An unlikely financial genius at first, Hite struggled with learning disabilities, problems with his vision, and self described ADD…

But as he discovered, the markets don’t discriminate…

“Thankfully, the markets don’t care about me or you or where we went to school.
They don’t care if you’re short or tall. I was never very good in school and I wasn’t a good athlete either.

With my background, the way I saw it, I never had any problem with the idea that I could be wrong. So, I have always built in an assumption of wrongness to anything that I do.

We now kindly refer to this practice as risk management”

He spent years searching for his edge in the markets and learned most of what he knows the hard way…

Then he had his breakthrough…

Larry Hite pulled more than $100,000 in profits for himself from the market by creating and following a system that gave his trading business an edge in the markets.

By systematizing his analysis, Hite stripped emotion out of his trading and kept his decision making process data-based.  

 “We take on risks, try to exploit them and we leave when they turn against us.
That is what we get paid for. Basically we are in the risk transfer business.
We take on what people want to sell, sell what people want to buy and hope to make a profit.”

By 1990, Mint had more assets under management than any other Commodity Trading Advisor.

One discovery Hite talks about highlights a universal truth about trading and the “get Rich Quick” mentality…

“Say you knew which commodity, stock or currency would appreciate the most in the following year, and you knew exactly what its price would be. We did this experiment looking backwards in fact in our database.

The question of when you take a position is how are you going to trade the line…how much of a position are you going to leverage.

Now, if you have perfect knowledge, would you leverage 5 to 1?

Would you leverage 10 to 1, 2 to 1?

Well it turns out that if you leverage more than 3 to 1 that you are a loser.
Because we found that if you did 3 to 1 you would have, even with perfect knowledge, you could go down a third.”

Price analysis and forecasting technology has advanced greatly since Hite began trading…

However, no matter how accurate the forecasting technologies, the mathematics of profitability never shift or change…

Even with perfect knowledge, you must maintain a STRICT risk management discipline because in order to achieve reliable, repeatable results from any market, you MUST maintain a balanced risk across all positions taken.

By restricting your risk exposure to no more than 2% of your cash account value, (Hite recommends no more than 1%) and utilizing a dynamic position sizing algorithm, you can exert absolute control over the money you put at risk on any one trade/investment.

The simplest way to do this in the stock market is to run the following equation…

DOLLARS AT RISK / SIZE OF POTENTIAL LOSS IN DOLLARS

So to risk $100 on a trade with a risk of $4.50, you would buy 22 shares…

To risk $100 on a trade with a $0.18 risk, you would buy 555 shares

This constant position sizing algorithm ensures that the $20 in profit you might lose in an extremely volatile stock can be offset by a $2 profit in a more docile asset class.

This distills all your trades down to a simple reward/risk equation…

For every $100 you put at risk, how much did you get back on average when you profit?

You always want this average R/R to stay well above the 1 to 1 level…

EVEN IF…

This means passing on what could very likely be a profitable position.

If the yield offered is less than 1 to 1??

Wait for a better opportunity; one is always just around the corner!