The One Minute Millionaire Diamond Mine
 The Wealth Factor
 Stock Market Strategies
 By Dr. Stephen Cooper
     
 
 

Everyone’s Got One

My 18 month-old Grandson has already learned the importance of having a plan. When he wants a treat he begins by grunting repeatedly. That is step one. If that doesn’t work, he moves on to step two, which involves charm. He can make a noise that sounds like the word “snack”. He knows that making that sound, the big people around him smile. Failing that, he moves to step three of the plan . . . yelling. By the way, his yelling is deafeningly loud. Now, should this fail he still has the final step left. You probably are familiar with this one if you’ve been around little children. Step four is the, “Full blown, I will die if you don’t do what I want fit”.

Create a Winning Trading Plan

Successful trading is a lot like life. You have a far better chance of getting what you want if you have a plan. The plan need not be complex. Simplicity has grace all its own. Here is a four-part plan for making money in the stock market.

  1. Find an ongoing source of high quality stocks
  2. A method of knowing when to get in the trade
  3. A method of knowing when to get out of the trade
  4. A system of money and risk management

Step One – Find Great Stocks
This is where most hopeful traders get stuck. That’s right! They get stuck before they even get started. Sad really . . . but understandable. Trying to find an ongoing supply of the finest stocks to trade can be very confusing. Would you know where to start right now? Right, most people don’t either. That’s why a guy like me is nice to have around. Early in my trading, it became clear that hit and miss schemes for finding the highest quality stocks were not going to cut it. Along with high quality we also need stocks that show specific characteristics in order to have the best probability of success. Fortunately, I developed a stock screening formula that has proven itself in both Bull and Bear markets. It’s called the Trade Candidate Filter. This system pulls out 1-3 of the very best stocks for trading each day.

Step Two – Know When To Get In
This is where it really gets fun. As an EMI Protégé, I’ll teach you how to read stock charts so that you can time exactly when the best point to get into the market is.

Step Three – Know When to get Out
The charts are also the primary way you’ll learn to end your trades for great profits. Here is part of an E-mail that came to me just this morning from a student . . .

“I just wanted you to know about one of my first trades.
I bought EXPE July 50 Call and sold it for a profit of
177%!! And I’m still just a student. Your trading
methodology has really got my attention.”

Thanks, Ed Mickus

Step Four – Money Management
From years of on-the-job trading experience, I formulated specific rules for . . .

  • How much money to put in each trade
  • How much of you money to have in the market at one time
  • Altering risk percentages as your account grows
  • How many trades to be in at one time

All the above factors are aimed at one principle . . . “Live to trade another day.”

No trader has been right every single time. In fact, there has never been a business person who was right in business decisions every time. This is reality, and there is no sense in trying to pretend it isn’t so. If this first principle of trading were to be ignored, what do you think the probable result would be? How about this scenario? A certain new trader learns an incredible method and has excellent ways to handle steps one, two, and three, but no plan for step four–Money Management.

After 3 or 4 good trades, the temptation is to put larger and larger amounts of money on the following trades. So, this new trader finally puts 90% of his or her trading account on the sure trade. If it goes bad, then things really get bad, and quick. In this picture, our novice trader could potentially be wiped out in one trade. Not a good plan!

I teach my students to place a predetermined percentage of their trading account on each trade, and to not play favorites. As your trading account grows, the goal is to limit the potential loss to your account from any one trade to 5%. There are just three numbers to think about here.

  1. How much will I put into a trade?
  2. How much potential draw down will I tolerate?
  3. How many trades will I be in at one time?

No matter what you do, remember to have and use a Money Management Plan!

Until next time,
Yours in Great Trading!

Dr. Stephen Cooper

   
 

As a trader, teacher, author and lecturer Dr. Stephen Cooper has guided thousands of students to greater success in trading stocks and options. His site, www.OnlineOption.com. is an excellent resource for traders of all levels. A free newsletter is available by going to OnlineOption.com. Over the past five years Dr. Cooper has conducted live teleconference courses covering personal financial basics, stock screening, technical analysis and practical trading. He has authored The Online Option Trader, Windows to Wealth, and The Truth About Money. With over 18 years of experience Dr. Cooper is recognized for his successful techniques, his clear and systematic teaching style, and technical expertise.