FollowMeTrades.com uses strict RISK MANAGEMENT
rules to minimize exposure to losses.
- It is inevitable that some trades will lose. The key to profitability is keeping the losses small and the wins big.
- I base my Risk Management on the “Risk of Ruin” tables developed by Prof. Nauzer Balsara and the implementation strategies developed by Bennett McDowell, President/CEO of TradersCoach.com
Feel free to check out these resources on RISK MANAGEMENT
- A spreadsheet calculator for determining trade size and that demonstrates my method
- 4 short videos explaining my approach to Risk Management; theory, shares, and options
- A PDF with more risk management details
FollowMeTrades.com controls risk in the following way:
• MAXIMUM loss for any trade = 2% of trading account.
• TRADE SIZE (number of shares to buy) is determined by:
- Account size
- Entry Price
- Stop Loss Price
*$100,000 Account Size is used for illustration purposes
These guidelines apply to any account size.
If this math looks like a hassle . . . don’t worry
I make it easy for you!
I provide a built in calculator that calculates Number of Shares to Buy – see the short video above.
As a subscriber, to FollowMeTrades.com here are the steps:
1. Look at the published trade that I am taking (I publish them each week.)
2. Determine how many shares to buy using the Risk Management guidelines.
Example:
• Account Size = $100,000
• Entry Price = $5.00
• Stop Loss Price = $3.50
• Entry Price – Stop Loss Price = $1.50 ($5.00-$3.50)
• Max $ Risk = $2000 ($100,000 * 2%)
• $2000 / $1.50 = 1333 shares to purchase (Max $ Risk / (Entry Price – Stop Loss Price)
Or just use the Risk Management Calculator that I include with my published trades!
3. Place a Limit order in your brokerage account to buy shares at the Entry Price.
*If the current price is above the minimum Entry Price, move your limit price up a few cents above the current “Ask” price to ensure your order gets filled. Just don’t go above the maximum entry price.
4. If the order is filled, then place a Stop Loss Order at the Stop Loss Price.
* I use a “Stop Loss” or “Stop Market” for my “Stop Loss” prices. I enter these orders as soon as a new position is taken. This gets me of out of the trade if the “Stop Loss” price is hit.
I NEVER have a position in place without a “Stop Loss” in place.
**Some brokerages offer you the ability to enter various forms of “Order Sends Order” capabilities to place your Stop Loss order automatically when your Limit Order enter gets filled. Check with your brokerage if you want this order strategy in place.
5. Follow my published updates to scale out for profit and to move Stop Loss Price and finally to exit the trade.
6. Let the trade play out, without fear or stress. It will either Win or Lose – most of them Win!
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