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Turning Main Street Investors into Millionaires

Millionaire Blueprint Contents

2011

Introduction ..................................................................................................................... 3 Section 1: Overview of Goals and Objectives ................................................................. 5 The Goal ...................................................................................................................... 5 Plan Objectives ............................................................................................................ 6 Managing Super Cycles ............................................................................................... 7 Super Sideways Cycles ............................................................................................... 8 Section 2: Understanding Risk and Money Management................................................ 9 Dressing Your Upside to the 8s ............................................................................... 11 The Fab "5" Protection Plan ....................................................................................... 13 Section 3: The 8:5 Rules--A Step by Step Analysis ..................................................... 15 Step 1: Divide your trading capital ............................................................................. 15 Step 2: Calculate your profit target............................................................................. 19 Step 3: Calculate your stop loss price ....................................................................... 22 Step 4: Enter Your Orders.......................................................................................... 24 Small, Consistent Wins the Race .................................................................................. 26 Thoughts on Probability and Stock Selection ................................................................ 26 Introducing M.A.R.S. ..................................................................................................... 27 Final Thoughts .............................................................................................................. 27

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The Millionaire Blueprint Next Evolution in Smart Investing Introduction

Welcome to the Millionaire Blueprint. This Special Report and the accompanying video series is for investors who are seeking a smarter way to use the stock market to build long-lasting wealth. What makes this plan smarter? First, this plan is created with "Main Street" investors in mind: The working parent who works all week, has kids in school, and maybe an hour a week to manage his or her finances. The retiree who has watched their retirement account suffer through multiple bear markets at a time when those retirement funds are needed most. The single person just now thinking about 'funding' that retirement account or 401(k) account.

The Near Retiree or the Retire Put-Off--the person who was getting close to retirement

but suffered heavily during the 2008 crash and now must continue to work longer.

Surviving Spouses--Wife (particularly) or husband, whose spouse has passed away,

leaving them with the responsibility of managing their investments.

Investors who thought their money was safe with professional asset managers yet still

took big losses, and now want to manage their own money.

Self-directed investors consistently disappointed by guru/expert led investing services where the gurus have never beaten the indexes since the bear market of 2000 (and we all know the S&P has been down in the 11 ½ years since 2000). And every other person NOT connected to Wall Street, who desperately needs a PLAN to build their portfolio and long term finances to a safe, comfortable level. Second, this plan is created with "Reality" in mind: For example, we won't insult your intelligence by promising you exorbitant trading returns the way other investment plans do.

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You've seen them out there, and generally speaking, they all contain the same kind of hyperbolic language such as:

"Turn $10,000 into $200,000 in 3 Months" "5 Guaranteed 100% Winning Options Trades" "3 Ten-Bagger Stocks to Buy Right Now"

Examples of these promises of outrageous investment returns are never ending, and some are nothing short of ridiculous. We thought our fellow Main Street investors deserved better, and that's why we created this report and video series. What we will do is show you how you can realistically use the Millionaire Blueprint to better position and invest your money to achieve small, compounded gains that can, over time, increase your wealth. Our plan and system isn't based on some unknown secret to investing ­ it is based on proven models of stock selection, investing and statistics, all boiled down to the most important and easiest steps any investor can follow. We don't bog you down in technical jargon or stockspeak so esoteric that only an economic wonk or a mathematician could understand it. Rather, this plan will share a simple, step-by-step strategy that any intelligent investor can comprehend and implement RIGHT NOW to: Manage and grow your money Protect your money Capture consistent and realistic gains Diversify and reduce your overall financial risk

Each section of the Millionaire Blueprint covers a critical element of our smart approach to investing. Section 1: An Overview of Goals and Objectives, We lay out the rules of our plan and strategize how you'll build your portfolio based on goals and to be properly positioned to attain them. Section 2: Understanding Risk and Money Management, Capturing small, consistent gains in a variety of trades can add up to big annual returns. When Managed properly you'll place the odds in your favor using the 8:5 rules to maximize gains while minimizing trading loses. Section 3: 8:5 Rules ­ Step by Step Analysis, The nuts and bolts of how to implement the Millionaire Blueprint, including specifics on how to divide your trading capital, how to calculate price targets, how to calculate stop losses and how to enter orders.

