Managing Editor’s Note: On Thursday, November 20, at 8 p.m. ET, our colleague – tech investing legend Jeff Brown – will show you how to spot an obscure pattern in the crypto market that he calls a “60-day profit window.”
In past examples, you could have turned $5k into $128,000, $121,000, and $138,000… all in about 60 days or less.
If you’d like to learn more… including the next three 60-days windows on Jeff’s radar… then be sure to go here to RSVP for his event with one click.
Over the years, I’ve seen so many traders make the same critical mistake.
In fact, it’s one of the topics we recently discussed on an episode of Trading with Larry Live.
When your account is in the red, you might increase the size of your trades. Just a couple of big wins would get your account back to profits.
But doing so inevitably proves fatal to your account.
Even experienced traders can make this same mistake. When they should have been pulling back and trading smaller, they do the opposite… and blow up their account.
But one simple concept can prevent you from suffering this fate…
The concept I’m referring to is “scaling.”
It’s something I learned to apply back in the trading pits of the Chicago Board Options Exchange (CBOE) all those years ago – after blowing up my account multiple times.
Rather than trade bigger and more often, I learned to do the opposite…
If I went through a losing period, I’d halve the side of my trades. And if my losing streak continued, I’d halve them again.
If I still hadn’t turned things around, I’d exit out of all my trades to clear my head. Then I’d come in fresh the following day, ready to start over again.
This allowed me to reset… and avoid tearing a hole in my account. That way, I also avoided the psychological bruising that follows a string of losses.
Put simply, when things weren’t going to plan, I shrunk the amount I allocated to each trade.
But the opposite also applied when things were going back my way…
When I enjoyed a winning streak and banked a stream of profits, I was prepared to increase the amount I risked on a trade.
In effect, I was using “house money” (i.e., my profits) to trade bigger positions and drive higher returns.
So, for example, if I had been trading five option contracts, then I might increase that to six or seven contracts. And that could continue even higher once my account size reached a certain level.
That’s how I snowballed my account. And you can apply the same strategy whether you’re trading stocks or options…
Rather than trading the same dollar amount as your account size grows, you can choose a fixed percentage.
So, for example, you might decide that you’re happy to risk a maximum of 3% of your account on any trade. That 3% equates to an ever-growing dollar amount as your account keeps growing. (You could cut back to 2% or even 1% if you had a series of losses.)
Again, by increasing your trade size using profits, you can really build up your account.
And although it might seem like a simple concept, scaling gets misused too much by traders. That’s a big mistake…
Understanding scaling was a pivotal factor in my trading success, which ultimately led to running my own hedge fund.
So keep this concept at the front of your mind when trading. It will help prevent your account from taking a catastrophic hit… and help upsize your profits.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
