Bo Yoder...if that name doesn't ring a bell then it means one of two things: 1. You've never been a major corporation in need of an expert consultant, or 2. You've never been to a Trader's Expo and learned from one of the best! I met Bo earlier in the year and have been following him like a hawk. Reading his awesome stories on trading and learning about his techniques. His latest is called Cash Bombing where he take a TINY account (like most of us have) and make it compete with the huge accounts. Pretty interesting to say the least and I've been watching him test and work it from the beginning. The article below is a great story that's compelling, challenging, and informative. Please enjoy the article, comment to Bo if you're going to take the challenge, and visit Cash Bombing to learn more from Bo.
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In a conversation recently with my readers, I discovered that many of them were trading the forex markets with less then $5,000 in their accounts. This puts them at an extreme disadvantage as any serious drawdown with a traditional risk management model is likely to cripple or break their account.
This seemed like an interesting challenge to me...Could I create a trading strategy/system designed specifically to meet the special needs of the small account trader?
I spent some time thinking about this unique challenge and came up with a solution. A risk management program that I think could really help some of these financially challenged traders break out to a level of capitalization that would give them a real shot at trading success...
You see, most traders with a small amount of money to trade feel ultra defensive of that hard earned money, and try like mad to find trading strategies that "don't lose" as each dollar of loss in a draw-down stings like mad. They scalp and grind and trade well, but their efforts earn them hundreds not thousands, and educational costs, data feeds, and commissions are a necessary but difficult headwind to overcome. What these small account traders don't understand is that the fastest and most radical gains in trading are often found on the low accuracy/high risk to reward ratio side of the market.
(Exactly the kind of trading program they avoid like the plague!)
Let me see if I can help you understand exactly the psychology I'm getting at...
Imagine two poker players at a full $100 no limit table in Vegas...
One is a millionaire, and the other just lost his job and is playing with money he really can't afford to lose.
The poor man plays ultra conservatively and folds just about every hand unless it is a high value pair.
(The hands with the highest statistical probability to win.)
The rich man can afford to lose, and plays any hand which he believes has a chance to turn out to be dominant.
The poor man wins the majority of the pots that he plays, but his gains are small as the table soon realizes that he is playing with "scared money" and that it takes an extraordinary hand for him to muster up the courage to risk his chips. No one will bet against him unless they have an equally extraordinary hand.
The poor man plays for several hours and never loses more than a third of his chips. He ends the session with a profit of $40 and is exhausted from the mental strain he has endured.
The rich man plays strong hands as they are dealt, but is also willing to gamble with hands that could become dominant with a little luck. (Such as suited connectors) His chip stack fluctuates wildly as he bets aggressively before the flop, then is forced to fold when his speculative hand fails to "connect". At one point, he loses all his chips and is forced to re-buy with another $100.
This table soon realizes that the rich man is playing a fast and loose game, and are much more willing to bet against him as they know he is willing to bet his chips in anticipation of luck with the cards to come.
When he wins, he tends to win giant pots and these "double up" opportunity's cover his losses and build his chips stack so that when he quits for the night, he feels excited and energized with a profit of $500.
One of the most famous poker players on the planet the great Doyle Brunson is quoted as saying "To be a successful gambler you have to have a complete disregard for money", and I believe that statement as the gospel for traders as well.
I've worked with the trading public as an author, speaker, and edge consultant for many years. I've seen this pattern of "scared money" vs. "rich gambler" play itself out again and again. I thought for many years that those who were successful in businesses outside trading brought their culture of success to the trader learning process. Now I believe that the truth of these individuals trading success lies much more in their ability to lose money without feeling distressed or panicked.
So if I was to overcome this systemic reason for beginning traders failure, I needed a way to make trading fun and to create an environment where risk taking is not the least bit scary. I wanted to look for a way for them to take real market risk in a way that did not bruise their egos.
I created a new risk management concept that I call the "Cash Bomb Sequence".
