Never Go Broke Notes

Mindset of Profitable Trading

• Success is really a mental game.
• What is the conversation that is going on inside of your head?

A Different Person…
• Skills “Suc
ces
• Discipline purs s is not t
ued; o
• Relationship/view towards money attra it is t be
cted o be
• Humility/Confidence pers by th
on yo
• View of Fear and Optimism u bec e
- Ji m om
Rohn e.”
Relationship Towards Money
• What is the meaning of money to you?
• What is the value of money to you?
• What does it mean to you to be broke?
• What does it mean to you to be free?

“Money is important, never let anyone tell you otherwise. But

the importance of money is much different than you think.”
- Jeremy Whaley

“Money isn’t everything, but it

ranks right up there with oxygen.”
- Zig Ziglar

Trade Mastery Series: “Never Go Broke”

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 Measuring the Notes
Importance of Money
How do we measure the importance of money?
The importance of money is what it means (represents) to you.
• Do you see money as the reward for your hard work?
• Do you see money as a tool for trade?

Importance of Money
• Wealthy people see money as a tool.
• Poor people see money as a reward.

Confident Humility
• Arrogance is a cancer that will destroy.
• You must guard against being timid.
• The psychological balance is to be humble, yet confident.

The Balance of Fear & Optimism

• Fear will drive you to make emotional & destructive
trading decisions
• Optimism, left unchecked, will lead you to make careless trades
• Appropriate optimism: one which recognizes the opportunity, yet
respects the danger.
• Appropriate fear: one which respects the dangers of the market,
yet approaches it with boldness.

What Should You Expect?

• Better than they told you they could be.
• Not as good as you wish they could be.
• Expectations (in most respects) come down to the individual:
• You will never accomplish more than you believe is possible.
• Expectations should not be so outrageous as to cause you
despair if you do not hit them.

One of the most important aspects in setting up your

expectations is to know where trading fits in your larger
financial plan.

Trade Mastery Series: “Never Go Broke”

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What is realistic?
• Measurable progress in reasonable time.
• Consider all the factors: Notes
• Strategy
• Time frame
• Personal expectations
• Experience
• Frequency
• Capital supply

What you must understand:

• Trading is not a complete plan.
• Trading is not so you can live the life of a lavish playboy.
• Trading IS a tool.
• Trading is a source of cash flow.

Who is the person you must become?

It happens when you decide.

Trade Mastery Series: “Never Go Broke”

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 Tools for Protecting Notes
Capital
Determine Your Style of Trading
• Day Trading
• Short Term 1) Each style will require a
• Mid Term slightly different approach
• Long Term to money management.
2) Each style may use
different tools.

The “Protection
Weapons”
✓ Mental Stops
✓ Stop Orders
✓ Options as a Hedge

Mental Stops
• Set a “stop” in your mind, watch the trade, execute the trade
when needed.
• Requires extreme discipline
• Requires constant monitoring
• Probably can only effectively be used by when day trading.

Stop Orders
• Place an order with your broker to “stop” you out of your trade:
• Stop Loss
• Stop Limit
• Trailing stop
• Appropriate for use with any style of trading.

Contingency orders
• Triggers an order when a certain price point is hit.
• A little more flexible than a stop
• I prefer these for options

Trade Mastery Series: “Never Go Broke”

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Options as a Hedge
• The use of stock options to hedge or offset a position against a
potential loss. Notes
• Call Option: Hedge against a bearish trade gone bad (use with a
short trade or LEAP Put).
• Put Option: Hedge against a bullish trade gone bad (use with a
long trade or LEAP Call).
• Appropriate for mid term and long term strategies.

s
o r O p tions a
es f
e ne r al Rul t
G : ices ou
e d g e ik e p r
aH 1-2 Str
• Buy money )
of the onth (roughly
3 m
• Buy s of time
block

Placement of Stops
General rule:
• Below Support (Bullish Trade) or
• Above Resistance (Bearish Trade)
• Recent trend lines
• Recent Pivot areas
• Recent swing high or swing low point
• Above or Below Moving Average (in trend)
• Adjust your stops as you become more profitable.
• Break Even Adjustment
• 50% adjustment

Trade Mastery Series: “Never Go Broke”

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 Appropriate Risk/ Notes
Reward
✓ Ideal is 3:1 or greater
✓ Set up your trade first, then assess the risk/reward.
✓ A good risk/reward will keep you in the game longer.

A look at Risk/Reward by the numbers

Trade Mastery Series: “Never Go Broke”

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 Diversification Notes
How do we define Diversification?
• Is it 20-30 Stocks? Diver
si
• Is it 5-10 Cash Flow Pillars? relat fication i
ive to s
focus what
ing o you a
n. re

NOTE:
15-20 different stocks
is not a diversified
“Financial Fortress”
However: 15-20 stocks
could be a diversified
pool of active short
term trades.

J-Dubʼs General
Rules*:
•10-15 Trades
•5-10 Trades for
smaller accounts
•5 trades equally
divided is the smallest
breakdown you would
want

*This is for short term

trading for the purpose
of Cash Flow

How much capital to allocate?

• $10k ÷ 5 (trades) = $2k Max/trade
• $10k ÷ 10 (trades) = $1k Max/trade
When you add your stops you limit your risk further

Trade Mastery Series: “Never Go Broke”

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 General Money Notes
Management Rules
• Diversify over 10+ trades
• 3:1 or better Reward:Risk ratio
• Do not risk more than 2% of your total account on 1 individual trade
• You should not risk more than 10% of any one tradeʼs capital
• If you follow these rules you should not go broke

If using options:
• It needs to be a longer term trade (at least 6 months)
• Donʼt risk more than about 10% of the trading capital
• (Break even price - strike price - cost of option = Not more than
10% of trade)

The Disciplined Trader

“Only a fool
hates discipline”
- King Solomon

“The discipline of being a good trader is

more valuable than the money you can
make from trading.”

Trade Mastery Series: “Never Go Broke”

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Discipline
Q: How can someone make millions of dollars and lose it all?
A: Discipline Notes
ʼd he
o r g u y s ays “How
The po ?”
on dollars
get a milli
a n s a y s “Howʼd he
The rich m dollars?”
lion
lose a mil

Principles of
Disciplined Trading
1. Trade To Targets.
2. Establish your trading plan and stick to it.
3. Indecision = Disaster
• Know before the trade what you are going to do
• Analyze after the trade what just happened
4. Emotions are like cancer to a trading plan.
5. Write your plan before you are in the trade.

Conclusion

Trade Mastery Series: “Never Go Broke”

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