May 052014

Never risk more than 5% on a single trade.

If you have an account of less than $3000, then I would advise to only trade with one contract and only trade Risk 1-2 reports. This concept refers to preservation of capital. In order to be able to trade you need to preserve your capital so that you have the means to trade. Our capital is our tool to help us earn profits trading. Once your account goes under minimum margin conditions to trade you are stuck and will be forced to invest more of your hard earned money to be able to trade.

In May 2013, I withdrew all of the hard earned money I used to start my account including losses leaving my account with pure profit earned from JOBB trading. Psychologically, when I trade now, I’m much more at ease knowing that I am risking the profits earned and not my hard earned money. This is where you ultimately want to be. Set this as a goal.

The second concept that I wanted to share with you is Bank Roll Management for multiple contracts and considering slippage into your equation.

Suppose you have an account of $10,000 and you plan on trading 2 contacts of Crude Oil with a 10 tick stop loss on a report.

Why only trade 2 contracts, can’t we afford to trade 5?

Perhaps, but let’s look at some of the benefits of only trading 2 contracts…

If we take $200 (10 ticks x $10) and divide by $10,000 we will be risking 2% of our account on the trade which is a conservative approach. The benefit of only risking 2% allows for unique situations such as excessive slippage where perhaps we may have lost 2 and half times more than the original $200 due to abnormal conditions such as excessive slippage. 200 x 2.5= $500. In this awful situation of losing 2.5X more than what we planned we still kept within 5% loss of our capital (.05 x 10,000 = 500).

After trading over 500 reports over the past two years I have experienced excessive slippage on only 3-5 reports which is around 1% a very low number which is great. This example illustrated is meant to empower you to make better decisions in choosing the appropriate amount of contracts to trade within your bank roll, not to instill fear. When you take the time to analyze how many contracts you are going to trade you are taking control, being responsible, and setting the tone for a healthy recipe of long term success.

My advice for reinstating confidence after having a bad run is to slow it down… Reduce the number of contracts you are trading. Trade only one contract for that matter until you are back at it again. Talk to a fellow JOBB member. Interact with Jay or myself. Set ultra conservative profit targets for 5 ticks. WHY NOT? This conservative tactic would have earned you profit on some of recent odd ball Non-Farm Report’s.

You don’t have to agree with my opinions but please trade responsibly.

I want you to be successful with JOBB for the long haul.

Your Friend,