Stock Trading System

THE 10 - 2 TRADING SYSTEMgreater percentage of the time than showing
Many people trade irrationally, they try to tradepositive gains. Even though you are having losses
the next flavor of the week stock. What is in theyou can still profit by controlling the amount lost
news or forums without a game plan. This lack ofor gained using percentages. Now having
planning will only discourage you and incur constantincremental percentage gains are only amplified
losses to your portfolio. Here is the best examplewhen the dollar value goes up. Instead of a dollar
I can give people that are losing money on theirstock, look at the gains on a ten dollar or a
picks. If you stay focused on 10% profits andhundred dollar stock. Increased profits
2% losses, your monthly gains will out-pace yourmushrooming in your trading account by the
losses and your portfolio will go up every monthshear volume of positions that you hold. Think of
without fail.owning a dollar stock and having 1,000 shares,
EXAMPLE:now add a couple of zeros to that and having
Starting with a trading amount of $10,000100,000 shares and then ratcheting up profits in
invested into 5 different stocks consecutively.your account
Calculate your share price, costs (Commissions)PRIOR TO MAKING A TRADE.
incurred for buying (Entry Position) & selling (ExitMathematical Expectation of the 10/2 System
Position) calculating profit or loss. The amount ofFormula:
money paid per share is not factored into this andME = [{1 + (AW / AL)} * PW] - 1
does not need to be. What we are doing isWHERE:
tracking percentages on your trades. Here is aME is the mathematical expectation.
trading summary of your actions.AW is the average winning amount.
First trade you invest $10,000 on a stock youAL is the average losing amount.
buy in at a desired price, price rises and your getPW is the percentage of winning trades for the
out on a 10% profit of $1,000.strategy.
Second trade you re-invest $10,000 on a stockEXAMPLE:
you buy in at a desired price, price rises and yourEven if you only have a 20% winning average on
get out on a 2% loss of $200.one out of five trades, you will still have positive
Third trade you re-invest $10,000 on a stock youcash flow by averaging out your winning trades
buy in at a desired price, price rises and your getminus your average losing trades. Investing a
out on a 10% profit of $1,000.generic $10,000 on every trade, following the 10
Fourth trade you re-invest $10,000 on a stock2 rule, taking a 10% profit or a 2% loss.
you buy in at a desired price, price rises and yourME = [{1 + ($10,000 / $2,000)} * 0.20] - 1
get out on a 2% loss of $200.ME = [{1 + (5.0)} * 0.20] - 1
Fifth trade you re-invest $10,000 on a stock youME = [6.0 * 0.20] - 1
buy in at a desired price, price rises and your getME = 1.20 - 1.00
out on a 10% profit of $1,000.ME= 0.2
Summary of executed trades:Giving you a positive mathematical expectation on
First trade $1,0001 win out of every 5 plays.
Second trade -$200EXPECTED RETURN
Third trade $1,000Average amount of P/L expected for each trade
Fourth trade -$200using the 10/2 rule.
Fifth trade -$200ER - (PW * AW) - (PL * AL)
Sub-total $2,000 in gainsWHERE:
-$600 in lossesER is the expected return.
Total =$1,400 in ProfitsPW is the probability of the winning trade.
So you can see that if you have one winner onAW is the average winning amount.
five picks you will still come out profiting. 3 or 4PL is the probability of a losing trade (1 - PW}.
winners will increase potential profits even greaterAL is the average losing trade amount.
by monitoring your losses. This is key strategyEXAMPLE:
which is overlooked by many, everyone wants toIf you have a 20% winning average, the average
make money but hates to lose it.winning trade is $1,000(10% profit) and average
To make money at the stock market you havelosing trade is $200(2% loss).
to have the mind set that you will lose money aER = (0.2 * $10,000) - (0.