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Section 1: Overview of Goals and Objectives

The Millionaire Blueprint is based on setting realistic goals with clearly defined objectives that allow you to build wealth over time. There's a famous line from Lewis Carroll's masterpiece, Alice in Wonderland, which sums up most investors' approach to managing their money. The line is delivered by the inimitable Cheshire Cat, who tells Alice, If you don't know where you are going, any road will take you there. Well, the fact is that you must know where you're going when it comes to your investment plan, and that's the first critical component addressed by the Millionaire Blueprint. The second critical component is to provide you with the knowledge and the tools necessary to carry out that plan. You see, it's not enough to simply know where you're going. You also have to have a reliable vehicle that gets you there. If we were forced to boil the Blueprint down to one sentence, it may read something like this: This plan is designed to help you take small, consistent profits that build up to big numbers over time. If given the luxury of a corollary sentence, it might read like this: The plan also helps reduce risk by never allowing a big loss. Sounds easy, doesn't it? Yet as we all know, sometimes the easiest things are arrived at through a whole lot of painstaking effort.

The Goal

The primary goal of the Millionaire Blueprint is to turn $10,000 of invested capital into $1,000,000. The timeline to accomplish this lofty yet achievable goal is between five and 10 years, depending upon how aggressive you want to be with your investments. We think it's even possible to turn a one-time investment of just $1,000 into $1,000,000 following this plan. Obviously it will take you longer to reach that million dollar goal, but it's not out of reach. By following the Millionaire Blueprint Rules you place yourself in a stronger position to capitalize on the stock market with each trade you make and, you'll have a simple to understand and easy to follow plan to profit from the stock market.

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Important Note: This plan is best followed by using a segment of your total portfolio, if possible. For example, if you have a total portfolio value of $100,000, break off a segment of that portfolio (10-20% of it) to use with the strategy in the Millionaire Blueprint. Continue to allocate the remainder of your portfolio to longer term equities, mutual funds, bonds, or other investment vehicles. If not, we strongly recommend a base portfolio allocation of $10,000 to execute with this plan. Three primary reasons for this: First, you want to get used to trading differently and keep your 'learning' exposure low while you execute the rules we're about to teach you. Walk before you Run. Second, you'll be making short term gains and losses, and that means "taxes" ­ naturally you'll want to keep your tax exposure as low as possible and you'll accomplish that by having only a portion of your assets at tax risk. Third, you always want to have your portfolio structured so that you are not at-risk to any single investment vehicle. In other words, you wouldn't want a $100,000 portfolio completely vested in stocks ­ you'd want to be invested in other assets so that if the market goes south, you're not at 100% exposure. If you're beginning with a smaller portfolio size understand that in order to grow that portfolio you will have to take on some risk. The goal of the Millionaire Blueprint is to MINIMIZE risk at every turn. You'll learn how as you read on.

Plan Objectives

Your objectives are to learn the basic structure of the rules and to teach yourself how to follow them. You will learn to master the following concepts: Compounded Returns Risk to Reward Ratios Profit Strategies Account Management Strategies

Can $1,000,000 Even Be Reached? At first glance, you may think that trying to reach that $1,000,000 goal is either ridiculous or can't be done. That goal is not ridiculous. It's a necessary goal.

