It’s been a bruising year for investors.
The market began its heavy sell-off shortly after the first trading bell rang for 2022. And we’ve been swamped in a sea of high volatility since.
Markets like this can certainly test your mettle… and heighten emotions.
Just when you think the market has found a direction, it sharply reverses and heads the other way. What started as a winning trade can turn into a loser in the blink of an eye.
Not only can this sap your confidence… the frustration that comes with it can make you want to throw your hands up in despair.
But while we can’t eliminate emotions altogether, some simple concepts can go a long way to keeping them in check.
Today, I want to share two of them…
No. 1: Size Management
One common mistake is trading way too big of a position for the overall size of your account.
I did this myself when I was starting out, and it cost me my trading account several times over. Of course, it all works well when the trade goes your way…
However, it only takes the slightest bit of bad news to tear a big hole in your account. What’s more, with so much riding on each small move, you get drained emotionally.
But this aspect of trading – managing your trade size – is crucial to your long-term success and survival as a trader. Only when I fully grasped this concept did I really turn things around.
Consider a trader with a $10,000 account who strictly only risks 2% ($200 per trade). For them, a run of losing trades is only going to burn a small portion of their account.
Compare that to someone who has their entire account riding on a single trade. The difference in risk and pressure is enormous.
By knowing exactly how much you are prepared to risk on each trade and sticking with it, you vastly reduce the chance of taking a hit you can’t survive. And that takes a lot of pressure off you emotionally.
Of course, while limiting your risk is key to reducing your emotional strain, there’s something else that’s equally important…
No. 2: Keeping Expectations Realistic
When most traders start out in the markets, they often have unrealistic expectations.
They chase “big” trades all over the place in search of massive profits. We’ve seen a lot of this over the past couple of years as new traders began wading into the market. Many looked for big wins on meme stocks like GameStop (GME), Tesla (TSLA), and Bed Bath & Beyond (BBBY).
However, what they fail to grasp is that they’re going up against seasoned professionals…
If you’re trading the latest exciting stock one day and commodities trends like gas prices the next, how are you going to beat someone who only trades one single ticker every day of the week?
By focusing on just one ticker and learning everything about what made it tick, I vastly improved my success as a trader and went on to have a 30-plus year career on Wall Street. (To learn more about my one-ticker trading method, click here.)
But beyond that, there’s something even more basic that traders must fully understand when it comes to expectations… You can only make what the market lets you.
If you think every trade is going to be a home run, then you’re going to be sorely disappointed.
In fact, by doing the exact opposite (chasing lots of little profits), my trading success really took off.
Once you’re regularly making $200 per trade on your $10,000 trading account, you’ll begin to grow your account to a bigger size like $15,000-$20,000. Then you can start aiming for $300-$400 per trade.
This process can repeat as your account increases. And because you’ve become accustomed to taking regular winners, it won’t be a big deal to trade a bigger size.
The trick is to manage your risk and profit expectations against the size of your trading account on a percentage basis. Once you’ve grasped this, that’ll help keep your emotions in check.
And that’ll vastly improve your odds of becoming a successful trader – no matter what the market does the rest of this year.
Editor, Trading With Larry Benedict
In today’s mailbag, more subscribers write in to share their experiences with The S&P Trader service…
Thank you, Larry. I made 160% on a trade. I’m a new member and quite happy with the first trade.
– Dan W.
I just joined after Larry’s latest presentation. I received the trade for the double witching on Monday and entered it exactly as specified. I bought five contracts. The next morning, I looked at my email from Larry and he said to exit. I looked at my broker account and I was up $5,000 and quickly closed the trade. What a great start!
I’ve been making all the vertical spread trades as they come in. I won on all of them but one. I’m up about $800 on all of those. I look forward to the next trades.
– Martin U.
It was my first trade with the new service. I did a “buy to open” at about $730 for three contracts and got out at $2,200. It was a great beginning, but I lost on another trade. However, I got a good chunk back on the next two trades. Exciting!
– Thomas M.
Hello Larry and team,
I just wanted to say hi and thank you very much. I’ve been a subscriber for almost a year now. For some odd reason I can do vertical options easier than straight single options.
But this time – thanks to all the information that I got from Larry – I took my time and put my bid in. And when the second alert came in, it took me a little longer to close my position – but I did close it. This is the great news… 24 hours and some seconds later… surprise!
I made a $10,729 gain. And I think that if I knew better, I could have ended up with a little over $12,000. But I’m super happy and excited. Thank you, Larry. You are the man.
P.S. I can’t wait for December’s Quad Witching to get here.
– Leonardo G.
Thank you as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].