"Meticulous Planning Will enable everything a man does to appear spontaneous."

Mark Caine

It's Your Money. Shouldn't It Be Your Plan?

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.

$10 A Backtest

No one likes to backtest.  No one likes to forward test.  Everybody just wants to trade live.  

Yet the low barrier for entry, lack of rules from outside sources, and lack of quality system team up to destroy most traders within 12 months or less.  

Ever stop to wonder why?

Nobody wants to put in the work.  

Let’s look at this a little differently.  

The average salary in America is close to $50,000 for a 4 year degree.  This may be slightly off but the math is simple so I’m going with it.  

Most traders that get on YouTube are looking to supplement or replace their income.  Let’s just assume you’re looking to make $10,000 a year on the side as a starting goal.

You found a weekend seminar that for $2,000 will teach you how to trade and make $10,000 a year.  You pay the fee and learn a ton of information and systems and strategies and you are good to go.  

You fund another $1,000 into a trading account and promptly lose it all in 3 weeks. 

Looking to make $10,000 on the side you are $3,000 worse for the wear.  Why is this?

Because you spent 4 years to make $50,000 salary and thought you could make 20% of that after a long weekend and a few all nighters.

Reality Check.  Treat this like a job.  Trading should not be any different education wise than everything else.  The goals can be different, but the timeline should at least be realized here.

New Plan.  Every Back Test or Forward Test (DEMO) trade you do, consider it a $10 deposit into your trading account.  Your account starts at zero, when it reaches $5,000, you’ve put in the time and work to unlock that money and go live if the system has been proven out.

Most traders can easily do 5 backtests a day whether its early morning or late nights.  On the weekends you can take it off or push for as many as you can handle.

If you can do 5 backtests a day, 5 days a week, that’s 25 backtests a week.

25×20=500.  

20 Weeks is the minimum time you should expect to building your plan and proving it out before going live.  

This is not a requirement, just my humble opinion.  You just have to realize that professional traders treat this like a business, and you showing up to compete with them after a weekend seminar is not going to end well for you.

You need experience and confidence to succeed here.  You can build that up over 20 weeks or longer, you cannot over a weekend study session.