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Consider this: The average household income (U.S.) is just over $43,000 per year. The average person will retire at 67 and live another 15 years. So just to MAINTAIN the AVERAGE standard of living, you're going to need at least $645,000 in pre-tax dollars...just for retirement. And that's not accounting for taxes or inflation (so in reality that number needs to be much HIGHER). PLUS, we're only talking about RETIREMENT ­ we haven't even discussed buying a house, putting the kids through college, having an emergency 'cash' bank or rainy day fund, vacations and travel, and more. So while many people will scoff and laugh at the idea of building a million dollar portfolio, only a select few believers will ever reach it. So how is this done? Do you just buy one great stock with $10,000 and hope that it goes up 9900% in 10 years to get you to that $1 million mark? Of course not. The notion on its very face is absurd. The easier, and the far more likely way, is to get there with consistent, single-digit gains, on average, each and every month. We'll tell you more about how we do this in a moment, but first, let's delve into a little lesson on how to fight your way through what's known as a Super Cycle.

Managing Super Cycles

While at a recent investment industry trade show, we had the opportunity to speak with a woman who was desperately seeking out ways to restore her portfolio following the 2008-2009 stock market disaster. We asked her why her portfolio was in such disarray, and this is what she said: I just sit there and watch my account go down, because I don't know what else to do. Sadly, many investors are caught in this same trap. It's a vicious cycle, especially if you have a significant amount of capital riding on a stock that is going the wrong way. Like this woman, you may be very nervous--even downright scared--because like so many of your fellow investors, your portfolio has seen either no growth in the past 10 years, or has suffered mightily from the two bear markets that took place over that decade. As an investor, you are probably under more pressure than ever, especially if you are nearing retirement, to try to get back what the market's taken from you. But how can you get it back during periods of pronounced market stagnation? If the next 10 years are similar to the previous 10 years, you may be in a proverbial world of hurt, and unfortunately, a look back at history won't serve to calm those nerves.

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A long view of the market since October, 1928, shows us that following every major bull market super cycle, there's been an extended period that can best be characterized as a super sideways cycle. Look at the chart here of the Dow Jones Industrial Average.

Super Sideways Cycles

As you can see, the great bull run of the 1920s was followed by 25 years of sideways patterns, including of course, the Great Depression. It wasn't until 1954 that the market returned to its 1929 highs. The 1955 bull market, which lasted 11 years, was followed by 17 years of sideways malaise, including the economic turmoil in the 1970s. The 1982 bull market, which lasted until 1999, has been followed by a decade long sideways pattern. Each of those super sideways cycles has included precipitous drops in the stock market, along with bear market rallies, and ultimately, range bound markets like the one we've seen in the first half of 2011. Note that each of these sideways cycles lasted anywhere from 10 years to 25 years. It's also important to note that it's impossible to predict when the current sideways cycle, already a decade in the making, is going to end. The realization over where we are in relation to this cycle is absolutely essential as you seek to build wealth, and/or make up for lost ground. You see, during super sideways cycles, investors tend to swing for the fences with their money in an effort to get big returns. This phenomenon is part of the reason why investment services making those hyperbolic performance claims have become so popular. Unfortunately, to get those occasional big returns, you have to take on a lot of risk, and that can lead an investor down a very dangerous path. So, what do you do? You Follow the Millionaire Blueprint.

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Millionaire Blueprint Section 2: Understanding Risk and Money Management

The essence of the Millionaire Blueprint comes down to two simple numbers. The numbers are 8, and 5. What's so special about the number 8 and the number 5?

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That's a great question, and one that might be best served with an analogy to of all things, the sport of kings, horse racing. Let's take a look at what typically happens when people bet on a horse race. First of all, most people bet one horse to win. Why is this? Well, it's because the payout is larger on the win bet. But did you know that there are two other bets that are significantly under-utilized? These are the place and the show bets. Here's how it works. The place bet means if your horse comes in second or first, you win. The show bet means if the horse comes in third, second or first, you win. Now, the payouts on these bets are much lower than the outright win bet, and that's why many bettors don't use them. Apparently, not many people like the little wins. Yet doesn't a number of smaller winning bets on multiple horses make a lot more sense than losing a big bet on just one horse? If you make just one win bet and you lose, you still have lost money. Even if that win bet originally had the potential to make you big returns, if it fails to deliver you could be sitting on a sizable loss. In fact, the notion that you have to hit a big winner every time you invest in a stock is one of the most common mistakes investors make. A better strategy would be to buy a number of stocks with a show mindset. Think of it this way; if you bet four horses to show, you are much more likely to hit one or more winners. And even though the overall gain in betting on more than one horse would be less than putting all of your money on the one big winner, the total number of smaller show bet wins will likely more than offset the occasional gain you make when you do get the one win bet right. As you invest in stocks, your goal should be to bank small, consistent gains without sustaining a single big loss. By essentially covering the field with a select group of high-caliber stocks, the odds of walking away with a profitable trade will be significantly higher than if you bet it all on just one horse to win. When it comes to both horse racing and investing--small and consistent show bets usually make participants the most money over the long term.

