Why You Must Focus on Rs and Not the Dollar Amount

If you’ve ever YouTube’d Day Trading one of the first things you see are videos of things like watch me make $5,000 in one hour or learn how I make $200 a day trading or any other nonsense that is only there to sell you.

The truth is, without knowing how much they were risking to make that, you don’t have all the facts and cannot POSSIBLY consider their strategy legitimate for anything more than selling purposes.

When looking at any trade result, any strategy, or any plan, the secret to success is all in the R.

R or Risk Factor is how much you’re willing to risk per trade.  Typically, the logic goes that you should not risk more than 2% or less per trade.  Many times you’ll hear this in swing trading but not as often in day trading as even that amount can be substantial.

Regardless of what the amount is, the key is understanding why it matters.

If a “guru” risks $1,000 and makes $1,000 and posts a video of it online, it’s impressive to an extent but it’s no different than someone risking $10 to make $10.  They just had a larger account to begin with.

However, if the same guru posts a video that shows $1,039 day come see how at my site” then you’ve been hooked into believing you can start making $1,000 days yourself if you just follow along.

The truth is your dollar amount return is completely dependent on your account size.  If you are only supposed to risk 2% per trade then to risk $1,000 you must be trading a $50,000 account.

This isn’t that large a number in the grand scheme of things, but when you’re struggling to come up with the $500 to pay this “guru” to show you how to make $1,000 a day, be very aware of how much it costs to copy him in all aspects; not just the profit part.

Another important reason of R value is for data comparison and trade management.  At the end of the day if you pull in $300 it is a nice day.  If you have a monetary daily goal as your main focus point (not recommended) and you reach it; then you exit all and call it.) 

But if you want to double that monetary goal, what do you have to do?  Hold twice as long?  Risk twice as much?  By tracking Rs instead of $ amounts, you can quickly see which management style produces the best Rs over the long haul and then simply make the Rs match the goals instead of trying to make the money match the goals.

If you want to make $5,000 a month, you can risk $1,000 a trade and hit it with 5 trades or you can risk $500 a trade and make it with 10R.  They do the same thing but they handle themselves entirely different.

One final point; ever wonder why casinos make you trade in your cash for chips?  Because you can handle yourself better with chips.  If you are carrying around 20s and 100s and playing with them, the money is too real, you’ll play differently.  Trading should be the same, by focusing on Rs and not the $s, you can trade the right way and hit targets whether you’re trading $25 an R this month or $200 an R next month.

Let the Rs show success; stop chasing the $$$.

If you need more help with this, we offer plenty of free training through our blog and email group or we offer a premium service with custom built management and tracking if need be.

What Makes A Trader Professional?

How many different professional traders are really out there?  If you do a google search for professional trading; you’ll get all sorts of results.

From people to strategies to everything in between.  Professional Trading has become extremely blurred and it’s time to clean this mess up.

Level 1: Professional.  The first stop on this list is the true professional.  How can you tell if the person you’re looking at is truly professional?  They must be licensed.  Whether it’s series 7, series 13, CMT, or otherwise, a true professional trader is licensed and governed by outside forces.  If they offer their name, google it and look for a license.  If they offer a company they mainly stand behind, it’s fairly easy to say they are not professionally licensed.

Pros: These are the people that handle large trading for firms.  Training from someone like this gets you true inside access.

Cons: Some of the licenses here can cost thousands into the mid $20,000 range.  They are not doing this for bragging rights, it’s the cost to handle large accounts.  A 1% fee on a billion dollar account is easily enough to cover the startup fees.

However, if you see an ex trader who used to work for a large bank suddenly decide it’s time to share that info with the world for $50 or even $1,500–you’re at the wrong place.  

This is just my personal opinion, but if a trader at that level comes down to a retail level asking a few hundred dollars for a course, I would not believe that they were ever truly at the level they claim.  You would never buy a mercedes to help someone else drive a kia.  Again, just my personal opinion, but I see this alot and I truly don’t understand why.

Level 2. Retail Professional.  Full Disclaimer: This is our Level.  

This is the level for those that taught themselves how to do it and look to teach others as well.  The main reason (at least our reason) that we are not professionally certified is we do not need outside money.  

Spending the fees to become licensed and doing nothing with it simply does not make sense.  If there ever comes a point that we look to grow beyond our capabilities and require outside capital, CTA would be our license of choice.  However, at the present time, the money is not needed, and therefore neither is the license.

Pros: They’ve learned what it’s like through experience, and through a normal sized account.  The main advantage over large accounts we have is that our stops will not disrupt the system, our exits will not take away our profits in the process; our smaller size is one of our biggest edges.  This goes for the Professional Retailer as a whole group, not just CTP.

Cons: Anybody can write a good salespage and it really comes down to gut feel with the training.  We tried 3 different courses ourselves during our learning curve.  It can be extremely frustrating learning everything only to realize they are no better off than you and you must start all over.

(This is why we don’t publish our P&L or account % increases.  If we did, it would either make you think this is too easy, too hard, or be a sales trick.  All of the above are the reasons Account Returns are usually posted, but it truly does not help do anything for the end user, only sell the system.  We fell for that trick ourselves early on and as a result simply decided it will not happen on our site).

Level 3. Everyone Else.  If you aren’t a professional and you aren’t a professional retail trader, than you’re just part of the everyone else category.  I’m talking about the gurus here, not the traders and investors trying to succeed here.

These are the types that offer services that make a million dollars, 200k, 100k a year with doing nothing more than following along.

News Flash.  Insurance companies collect millions in premiums with the goal of collecting more than they pay out.  Don’t you think companies whose sole job is making more than they lose would look into these $300-$10,000 systems if all it took was a computer program?

It’s a lie.  The worst ones are those that work for the main person by entering in first and then letting the hundreds to thousands of followers, the other ones are just as bad but take less time to figure that out as no one’s winning.

Either way, stop looking at trading like a get rich quick scheme and start looking at it like a real business.

Whoever you decide to follow; make sure they match up with your style, your goals, and will work with you to help you get there.

There are lots of incredible trainers and traders out there.  CTP of course, but there really are others.  Some do it for the money, some do it for boredom, and others do it for company.  It really is a lonely career if you don’t do something about it.

Just make sure before you invest any of your money into any form of education; you understand who they are.