The Road to Successful Trading

Particularly in the case of younger 
employees, using part of the retirement funds for trading can, make sense over time. For 
employees over about 50 years old, trading pension funds is not advised. 
Once you have determined the amount of funds available for trading, ask you self what 
would happen if you lost all of those trading funds. If the answer is “not much” than that 
amount of wealth has little meaning in your overall financial picture and that’s what we 
want. But wait! 
If you are married, you’d better consult your spouse. You may not put much value on your 
trading capital but your significant other may have other ideas. You do not want any outside 
pressure creating stress in your trading activities. More about that later. 
6. Take the amount of trading capital you have identified and ask yourself: “If I can make at 
least an annualized 30% return, is it worth the time, dedication, ongoing education and stress 
of trading to give serious consideration to trading? When you have finished reading this 
book, you will have a much better idea of how to answer this question.
How to Design and Construct An Effective Trading Plan 
16
Suppose you have $25,000 as your trading capital. As a general rule, most traders will not 
trade more than 5% of the trading account on any one trade and will establish a maximum 
trading account drawdown limit of about 40%. In this case, a trader would not risk more 
than $1,250 on any one trade nor draw the account down below $15,000. Typically, when a 
drawdown limit is reached, the trader stops trading and analyzes what is happening. This is 
why traders are actually fairly conservative.

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One of the major objectives of being a successful trader is to stay in the game so that 
probability can work its magic. 
If your trading plan calls for achieving a 30% annual return on your trading capital, your 
trading activities would need to generate $7500 before taxes in trading gains. That works out 
to be $ 625 per month in gains. Let’s say your trading system can normally produce a 65% 
win-loss record. If you plan to trade at least three times per week, that would be 12 trades 
per month. With your estimated win-loss ratio of 65%, that means about 8 winning trades 
per month. But that also means that you will probably have 4 losing trades per month. If you 
set your stop loss at 4% of any trade ($1,250), then you would lose about $50 plus any 
transaction fees; therefore, you would lose about $200 on losing trades, not including fees.
That means you need to have about $825 in gains on the 8 trades for an average gain of $103 
per wining trade to achieve the 30% ROI. That is a profit target of 8.24%. So before you 
enter any trade, you will be looking for at least an 8.24% gain and a stop set loss set at 4%. 
You never back off of you stop loss and you decide whether or not to let profits run after 
hitting your profit target. 
Now you know approximately what you must make on the $1,250 or 5% of your trading 
capital based on your estimated win-loss ratio and 3 trades per week. Consider this: you will 
lose 4 trades and $200 per losing trade. Does that bother you?
From the above walk-through of how to develop trading objectives (goals are ideas and 
objectives are metrics that will lead to the goal), you can see that it all starts with the trading 
capital and the goal (in this case 30% annual ROI). Please keep in mind that some traders 
produce a much higher ROI but until you have the experience to actually generate a fairly 
consistent return using your system, it is best to be conservative when establishing goals and 
objectives. 
It’s also important to consider all transaction fees and taxes when establishing your financial 
targets; a 30% ROI goal is much less if traded in a taxable account.