Andrew’s note: Andrew Miller here, managing editor at Trading With Larry Benedict.
Before we get into today’s topic, I want to give readers a sneak-peak into something Larry has been working on. You see, with all the volatility in the markets, Larry wants to make trading accessible for everyone.
Long gone are the days of a buy-and-hold investor. Now, it’s all about quickly getting in and out of a trade… which is why Larry has crushed the markets in 2022, while everyone else is struggling.
To take advantage of this unique bear market, next week Larry will reveal something all traders should know to potentially generate triple-digit gains.
Stayed tuned and look out for more details about this exciting new opportunity ahead. You won’t want to miss it.
Right now, there’s a lot of news flying at us thick and fast.
This week, the Federal Reserve upped the cash rate by another 0.75%. And we’ve been dealing with the latest gross domestic product (GDP) data and employment numbers.
Plus, around all these headline figures there’s been a whole host of other data.
For example, home prices year-over-year (YOY) are up 20.5% but growth is slowing. And durable goods orders just saw its strongest increase since January.
Yet, at the same time other data shows manufacturing activity is declining.
Add in the ongoing Ukraine war, rampant inflation in all major global economies, and it all amounts to the confusion.
But rather than focus on the negative emotions this confusion brings, we must concentrate on what we can control… like how we approach our trading.
That’s because the markets are always going to deal with a level of confusion – whether it be from runaway inflation, pandemics, wars, or tech bubbles.
It’s About Managing Money…
Some traders spend too much time focusing on the news and economic cycle that they don’t think enough about how they manage their trades.
So, when a trade goes against them they’re unsure of what to do next… Do they cut their losses? Or do they blindly hope things turn around and hang on for the ride?
However, no matter what the market’s doing, some rules never change. And understanding this is what separates professional traders from the rest.
For example, it’s important to know how much to allocate per trade. This percentage can vary according to each traders’ preference.
However, allocating more than 3% or even 5% on any one trade is too much. In fact, it’s recommended to allocate only 2% of your capital into a trade.
That way, you’d have to suffer a long series of losers before coming close to burning a hole in your trading account.
Setting a clearly defined allocation for each trade will help eliminate emotion from your trading.
However, risk management is not the only distinction between pros and amateurs. It’s also in how they manage their expectations.
You Can Only Make What the Market Lets You
New traders often mistakenly expect to make too much money out of the market.
So, they jump on too many trades. And they put too much money into each of those trades with the hopes of making a mega return.
But let me tell you, that’s a low probability way to trade. In the attempt of achieving big wins, new traders often hang on to trades too long.
So even if they get the initial trade right, they can end up losing money when the stock turns around.
In chasing big wins, these traders miss one of the most important aspects of trading…
You can only make what the market lets you.
When the market is swinging in a 10% range, aiming for a 20% return (or higher) is simply not realistic.
That’s why when I trade, I do the exact opposite.
Not only do I allocate a small amount of my capital to each trade, I’m also happy to bank small profits.
Put simply, I take my profits when I see them.
Getting in the habit of taking lots of little profits not only builds your trading account… it also helps build your confidence as a trader.
Editor, Trading With Larry Benedict
How have these rules helped you become a better trader?
Let us know at [email protected].