This post originally appeared on TraderPlanet.
I have a real issue with magicians. I put them in the same category with clowns, mimes, and Canadian teen idol singing sensations; they just creep me out. I mean just look at David Copperfield and the late Doug Henning…do I need to say more?
However, just because I don’t like magicians doesn’t mean I don’t like magic. Today I am going to show you some trading magic that will make you profitable even if you lose on two thirds of your trades.
MS did trigger and hit its target. CHK triggered, but failed for a possible $1.00 loss. And CALL didn’t trigger, but let’s just say it did and you lost a buck on it.
But where is the magic O’ Great Lundini?
The magic is in how you size your positions. By taking a set percentage of your account equity, you end up with a fixed dollar amount of risk capital on each trade. You divide that dollar amount by the spread between your entry and stop on each trade ($.50 on $MS, $1.00 on $CHK, and $1.00 on $CALL). That gives you your position size on each individual trade.
You then are risking a standard fixed amount or “R” on each trade.
So even though you lost on 66% of the trades I suggested, you are net profitable.
See related post The Most Important Concept For Successful Trading.