(The name was chosen as each time you light the fuse on a Cash Bomb trade, you have the possibility to experience either a "fizzle" or an "explosion" of profit. )
Step one was to design a strategy that had the potential to create significant gains with a minimal capital outlay. The poker player with $10,000 in the bank doesn't experience stress when they put $100 on the table… I figured that anybody no matter their financial circumstances could come up with $500 of true risk capital, so I used that minuscule level as the foundation of this new trading strategy.
After few months of strategy testing and development, I decided that a high yielding risk to reward management structure would do the job, and funded my forex account with $500. And much like the rich poker player in our story above, I treated my account with absolute disregard for money, and my equity curve was a freak show... but I ended up pushing the account easily into four figures over the course of several weeks.
To make sure that luck wasn't the dominant factor in my success, I repeated the exercise, and again experienced similar gains.
I was hoping that success with this challenge would yield a valuable trading strategy that would fulfill what I see to be an important need for thebeginning or under capitalized trader. What I didn't expect was the mental transformation that I experienced personally while trading this hyperagressive way.
I can't remember the last time I've had this much fun trading!
I have no way to accurately quantify how many trades I've taken over the course of my career, but I has to be deep into the thousands. Trading had become routine, and quite honestly rather boring in recent years. Since starting the Cash Bomb Sequence, I've had days where I made 40 percent, 60 percent, and just set a personal record for myself with a 218 percent gain in less than 24 hours!
These wild gains (and losses) while a big deal percentange wise are only a few hundred dollars up or down, but being this agressive has really made me more relaxed, more observant, and more objective in all my trading programs.
This experience has really proven to me that once again, management philosophy and strategy are far more important than the actual technical minutiae of entry and exit!
So I can't recommend strongly enough that you take "an insignificant amount" of money, and treat it as if you would chips at a poker table…
Play with it! Add to positions, hold wiggles you would never hold with your full account… Don't trail your stops! Let the market wiggle back below break even to shake out the weekends before the "big move" begins… Treat every dollar in your cash bomb account as lost from the moment is deposited, and be truly willing to bankrupt the account. I think you'll be amazed at what are freeing experience that can be, and the benefits that such an experiment will deliver.
If you're a beginner, there's a good chance that this may be the first time since you stopped demo trading that you are truly just analyzing your market and not thinking about the money… If you're a seasoned pro, does a good chance that you will reinvigorate yourself with the excitement of exceptional short term gains, and learned some valuable lessons that could be worth a lot of money in "normal size" trading account.
I would love to hear your stories about how this experience helps you!It has sure helped me…
Good Luck And Good Trading!
-Bo Yoder
Douglas is speaking to a different audience. I am normally as well. The Cash Bomb Sequence is designed to BREAK all the rules of conservative grinding, and replace it with the most extreme risk to reward ratios I have ever discovered. This is what I believe to be required if a trader with just a few thousands is ever to build his or her capital to a meaningful level.
What good is a competent grinding edge of it only produces $75 a month in income for the small account trader? Whereas that level of performance might be worth $7,500 a month to a trader with a six figure account.
Douglas' comment is intended for ALL traders.
As to the $75 per month (it should be much more with a good system), the answer is the power of compounding. Better to have a small profit erned consistently over time than a huge loss!
It seems you are talking about a lottery or casino approach which is not relly what this site is supposed to be about.
But hey, I suppose that approach would actually work for some.
But it is a desperation measure as opposed to a systematic knowledge-based approach based on probability and we need to be clear about that.
Patrick, we are competing against the big, the bad, and the properly funded... However, it takes time to build positions of size and that is a big part of our edge as individuals.
We are the pilot fish following the great whites around.
P.S. Trading in the zone and Dr. McCall's "The Way Of The Warrior Trader" are my two favorite books on the mental game of trading.
Hi Bo,
Unless I completely misunderstood Mark Douglas (I did not), this approach is diametrically opposed to what he advocates. Unless I misunderstood your approach (possible) the risks taken are undisciplined and inconsistent with those advocated by Mr. Douglas.