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Let's take a closer look at the math involved in horse racing--math that also pertains directly to investing. If you bet three horses to show, you're covering (on average) 30% of a typical race field. Those three bets have nine possible winning outcomes. So essentially, you're leveraging the field. Horse 1 can Win / Place / Show / Miss Horse 2 can Win / Place / Show / Miss Horse 3 can Win / Place / Show / Miss Horse 4 can Win / Place / Show / Miss Add in a fourth horse, and you're covering 40% of a typical field (10 horses per race), with 12 possible winning outcomes. As with any betting strategy, stock trading is about positioning yourself to come out ahead of the game when the race is over. In stock trading, there are three possible outcomes: A trade can be profitable A trade can break even A trade can be a loss

Of those three, you obviously want the first, or at the very least, the second outcome. Let's assume you're trading four different stocks simultaneously. Using the example above, your possible outcomes are: Stock 1 can be Profit / Break Even / Loss Stock 2 can be Profit / Break Even / Loss Stock 3 can be Profit / Break Even / Loss Stock 4 can be Profit / Break Even / Loss

Among the four trades, you have eight possible winning outcomes (for our purposes, a break even trade is considered a winning outcome because you have not decreased your capital base), and four losing outcomes. That means your odds of a winning outcome are 2:1. In other words, you have more ways to come out ahead at the end of the race--and that's what you're always after. This is where the number 8, and the number 5 come in. We succinctly call this the "8:5 Rules." The 8:5 rules will position you to effectively cover the field of a select group of stocks with better odds in your favor for walking away with a profitable trade, or at worst, a break even trade. And

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if you do have a losing trade, (they will happen) you'll be better positioned to recover from a loss because of this strategy.

Dressing Your Upside to the "8s"

After decades of experience observing investor behavior, we've learned that most people try to get gains of 20%, 50%, and sometimes even 100% on a single position. This often leads to investors being stuck in trades if they feel they aren't hitting these targets. Even worse, they'll let a healthy gain of 10% or more slip away and turn into a loss. We all like to bank big winners, but at what cost? Usually the really big gains take up something that none of us can afford to squander, and that's Time. Think about this for a moment --How long does it take to get that 20%, 50% or 100% gain? Once you have that gain, what was the average return per month for the time you were invested in it? The longer you hold a position, the lower your average return per month may turn out to be. For example, let's say you buy ABC Company stock for $10 a share and hold it for five years, at which time the price has climbed to $50 a share. Here you've pocketed $40 per share over five years. That looks great, and it's certainly the stuff of portfolio dreams. Yet do the math and you'll discover that what you actually have is an annualized rate of return of just 8%. Now, there's certainly nothing wrong with that rate of return, and it is just about inline with the long-term annual rate of return in stocks that comprise the S&P 500 Index. However, the reality is annual returns of 8% will simply not grow your money quickly enough to turn that $10,000 into a million dollars in five years. Buying and holding a stock for that long also puts you at the mercy of another major downturn in the market, so not only are you getting less in terms of an annual rate of return, you're also exposing your capital to a potential 2008-2009 scenario. In fact, if you earn 8% annually on your money and start with $10,000, after 25 YEARS, you'd have a little over $60,000. In this day and age, that's too slow and leaves you seriously exposed to even just one more Bear Market, like we all suffered in 2008-09. What you need to learn is that the key to building real wealth is capitalizing on consistent returns that compound your money over time. So, instead of having an annualized rate of return of 8%, you'll be able to achieve annualized returns of 60% to 152% each year.

