Would a $6.5 Billion Loss Help You Remember This Crucial Trading Lesson?

What could you buy if you had an extra $6.5 billion?

I did a little research, and I have a few suggestions:

You could buy a brand-new Porsche Boxter for every man, woman, and child in Connecticut's capital city of Hartford and have $91,364,000 in change...

You could fund the total economy of Kyrgyzstan, Guinea, or Somalia (by matching their GDP) and let everyone take the year off...

You could buy any of the following companies in cash: Advance Auto Parts Inc. (NYSE: AAP), Teco Energy Inc. (NYSE: TE), and the makers of my favorite soy sauce - Kikkoman Corp. NPV (OTC: KIKOF)...

The bottom line is, $6.5 billion is a lot of cash.

Almost unfathomable.

But what if I told you that 11 years ago, that same amount was lost by the Amaranth Advisors LLC hedge fund in the space of one week?

Branded as the biggest hedge fund collapse in history, the culprit behind the fund's demise boiled down to one tragic mistake.

Two extraordinary "hooks" set to rocket higher – thousands in gains possible…

Brian Hunter - the trader that single-handedly accounted for the largest hedge fund meltdown since records began - ignored one of the most important lessons you can learn as an investor: proper position sizing.

Proper position sizing is widely overlooked among investors, making it a potentially disastrous - and costly - trading lesson.
Fortunately for us, our 10-Minute Millionaire system is designed to save us from making the same financially catastrophic mistakes as Mr. Hunter.

And today, I'm going to show you how by taking a closer at the all-too-important lesson this Wall Street disaster has to teach...

A Billion Here, a Billion There...

Hunter was known as a gunslinger, taking huge positions, especially in futures contracts that were for delivery many years out.

He was also seen by some as an innovator, adding liquidity to markets where none existed before.

But in this case, "innovation" was just a euphemism for poor position sizing.

According to The Wall Street Journal and other sources, Amaranth is not revealing the details of the series of trades that went badly awry.

The best guess is that there was no one to take the troubled contracts off of Amaranth's hands in such large volumes in these distant futures contracts.

When trouble came calling, the firm suffered the double whammy of poor position sizing and lack of liquidity at the same time.

Give Your Account or Portfolio a Check-Up

To save ourselves from the same costly mistake as Mr. Hunter, we can do three things:

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  • Know Your Risk on Every Investment or Trade. This may sound simple, but many investors enter a trade without knowing their precise exit point should the trade move against them. This is typically called a protective stop. If any of your trades or investments don't have a protective stop, drop everything and add one!
  • Only Risk a Small Amount on Any One Position or Idea. As a useful guideline, you should risk a maximum of 1% to 2% of your equity on any one position or idea, especially if we're talking about your "nest egg" money.
  • Understand All of the Risks. Not many of us will trade natural gas contracts far into the future. However, there are other instruments that suffer from similar "lack of liquidity" problems. If you trade penny stocks or options that are out of the mainstream, make sure you adjust your position size to account for increased slippage.

I'm sharing this unpleasant tale to encourage you to take a more tried-and-true approach. Don't wait for a costly lesson to come along and shock your system.

For the first time, D.R. Barton's sharing the secret that made him a self-made millionaire. His 10-minute, three-step system empowers investors to double or triple their money without being tied to a trading screen. And the best part is, it's absolutely free. So click here to get his 10-Minute Millionaire every week, and get started on the path to your first million.

Fortunately for us, that downward spiral does not align with our 10-Minute Millionaire way of trading.

As I'll show you in future columns, by staying the course and by truly committing to this system, our automated, emotionless, three-step strategy will help you avoid these all-too-common investing mistakes as you continue along your journey toward millionaire status.

Up Next: Potential $50,000 Payday Lined Up

Today, one of America's top trading experts, a self-made millionaire who has already shown readers an incredible 33 triple-digit windfall opportunities this year alone, is making a big announcement.

His Hook Pattern strategy has been giving folks a chance to make large cash windfalls – $4,598, $8,000, $3,800, $6,100 – usually on just one or two trades. And now he's spotted two extraordinary "Hooks" that are about to soar.

He wants to show you how easy it is to begin collecting thousands of dollars a month. Details here.

The post Would a $6.5 Billion Loss Help You Remember This Crucial Trading Lesson? appeared first on 10 Minute Millionaire.

About the Author

D.R. Barton, Jr., Technical Trading Specialist for Money Map Press, is a world-renowned authority on technical trading with 25 years of experience. He spent the first part of his career as a chemical engineer with DuPont. During this time, he researched and developed the trading secrets that led to his first successful research service. Thanks to the wealth he was able to create for himself and his followers, D.R. retired early to pursue his passion for investing and showing fellow investors how to build toward financial freedom.

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