Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
How Do You Stack up Against Other Traders? (Part 4)
07/30/2009 12:01 am EST
Bobby is not out of the woods, however. This is only one month and he has quite a bit of damage to repair to his trading account. But if he can build on this solid trading month, not just by making money, but also by tightly controlling his risk, he may have turned the corner. When he shared these numbers with the traders at group mentoring, they were all extremely impressed with the turnaround!
Let's look at one more trader. Charlie and I met at a Traders Expo, and when he got home, he read every article of mine that is archived at MoneyShow.com. He then e-mailed me, asking me to accept him into the one-on-one mentoring program. I explained that he would have to take my basic seminar before we could talk about mentoring because he needed to know if my methodology would be interesting to him and the seminar would also give him a solid footing in money management.
Once he had taken the seminar, we began to talk via e-mail and over the phone. Charlie had been trading for about seven years, and he had spent a tremendous amount of money taking seminars, buying courses, and even paying several very high profile educators what I consider to be very large amounts of money for weekend one-on-one sessions. This is a sad case of how throwing money at a problem can be like throwing gasoline on a fire. Charlie had been trading for seven years and hadn't had a winning month—this was a very expensive hobby! I spent lots of time talking to Charlie before deciding to take him on in mentoring, because I didn't want to be part of a large parade of educators taking his money and not doing a thing to help him improve his trading. I was listening to him carefully and trying to decide if he had any character flaws that would prevent him from becoming a consistently profitable trader, and in fact, the more I talked with him, the more intrigued I was! I finally decided to take him in the one-on-one mentoring program once a spot opened up, and after four weeks of mentoring, these are his statistics:
His first four weeks of trading were profitable, which was a moral victory for him. When he first started mentoring, we talked about what he was trading, what timeframe he was using, and how he set his maximum stops and profit targets. I still remember that in the first mentoring session, he showed me a trade in the e-mini S&Ps, and at one point in the trade, he had over 20 e-mini points of potential profit (that's more than $1000 a contract!) and he ended up making less than $100 on the trade. He also showed me another e-mini S&P trade that risked ten e-mini points ($500 per contract) to make a potential eight e-mini points ($400 per contract). These two trades alone gave me tremendous insight into his problems. He had been taught by several high-profile trading coaches that in order to make money in the markets, you had to keep from getting stopped out by using large stops, regardless of the risk/reward ratio consequences! To me, this is sheer folly! The first thing I had to do was get him to control his losses, in part by using reasonable stop losses. I made him decide on a maximum amount per contract that he would risk and he assured me he would only take trades with initial stop losses under that maximum amount.
|More tomorrow in Part 5.||Read Part 1 | Read Part 2 | Read Part 3 | Read Part 5|
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