account

-Consider putting no more than 10% of your account into a single position

-When the markets become more volatile, reduce or eliminate leverage

4. Accept your losses, move onto the next trade, and trust the software

-Every trader loses; great traders minimize their losses and maximizes profits

-Don’t let your emotions rule your trading

5. Make realistic goals that can be achieved within reason

-Initially set your goals lower to help build consistency and gain confidence

-Increase your goals as skill level improves

6. Always trade with money you can afford to lose

-If you lost your trading capital, would it change your lifestyle?

EMERGENCY PLAN

What if the power goes out?

Do you have your brokers phone number & account number handy?

Are you trading with at least a  catastrophic stop loss?

Have you checked for news/earnings?

TRADE JOURNAL

 Steps to develop a good trade journal

 Journal your entry and exits

 Learning from your winners

 Learning from your losers

UPDATING THE PLAN

Your plan needs to evolve and change with the markets

You should always look to improve upon your trading plan

Adjust your plan as your skill level improves