Chapter 4: A Way To Never Fear Losses Again


Staring down prior losses is like facing a slugger at the plate that has homered off you at ever at bat. Getting past this requires the mindset of an ace.

To start? You have to tempt them at the edges. The greats, like Sandy Koufax, Greg Maddux and Nolan Ryan all knew how to do this. They rarely tried pitching down the middle of the plate and they knew how to set a hitter up to chase something well outside the strike zone.

A pitch down the middle? That’s a homer waiting to happen.

For a trader, that’s a blowout waiting to happen.

Here’s an important detail to remember: Blowouts don’t happen in one trade. They sneak up on you with a series of seemingly small events and decisions.

Individually each decision can be justified. Put them together, and you often have a detailed painting depicting a blown account.

Each of these ‘decisions’ is predicated on a myth that we tell ourselves…

One of the biggest: You have to have a high winning percentage to make money. While this isn’t true, many traders believe this with all their heart and mind. This leads them to stay in losers way longer than they should. It leads them to take trades they shouldn’t.

Here’s a refreshing reality: Even if you’re right less than HALF the time, you can still make money in the S&P 500.
In fact, there is a simple equation that removes the need to be completely right or wrong about every trade. Better yet, it takes out the factor of ‘luck’ which many traders come to believe they need to have on their side.

We call it ‘anti-blowout’ math. Here’s how it works.

Start with a $5,000 account. Set your max risk at 5%.

It would take you 33 straight losses to blow out that account. The floor is at 33, because once you're below $500 your broker cuts you off - there isn’t enough margin for you to execute a trade.

Have you ever taken 15, let alone 33, straight losses? If you have, stop reading now. Either you’re not following a process of any kind, or trading isn’t for you.

Set the math aside and stop thinking about losses for a second.

Here are three basic steps to follow to avoid blowing out your account:

  • 5% Rule: Never risk more than 5% of your account with every trade.
  • Momentum: Keep trading so that your winners will cover your losses.
  • Follow the Math: Trust the Anti-Blowout math and follow the sequences that the market reveals.

Note how Price Action tested an identified area of support before making its move. A good reference point for an entry - but we’re looking for an early indicator.

>> Key Action Item: Watch the initial market reaction - but steer clear of the volatility in the first 15 minutes.

Avoid blowing out your account with the 5% rule! It will give you the trades you need to generate enough winners to beat losses.

Ask Joe Carter about pitches down the middle of the plate - oh, say around October of 1993 when he was playing for the Blue Jays. He’ll share a moment when Mitch ‘wild thing’ Williams tried to overpower him with a pitch right down the middle of the plate. It wasn’t quite a tape measure job, but it gave the Jays the World Series with one swing.

The institutions don’t have to be the only ones making money in the S&P.

Daily profits are there for the taking for everyone.

Watch for predictive sequences by monitoring outside markets. Find an indicator that will simultaneously scan the thousands of stocks outside the S&P 500 for you - giving clear indications for buy and sell entries.

Stalk the off hours and follow the blow-out math to keep your account intact and your income generator humming.
Walk back to the dugout with a standing ovation and a full account. Not a cold shower and dreams of what could have been.

The S&P is yours for the taking. Make trading fun again and start bringing home daily profits.

Stay Profitable, 

Jonathan Moore
Director of Trader Education

Chapter 4 of 4