Risk Management: The Powerful Engine Behind Every Successful Stock Trade

by Donald Harder

Successful Stock Traders are Great Predictors, Right?

I’m tired of seeing so many getting taken for a ride by stock services and self promoters who make bold claims about their performance in the market so in the interest of looking out for your interest, I’m going to offend a few people right off the bat here. Stock traders who claim 70, 80 even 90 or 100 percent success rates for their picks are full of shit and if you believe them, it is going to cost you money.

Managing Risk Forces Profits to Add Up

Managing risk seems like such a boring subject and most attracted to stock trading are risk takers so they either don’t want to hear about it or they figure they got it all figured out and it will all just take care of itself. I personally love risk management. It’s an exciting subject because it is precisely where the profits in trading add up. Anyone can pick a stock that moves, but the only way anyone takes money out of the market consistently is through a valid risk management system.

What is Risk Management?

Simply put, risk management, when it comes to stock trading, just means that in order to profit you need to lock in more money when your trade is successful than you lose when your trade stops out. If you don’t know what stopping out means, take a look at stop loss strategies here.

Smart Money Principle™

Years ago we developed a risk management system for our subscribers that has allowed us to lock in profits and keep our portfolios growing, even in bad market conditions when it is very difficult to find reliable trade set ups. Any good system needs to be simple, for the more components you add to a trading system, the more things can break or go wrong. Thus, the rules for this system are very simple:

Rule 1: If the price of the stock moves against your purchase price more than 3% you sell and take a loss.

Rule 2: If the price of the stock moves up 10% you sell for profit.

To demonstrate how it works, take a look what happens to your trading account when 50% of all your trades stop out. In the example below, we are assuming that you use $10,000 for each trade position you take.

Trade 1 = $1000 profit
Trade 2 = $1000 profit
Trade 3 = $300 loss
Trade 4 = $300 loss

Total = $1,400 profit

Risk Management Profits in the Real World

Employing the Smart Money Principle™, here is an example of how focusing on risk management can add up to real profits. The example below is taken directly from our track record.

In our example, we make the following assumptions:

Investment Account Size: $20,000
Amount invested per stock: $10,000
Taken from the true record, the average loss is 2% and the average success is worth 10%

After 8 trades, 4 winners and 4 losers, employing the Smart Money Principle™ allowed us to lock in $3,600. Moreover, at no time did anyone ever risk more than 1% of their entire portfolio. Take a free trial and let us show you how protecting your accounts from risk adds up to real profits. Our free trial form is painless. Just add your email address. We promise not to spam you or share your address with anyone.