How to identify turning points

Apologies for the rushed nature of today’s message.

I’ve been flat-out putting together some very exciting new material for you – which I’m hoping to be able to show you next week.

It’s a trading technique that I use to identify where markets will turn, and I’d like to show you how you can use it too.

But more on that later …

Turning points are a Holy Grail for the trader – if we could accurately predict where the markets will turn 100% of the time – we’d all be millionaires within a fortnight!

But even if we can roughly predict just a fraction of the twists and turns the market makes – then we can earn ourselves a very nice living from the markets.

It’s the philosophy that I apply to my day-to-day trading.

And it’s what I’d like to share with Bulletin readers.

And the trick to successful trading is to find something like this that gives you an edge – and repeat it again … and again … and again …

Which is why today I’d like to take a look at why we trade … why we take the risks we do … and how we can manage them into a successful trading system …

What drives us to trade?

“Risk” is one of those words that make traders twitchy. When I know it’s time for me to take a long hard look at the risk profile on my investments, I get an uncomfortable feeling – a bit like when I open the joint credit-card statement after Christmas.

But without risk, we’d all have our money tucked under the mattress, or in a bank account earning less than inflation.

The sooner we accept risk as our ally instead of as our enemy, the sooner we can develop a healthy working relationship with it.

Because, just as taking risks can mean losing some trades – risk also accounts for every profitable trade that we bank.

There are a lot of ways in which we can mange our risk – and it’s vital as traders that we do just that – manage. If we fail to address the subject, we’ll end up with one of two scenarios: risk running riot through our funds and emptying our account; or our risk aversion leaving our funds stagnating and failing to achieve their potential.

Controlling risk

With the exception of those few people who like nothing better than jumping off high bridges with a piece of elastic tied to their ankles, most sane human beings are risk averse.

Most of us don’t go base-jumping every weekend …

Most of us don’t take our holidays in war zones …

And most of us like to play it safe with our finances.

So, why is it that I feel like I’m forever hearing stories of traders who’ve had their entire trading funds wiped out?

The truth is that our brains, which have had millennia to develop their skills of protecting our bodies, haven’t honed their skills at protecting our bank balances quite as well.

You only have to watch 10 minutes of a TV game show to see just how irrational human beings can get about balancing risk with financial gain!

Which is why it’s a really good idea to draw yourself up some rules about how much risk you can afford to take.

And a good place to start is by limiting your risk on any trade to just 2%.

So, if you’ve a trading fund of £10,000, you’ll be risking £200 per trade.

And if you’ve a fund of £1,000, you’ll be risking just £20 per trade.

That way, if you get it wrong, it won’t make too big a dent on your ability to keep on trading.

And if we get it right (and, say we’re trading with a 1:1 risk-reward profile), we’ll be 2% up.

2% may not sound like a lot, but bear in mind that it’d probably take you a year to earn that much on your bank account!

How you could be making 2–4% on each trade

Now, I mentioned at the top of this email about some exiting new material I’ve got coming up.

This is a trading technique that aims to make 2% or 4% returns every time it gets into the market (with a risk of just 2%).

And in just one day this week, it made a total of 22%, across six possible trades.

That could turn a trading fund of £5,000 into £6,100 in the space of just a few hours!

(Of course, you can’t expect returns like that every day – that would be plain greedy!)

At the moment, I’m just making you a video that’ll show exactly how it did this – so that you can do the same. So please keep an eye out for it next week.

Related posts:

Why traders get knocked out Turning round numbers into profits