3000% per annum with very little risk plus some math

Do you get advertisements about newsletters that get 100% per annum profits?

In this week’s series of blog articles, I will be writing about a way to get more than thirty times that (i.e. 3000% vs underacheiver's 100%) and with very little risk.

The philosophy behind the system is that you risk your profits aggressively but risk only a tiny portion of your original capital.

The example used involves intraday entries and exits, but you can adapt it to a longer holding period if that is the way you enjoy trading. The method involves a bit of math, but only high school algebra is a prerequisite to understanding the method.

Assume the following:

1. Assume you use a system for entries that gets 50% winners and 50% losers (i.e. a random 50% win/loss system).

2. Assume that of the winners you get 2 times the amount you lose on the losers (i.e. Reward-Risk Ratio is 2 to 1).

3. Assume you do six round trips each day (i.e. buy and sell 6 times each day).

Also, let D=Dollar amount you lose if your Initial Stop is hit on any single trade.

The following would be the results on each of the next five days.

Day One.

Risk 1D on each trade for six trades today.

Trade One: lose 1D
Trade Two: lose 1D
Trade Three lose 1D
Trade Four: win 2D
Trade Five: win 2D
Trade Six: win 2D

Net profits for the six trades today is (2 + 2 + 2 - 1 -1 -1)D = 3D

...cont'd tomorrow...

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Copyright 2008 Raymond T. Lee. All rights reserved.
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