Personal Investing Advice

People are always asking me why they cant break even in the stock market while I manage to consistently pull profits almost at will. If your goal is doubling stocks, and therefore your money, on a regular basis then it is absolutely crucial that your trading strategy fits your bankroll. Successful traders know that you should never risk more than a small fraction, like maybe 5%, of your bankroll at any given time. When I say risk only 5% Im not suggesting you only spend 5% of your bankroll on shares, but rather that, for a losing trade, you exit the trade when your loss would only represent 5% of your bankroll.

If your bankroll is under funded then youre almost certainly over trading. Over trading is when you are taking a position that is too large for your bankroll. Lets say you have a bankroll of $1000 and youre trying to trade a stock thats worth $10. Lets also assume that, based on your trading system rules, you could possibly see the stock fall by 10% before you exit the trade (its naive to think all trades are winners). If you want to stay within your 5% risk rule for your bankroll then you cant lose more than $50. With a possible a 10% drop we can only afford to spend $500 on shares because a 10% drop on $500 represents $50, which is 5% of our bankroll.

Now if doubling stocks is your strategy then youre trying to pick stocks that may increase by 100%. No matter what system youre using there is always one constant and that is that risk is the other side of the coin to reward. You dont get one without the other. So doubling stock value means your risk will also rise significantly. Lets now imagine your share value could drop by much more because youre hoping for much greater reward. With a possible 80% drop you can only afford to spend $62.50 on shares because an 80% drop on $62.50 worth of shares is a $50 loss which is 5% of our bankroll. And lets face it, we all know that a $10 stock doubling quickly doesnt happen too often. What is more likely is that youll buy many more shares than you should and lose your whole bankroll, or youll buy the right number of shares and get hammered by commissions and slippage. As you can see, if youre playing the doubling stocks game you need to have the right size bankroll for the price of stock youre trying to trade.

Unless you have a six figure bankroll you will need to trade much smaller stocks for the doubling stocks plan to work. Penny stocks is the price range you need to be trading. If you do the math as weve done above youll see that you can stay in the right risk range much more easily if your stock prices are only selling in the penny range.

Useful Links:

Struggling with saving to make ends meet each month? Apply for a payday loan today!