Patrick
Trading can be considered a poker game - AS LONG AS YOU ARE THE HOUSE!
Otherwise you are bound to blow your brains out sooner or later.
I prefer the approach of individuals like Mark Douglas who have studied what make successful traders successful. It is not this wild and wonderful caution to the wind approach. Rather is is disciplined consistency with the odds in your favor.
My advice is to read Mr. Douglas's book "Trading in the Zone" and follow that.
It is a classic that needs to be on every trader's desk.
What is your "edge"?
If you have none the odds are stacked against you.
Nevertheless, I suppose there are different strokes for different folks and this may work for some.
If so, God bless.
I wish you all "every success" and hope whatever method you chose works for you - just use a method - and stick with it once you find your edge.
This is not intended as a know it all comment. I am still looking for my edge too - refining a system has proven to be the greatest challenge - one must balance the need for continuous improvement with the competing requirement of stability, discipline and consistency. Meanwhile we are competing against players with more extensive resources and greater inside knowledge (insight) than the little guy can ever hope to have.
Very long odds it seems.
Sincerely,
Patrick Keith
Jack said:
>Finding potential high reward trades requires more patience and luck >than Muskie fishing.
This is certainly true. Trading is basically a biz where you sit around waiting for somebody to make a mistake.
It can be tough to maintain focus as any lapse could cause you to miss the trade that you have spent all day waiting for. This is a systemic issue with daytrading or scalping modules. If this reality leaves you cold and clammy, then I would suggest you take a look at using the ideas in the Cash Bomb Sequence as a swing trade strategy. Picking a timeframe and adapting the Sequence to your needs will be a big topic in the next Training Module.
Your request Jack got my creative juices flowing. User interactivity and the proof aspect of watching others succeed is a very powerful thing! Let me find out if what I want to build is practical, and if so I will send out an email to my list to invite users to join in... stay tuned!
I tried somewhat similar when I was a total newbie in this business, the outcome was as expected, blowing my small account due to poor money-management. Today, six year later, I do trade now and then with same style with options but now in a controlled way and with success. The whole point with this trading style is waiting right situation to arise, planning losses carefully and sitting tight.
The last commenter is right on the money! The Cash Bomb Sequence is a way for a trader without proper captial to leverage some luck into an account that could really launch them, or for a trader with money to break free from the fears that hold them back.
Anger or defensiveness are usually rooted in fear...When I am working with a consulting client, and they get huffy or challenged, Like a massage therapist who feels a knotted muscle I know I have hit a nerve. (And press deeper to see if we cannot root out that often limiting fear.)
Trading is so often perverse... buy when there is fear, sell when there is greed... I find that comfortable and justifiable (scientific) trade plans lose or underpeform, while UNCOMFORTABLE trades deliver the largest edge. (In my view because so few traders understand the trade off between emotional risk and capital risk!)
I hoped this idea would be a shock to the system that would start people thinking. That is another reason why I designed such a proof element into the live blog. No matter how crazy you think I am for doing this, each and every trade is recorded so there is no debate possible about the realities of each Sequences outcome.
I think the last couple of posts are missing the mark here, if you took 500 and played wild with it and it payed off, would you not take your winnings and move on, leaving the 500 at risk till next time your feeling lucky, and if your feeling lucky and you get burned, well you have limited your loses to what you are able to lose, but I think the real message was, if your not comfortable with the loses that your having maybe your not in the right game, you should be somewhere the risk is less, like a savings account.
If you are not exceptionally well prepared mentally, physically and emotionally guts will translate into stupidity and, no doubt, slaughter you. It's kind of like getting in the ring with Mike Tyson.... Do you know what I mean?
looks like one of the spam posts in Google Finance
Sorry, but I have to take issue with the 'advice.' Trading should be fun, yes, but it's not some sort of adolescent 'whoopee this is great' kind of thing. Mr. Yoder made money at it? Sure, an experienced and canny trader should make money. Tom had fun with his demo account? Try using real money.