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At first glance those numbers sound unrealistic, but bear in mind they are average annual rates of return and you're going to learn how to compound your money every MONTH, instead of every year ­ and that's what makes the Millionaire Blueprint so unique. In the current market environment, it has become ever more difficult to achieve sustained annual returns due to many of the factors we've already discussed. To combat this successfully, you'll learn to take profits faster and roll those profits into new positions which further accelerate your ability to achieve the sustainable, long-term growth your portfolio requires. That's compounding your money ­ you use the money you 'gained' in the previous month to earn a larger 'dollar' gain in the next month. The following truism is something we want you to commit to memory, as the entirety of our philosophy rests on it: The key to successfully growing your portfolio is determined by increasing the annualized rate of return on your money. Your objective with the 8:5 rules will be to achieve a consistent rate of return each month, typically between 4% and 8% (hence, where the 8 in 8:5 comes from). Now at first glance, that may seem like a ridiculously small number. But remember, we are talking about that return per month, not per year. Moreover, what most people fail to understand is that through the power of compounding, that money can grow quickly when managed properly. To achieve this goal, you need to invest in stocks (and in some cases exchange-traded funds, or ETFs) with the intent on achieving a 4% to 8% return per month. At just 4% per month, which is certainly an achievable number, your annualized rate of return is 60%. That's because when you compound those gains, that 4% you earn in your first month gets tacked on to the next month, and so on, adding up to that 60% annualized rate. The more ambitious goal of 8% per month, also an achievable number, puts your annualized rate of return at 152%. Now as you work through this plan, you'll discover you will target BOTH percentages as you protect your capital ­ so some months you may walk away with a smaller gain, but you'll average out by having larger gains in other months. Remember, the goal of the Millionaire Blueprint is to grow $10,000 into $1,000,000, but you can only do that by compounding consistent (and realistic) returns month after month. What you'll discover when you actually implement the plan is that you'll have the flexibility and the protection you need to make sure that no matter what the stock market does, you'll be able to reach those returns each month.

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Now, at 4% per month and starting with $10,000, it will take you up to ten years to grow your portfolio to that once elusive million dollar status. At 8%, you'll be able to do it in about five years. The reality is that your personal performance will likely be somewhere in between five and ten years, provided you stick to the plan and the rules. Some months you should expect to only be able to net 4% and other months you'll discover you can do better than 8%. On average, however, you want to strive for small, consistent gains. Think of it like this--if you're playing baseball and you want to hit for a bigger batting average, then concentrate on hitting single and doubles, and don't swing for the fences every time.

The Fab "5" Protection Plan

The second part of the 8:5 rules equation is, of course, the 5. This represents the 5% maximum risk you will take in any single invested position. What this means is that whenever you place a trade, you should only be willing to lose up to 5% in that one position. Now, 5% may seem like a very tight rein on any stock you buy, but think about it this way. When you bought that stock, did you buy it because you thought it would go down? Of course not, you bought it in the hopes of it going higher. So, if the stock doesn't go higher, and if it starts to fall more than 5%, then admitting you were wrong about it and cutting your losses immediately is the best way to manage your portfolio's capital. REALITY CHECK: Read this again, because most investors completely miss this critical point: If the stock doesn't go higher, and if it starts to fall more than 5%, then admitting you were wrong about it and cutting your losses immediately is the best way to manage your portfolio's capital. This management of risk can be achieved by a very simple trading tool known as a stop-loss order. Placing a corresponding stop-loss order in along with your buy orders at a level of 5% below your entry price will ensure that if the stock turns against you, you won't suffer any serious portfolio damage. And, even if you suffer multiple losses in a row ­ you won't wipeout your portfolio balance. How many times have we heard about investors who watched $250,000 portfolios collapse to less than $50,000 portfolios in the last couple of years? How many times have we heard the "joke" about "401(k)s turning into 201(k)s"? Aren't you tired of hearing about that?

