You don't need to be the smartest, most talented, most athletic, or most popular person you know to be able to earn the kind of money that can change your life. You don't have to look great on camera or know how to carry a tune, either.
Being a successful stock trader allows you the opportunity for that type of wealth. And it's incredibly easy to learn how to do it - and do it well.
Anyone can do it. In fact, trading is the "Great Equalizer."
That's why I do what I do every day - because anyone can do this. If I can do it, so can you.
All you need to do is stick to these four simple rules...
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
The Thing That Separates Successful Traders from the Rest
Some of the wealthiest people in this world are neither geniuses, amazing athletes, nor particularly charming; just look at some of Wall Street's wealthiest denizens.
But plenty of traders there can afford to have popular musicians and actors perform for them at private functions, whether it be their wedding anniversary or their daughter's sweet sixteen birthday party.
Stunning: Tom Gentile has once again disrupted the financial industry - 15.8 billion calculations per second reveal daily double-your-money trade opportunities. Watch now...
What all successful traders have in common, regardless of strategy, is this...
They stick to their money management rules.
Now, that may sound boring, or even scary...
But don't worry - it's neither.
Whether you trade stocks or options, all it takes is sticking to these four simple rules of money management.
Add them to your rules-based trading approach, and you too will be on the way to Wall Street levels of wealth.
Rule No. 1: Figure Out Your Maximum Risk Level Before You Do Anything
It's essential to determine how much of your capital to devote to stock or options trading.
The money you plan to use for shorter-term trades should be kept separate from the capital used for long-term, buy-and-hold kinds of investments.
With a figure for that shorter-term "trading money" in hand, you'll also want to decide how much of it you want to risk per trade.
As always, I recommend you work with your financial adviser to determine these numbers for your individual circumstances.
Revealed: Breakthrough system delivers a daily trade recommendation - $15,800 profit potential in a single week. Here's how...
But when I work with my students, we run scenarios based on a theoretical $25,000 dedicated to a stock trading account. We then risk no more than 2% of this capital ($500) on any one trade.
That's a great place to start, because even if you were to lose everything you invested in any single trade, you'd still only end up losing 2% of your overall "trading money."
Now, it's crucial that, as your trading wins add up and your account increases in size, you keep this 2%-per-trade rule in place.
No trading system is perfect, so it pays to use trading rules that let you weather some losing trades without endangering your whole "trading money" account.
And remember: As the size of your account increases, that 2% figure is going to change in real terms. For a $25,000 account, 2% is $500 - but once you've doubled your account to $50,000, 2% per trade means $1,000.
Once you've pre-determined your maximum risk level, it's time to pick a strategy for minimizing losses...
Rule No. 2: Set a Stop-Loss Approach
A stop-loss is a tool that lets you automatically - no doubts, no delays, no questions - get out of a trade if it starts losing too much in value.
In other words, it lets you cut your losses short.
Now, there are a couple of ways to go about using stop-losses. The usual way is to risk a set percentage, say 50%, of the money you've devoted to the trade (the 2% of your "trading money" mentioned above).
This is called a "percent stop-loss" - in the example above, where you're limiting your risk to 50% of your investment, it's a "50% stop loss."
What this lets you do is close your position and recoup as much of your investment as you can if the trade falls 50% or more from where you opened it.
Having a percent stop-loss in place may just be what you and your account need to preserve capital on a trade that could otherwise have blown out - and left you with a 100% loss on the trade.
Of course, sometimes what happens is that a trade falls 50% and traders panic and get out, only to see the trade recover, and even turn profitable.
Let me tell you, it's happened to me more than once...
That's where the cost-as-risk stop-loss approach comes in. This is where you risk the full amount of your trade (100% of your investment), and leave the profit side of the trade open.
This might sound preposterous, but especially for options - where price swings can get pretty wild - it gets rid of the stress of always paying attention to price movements, and lets you capture profits, lets you stuff money into your pocket, without limitation.
That's where the third rule of money management comes in. Regardless of your stop-loss approach, you'll want to follow this closely...
But traders using the method should pay extra attention...
Rule No. 3: Determine Your Position Sizing
Position sizing means deciding ahead of time (before spending a single penny on the trade) how many shares or option contracts you can take on for the trade.
In our example of risking no more than $500 per trade, let's say you have an option that cost $2.50. This means your cost per contract (the lowest amount you can actually buy) is $250.
This Can Happen Day After Day: $2,775 on Monday, $2,575 on Tuesday, $4,350 on Wednesday, $3,125 on Thursday, $2,975 on Friday. Click here to see for yourself...
In this case, given your maximum risk level, you can buy at most two contracts, for a total of $500.
If you decide on that position sizing and the option value goes to zero, you will lose the full $500.
But remember, because of your pre-determined risk level, that's just 2% of your total "trading money," which you've already deemed an acceptable loss.
Finally, you need to make sure your trading strategy fits your account size.
Here's what I mean...
Rule No. 4: Adapt Your Trades to Your Account Size
Given our theoretical $25,000 account and 2% (or $500) maximum risk per trade, many stock trades will be difficult to execute.
Quite simply, shares can be expensive enough that you won't be able to buy very many with $500; a single share of Amazon.com Inc. (NASDAQ: AMZN) costs $1,638.
While you'll be able to get 100 shares of a $5 stock, $500 will only get you five shares of a $100 stock. That's something to consider - and is a key advantage of options, which give you leverage over more shares for a lower risk.
I'm talking about controlling massive positions in the world's biggest, most valuable companies, for pennies on the dollar. That's one of the reasons I love trading.
So unless you have a huge trading account - with, say, $250,000 allocated to trading with the same 2% ($5,000) per-trade risk rule - consider trading cheaper stocks, or using options strategies instead.
And always remember - money management is what separates wealthy traders from those who just get lucky once in a while, but lose it all over the long term.
It's the key to building a fast fortune.
Breakthrough Artificial Intelligence Could Turn Ordinary Traders into Millionaires
Tom Gentile, America's No. 1 Pattern Trader, has just one objective - to give ordinary folks a real shot at millionaire status in the next 12 months.
It all starts with the help of his new, breakthrough artificial intelligence technology that's producing a money-doubling opportunity every day of the week.
It could be light-years beyond what top Wall Street experts are capable of... and it could change your life - fast.
Click here for details.
Follow Money Morning on Facebook, Twitter, and LinkedIn.
About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.