Many people, myself included, will go to the casino with the same plan. Allocate a small amount (say fifty to a hundred bucks) and have several hours of fun until it runs out. It is fun. But don 't expect to win.
Bad advice, Mr. Yoder!
I am gifted. I can take any amout of money large or small and lose it.
Dear Bo:
That is an interesting article. Are you up for some more fun?
I have a $1,900.00 cash account with Scottrade. I do not own anything at the moment. I have never traded on the Forex. I don't even know if I can through Scottrade. Anyway, would you like to teach me how to make some money using your technique? Since I really am a true beginner it might be beneficial to both of us if we were successful. I would be pleased and proud to write a day by day report to you that you could use if and/or when you decide to sell your program to others.
I am retired and have nothing else to do all day long but watch the stock market. Finding potential high reward trades requires more patience and luck than Muskie fishing. I'm getting a llitle bored with the whole thing and may go back to watching paint dry or playing golf.
I'd love to hear from you.
Best Regards;
Jack Nuccio
Email withheld
I mostly trade forex and since i began trading I have had some extreme experiences. Best result was turning $7,000 into $63,660 overnight, 26 trades all winners. Next night turned the $63,660 into a little over $70,000. Following night lost a little over $35,000. Obviously taking on way too much risk, but it was a great experience. I tend to come out with alot better results when obeying the golden rules, defining entry and exit points prior to entering each trade. I find that when I keep looking at the dollar amount my trade has generated I tend to close the positions to early. I have moved onto longer timeframes (15 min. 1 hour and use the 5 minute for entries. as I found the shorter timeframes (1 minute mostly) way too unpredictable. Scalping seemed hardwork in the end so I rarely practice it these days..
I mostly trade forex and since i began trading I have had some extreme experiences. Best result was turning $7,000 into $63,660 overnight, 26 trades all winners. Next night turned the $63,660 into a little over $70,000. Following night lost a little over $35,000. Obviously taking on way too much risk, but it was a great experience. I tend to come out with alot better results when obeying the golden rules, defining entry and exit points prior to entering each trade. I find that when I keep looking at the dollar amount my trade has generated I tend to close the positions to early. I have moved onto longer timeframes (15 min. 1 hour and use the 5 minute for entries. as I found the shorter timeframes (1 minute mostly) way too unpredictable. Scalping seemed hardwork in the end so I rarely practice it these days.
What a great story!
It highlights one of the concepts that I am trying to teach with the Cash Bomb Sequence which is to shift your focus from just trade by trade risk to reward levels, and add in the concept of total account value R/R. If you trade 3 Sequences, and make 300% on 2, but lose everything on round three, in my mind that is a 3 to 1 R/R.
Because...If you trade a small account with aggression, sooner or later you will lose it all. So you really have to embrace that concept of total risk and ONLY put the money you are willing to lose in its entirety into your Cash Bomb Account.
yaitsa goli i say!! well done and thank you for sharing your extreme trading experiences. How have your experiences with brokers been? Who do you use to trade?
I was just doing the same with a demo account, tring to master my chart tech eyesight but treating the money as if real, I was up $5089 in 3 days(+100% gain)...no trade lasted for more than an hour, as I was also prefecting my scalping techniques. I think my trading was enhanced due to the markets being open 24/5 as I could walk away when in a rut and make big profits when I "felt" like it. My total time in 3 days "staring" at a computer-6 hours with 32 trades, with 6 losers for a total of $142.00, and man was it fun!
It sounds like you were in "the zone" there when you said you could feel the market was offering you a trade. This just what the small account challenge can do, help traders get away from worrying about being wrong, or losing money, and just focus on the order flow and the line of least resistance...
So remember what that experience felt like and try to lock it in. The more time you can spend in the zone, the better your trading will be as that dispassionate objectivity enhances your accuracy and trade selection skills!
this sounds like a ton of fun. I'm starting right now. 1 hour 39 minutes left to trad!