How to Multiply Your Trading Account Over and Over Welcome to Trading With Larry Benedict If this is your first time reading Trading With Larry Benedict, thanks for joining us. You can catch up on all previous issues right here. If you have any questions for Larry, or feedback, shoot us a note anytime at feedback@opportunistictrader.com. | Daina’s note: Since we launched this limited-edition interview series, we’ve received plenty of feedback and questions from readers. So for today’s edition, I met with Larry to answer your most pressing trading questions. And while we can’t give out personalized investment advice, if you have any questions you’d like Larry to answer in an upcoming issue, simply send them to feedback@opportunistictrader.com.
Reader question: Is it a good idea to set trade profit percentages? I find it useful to trade options... and as soon as the trade hits 25%, I sell and move on. Sometimes it immediately jumps 50% or more, which is good. If I’m wrong and it goes in the wrong direction, I sell immediately and move on. That way, I always have money to trade another day. What do you think? – Gregory Larry’s answer: Hi Gregory, thanks for writing in. My short answer to you is yes, setting trade profit percentages is a smart mentality to have. Selling a position at a 25% gain and moving onto the next is a great way to lock in gains without letting a winner become a loser. But you also have to look at concrete downside percentages when you’re getting out quickly. Being a successful trader is just as much about knowing how to take a loss as it is taking gains when you have them. A couple smart questions are: What is my downside stop? And what am I willing to lose on the downside? Now, that’s hard for me to determine or tell you right now because I don’t know how much money you’re allocating to a trade and I don’t know how large your pile of capital is. So that sounds fine on the upside... but you also want to consider what’s on your downside. Just to be extremely conservative, without knowing how much you’re allocating towards any given trade, I would consider a 2%-5% stop out, maximum. If you can get closer to 1%, you’re even better off. Reader question: How do you figure in dividends? – Bruce Larry’s answer: With short-term trades, most of the time, you’re not even collecting a dividend. And with around 90% of the trades I make, we don’t look to collect dividends. So, I wouldn’t worry too much about them since they don’t come into play often with short-term trading. That’s more a consideration for long-term stock holdings. Reader question: I read the article you sent… it referred to "earning your risk." What does that mean? – Michael Larry’s answer: Hi Michael, thanks for the question. Earning your risk is a saying I use to describe how, as a trader, you have to earn the right to make riskier moves. And by “riskier” moves, I don’t ever mean swinging for the fences on a trade. It’s just not necessary to go for the home run trade, even when you’re an experienced trader. There are safer, smarter ways to make consistent profits... What I mean by “riskier” is taking larger position sizes, and slowly adding more total positions, while using the same conservative trade diligence. But, it’s important to start with small position sizes and just one or two positions, at most, until you start gaining momentum. My methodology is based on slowly building capital. So, let’s say the first month or two that you’re trading, you’re simply learning how to execute trades properly. Getting in and out... Learning how to use proper stop losses on the downside, and proper profit targets on the upside... Like I said above, you want to get out of a trade once you’ve hit a 2%-5% loss… and I’d say that 5% should be your maximum loss. Your goal shouldn’t be to make huge, home run profits right out of the gate. That’s a good way to quickly blow up your account (and I can attest). If you manage to stay even while you learn the basics, and maybe pick up some small profits along the way, you’re doing well. After you’ve accomplished that, you start looking to make small gains on every single trade... 2%, 3%, 4%. After a while, those seemingly small gains will create a strong foundation of capital that you can build up. Then, once you’re consistently raking in profits, you start adding more positions. And before you know it, your trading account is multiples larger than where you started. You see, most new traders make the crucial mistake of over-trading right out of the gate, and not understanding how to properly size their positions. I can’t stress it enough… you shouldn’t be going for the home run trade each time. You will destroy yourself. In short, once you’ve put in the work to learn the fundamentals of trading, and have built a base of capital that you feel comfortable with, you’ve earned your risk. And again – that risk is simply larger position sizes and perhaps a few more positions. When I first started, I was trading just one position at a time. I couldn’t handle more than that. I kept burning through my money trying to overtrade. Then, slowly, one position became two… then five… then 20… and so on. Don’t be afraid to take your time and slowly let profits trickle in. That’s how I’ve built my fortune.
Daina’s note: Thanks to everyone for writing in. If you’d like to have Larry answer your questions in an upcoming mailbag issue about his strategy, his favorite sectors, or just trading advice... send us a note at feedback@opportunistictrader.com. While we can’t give out personalized investment advice in these pages, we read every email that comes in and answer all that we can. About Larry Benedict... Larry is a former hedge fund manager with over 30 years of investing experience. He’s also known as one of the world’s best traders… and for good reason. From 1990 to 2010 – when he was actively running hedge funds – Larry never had a single losing year. Larry’s market commentary is frequently featured in Bloomberg, Barron's, and The Wall Street Journal, among other major news outlets. That’s why we’re publishing this limited-edition interview series over the next couple months. When we saw what Larry could offer to everyday investors, we knew we had to share everything we could with you. If you have any comments, questions, or suggestions about this free e-letter, please drop us a line at feedback@opportunistictrader.com. And if this interview series isn’t for you, simply click this link to opt out now. | | 
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