Well, technical analysis is the most popular thing used by novice investors because it’s very visual. They’re patterns, very easy to see a pattern. Not so easy to understand inflation data, retail sales, GDP numbers, Market Sentiment, et cetera. And that’s what we have specialized here at LTG GoldRock. So here’s the process that we go through.
Number one, whatever market that we’re investing in, whether it’s a currency market, a stock market, oil, gold, whatever it might be, we want to know, what is the theme fundamentally in that market? What is driving that market fundamentally? For example, the Aussie dollar. The Aussie dollar rises and falls based on interest rates. If interest rates are being lowered in Australia, the Aussie dollar will be falling. If they’re getting put up or the market expects they’re going to be raising interest rates, the Aussie dollar is going to be rising. So we must formulate what is called a fundamental directional view. And what LTG GoldRock provides its clients on a daily basis is exactly that. So we understand right now what the theme is, the data coming out, and what the fundamental key drivers behind the markets are.
Then what we do, the second phase, is we go to our technical analysis and we look for what we call a value proposition. We look for a market that is trending in a direction fundamentally, we wait for a pullback technically, and when that fundamental strength starts to come back in, that provides us with a value proposition. So we use our technical analysis to determine where that value proposition is. So we do use technical analysis, but it’s in combination with our fundamental analysis. Now, why is it so important to know those two things? It’s because you have the opportunity when you do put those things together to win big.
Now, the third and most important thing in the process of how to invest and make meaningful profits is understanding how to position size and manage risk. Really simply, every investment we take, if we’re risking $1, we’re looking to make $2 or $3, or more. We are never risking $1 to make $1. Every single investment we enter, because of the fundamental and technical analysis we’re putting together, this provides us with a risk management opportunity to risk 2%, 2% is the total risk we ever have on a position, and we look to make 4% to 6% on a single investment. And we potentially do that several times per month. So for example, if your investment account is a $1,000, $2,000, $10,000, $100,000, the risk management is managed to 2%, and we have a risk calculator that sits on the computer to help us position size correctly so that our risk is managed consistently.
So the process, the little secret sauce, is to understand fundamentally what the major theme is which is where the money will be flowing in investment banks and hedge funds. Wait for that pullback in the price technically in that trend, and look for the value proposition when the money comes back in. We don’t try and catch falling knives. And then what we finally do, and the most important thing is to position size our investment correctly. So as every investment we’re entering, and again just to use an example, if we’re risking $10, we’re looking to make $20 or $30. If we’re risking $1,000, we’re looking to make $2,000 or $3,000. You don’t have to be a mathematician to know that if we actually risk $1 to make $2 and we’re only right half the time, we make money.
In fact, we only need to be right 38% of the time to break even. Better than 38% of the time, we’re making money. In the next article, we’re going to talk more about risk management, because risk management is the salvation of any investor, and it’s so important for you as a private investor to make meaningful profits, you’ve got to know how to manage risk.