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3% Risk Trading System: Part 2


 As you can see the 5% Rule is more conservative compared to the 3% Risk Trading System. The 3% Risk Trading System is ideal in Bull markets but performs poorly in flat markets. It is too easy to get whipsawed out of you position in a flat market and those losses will add up quickly. However in a Bull market the 3% Risk Trading System results will blow away the 5% Rule. Using the 3% Risk Trading System only four or five positions are open at any one time.

<b>Example 4</b> 
If you bought PLMO when it showed up on our Bulletin at $21.50 you would have you would have done very well when it closed Friday above 33.00. Let's use the 3% Risk Trading System with this real example. Keep in mind PLMO is still running and should move higher next week.

Buy Price $21.50
Stop price $19.50 (based on $20.00 support on chart)
Risk per share $21.50 $19.50 $2.00
Max loss of 3% $3000
$3000 / $2.00 1500 shares
1500 x $21.50 $32250
$32250 32.2% of 100K portfolio balance
Sell at $33.08 x 1500 $49620
$49620 $32250 $17370
$100000 $17370 $117370

The gain is $17370 and your risk was only $3000. This one trade could balance out almost six losing trades with a 3% risk level. This shows that you can lose 4 out of 5 trades and still make money in the market if you keep your losses to a minimum.  Remember to risk 3% of the new balance. This means if the PLMO trade was your first trade you now would risk 3% of $117000 instead of $100000. This is how you compound your gains very quickly. 

<b>To Reiterate</b>
I can not stress this enough it is imperative with this system to PLACE YOUR STOPS IMEDIATELY AFTER YOUR BUY ORDER IS FILLED. You are risking substantial loss if you fail to place stops on a 34% position as with Example 2.

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