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.
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!