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Then learn this lesson (and we'll show you the math to prove this shortly): The faster you cut a losing position the more capital you PRESERVE for the next (potentially) winning position. It makes no sense to sit on a losing position month after month, hoping it will recover, when there are hundreds of other stocks you could use to make up the small loss quickly and then, turn it into a large profit. Most investors will never learn that lesson. Never. They refuse to evolve like us. But why is the stop-loss set at 5%? As you'll see in the next section, the fact that you're spreading your risk out over multiple stock selections--or covering the field, per our horse racing analogy--puts you in a much better statistical position to make winning trades. But the fact that you have more positions means that you need to cut the losers quickly, as failure to do so could result in that position dragging your money down into the darkness. Once again, with the 8:5 rules ­ you'll be targeting 8% gains with 5% risk. Let's cover how you actually do that right now...

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Section 3: The 8:5 Rules--A Step by Step Analysis

Knowing the key to investing success is one thing, but effectively putting it into practice so that you can actually turn theory into reality is a completely different proposition. That's why it's helpful to look at the 8:5 rules using an easy to follow step by step process. Here are the four main steps in the 8:5 rules: Step 1: Divide your trading capital Step 2: Calculate your profit target Step 3: Calculate your stop loss price Step 4: Enter your order How Simple Is That? By following these simple guidelines on each and every stock trade you make, you will automatically be ahead of the game in terms of knowing where you are going to exit the position for a gain, and where you're going to limit your losses. Your now trading a system that works. And because you started out by dividing your trading capital so that you cover the field, you'll never have all of your eggs in one basket. This is simple, we agree, but you may be surprised to find out that only a very small percentage of traders actually take these basic steps before putting their capital at risk. Now let's take a closer look at each of the four steps.

Step 1: Divide your trading capital

Although there's more than one way to divide your trading capital, the way we like to do it is to simply divide our capital into four equal parts. For illustrative purposes, we'll use $10,000 as a trading account balance. When you divide your trading capital, you should treat each capital segment as its own trading account. For example, if you divide your $10,000 into four equal segments of $2,500, you now have four mini trading accounts. Each account should be operated as its own business (more on this later), and as your segments generate both gains and losses, you will recalculate your account, divide your capital again, and then reallocate your capital to continue covering the field.

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By dividing your capital into four parts, you accomplish the following: 1. You increase your winning capacity on each individual trade. 2. You decrease your risk on each individual trade. 3. You put less pressure for gains on each trade Because making winning trades is largely a numbers game--meaning the more chances you have to win, the more likely you are to win--you have to make sure you divide your trading capital to spread out the risk. Remember the horse racing Analogy? Don't go for the win bet. Rather, bet on several horses to show and you'll leave the track with a lot more cash in your pocket. Trading stocks is no different. You don't want to put a massive bet on a single stock where a move against you can wipe out a significant portion of your trading capital. As your trading capital grows, or if you have more money to initially invest, you can further diversify your portfolio by dividing your trading capital into even more mini trading accounts. Let's look at an example illustrating why it's so important to divide your capital when trading. Imagine you were to buy XYZ Corp stock with your entire trading capital of $10,000. You'd be very nervous, if not downright panicked, if that trade begins to move against you. However, you've segmented your capital into four parts using your Millionaire Blueprint, and instead have a $2,500 position in XYZ, a minor pullback will have only a small effect on you because the impact to your capital base will be far less. Put numerically: If XYZ declines 5% on a $10,000 position, you'll be down $500 If XYZ declines 5% on a $2,500 position, you'll be down just $125 That difference also illustrates how you are changing the impact of risk on each trade. The actual risk to your entire portfolio on a segmented trade using the 8:5 rules is 1.25%, whereas on the full position trade, it is a straight 5%. In essence, you're risking 75% less capital in any one trading position. We can't over emphasize the importance of dividing up your capital according to these rules. The common mistake made by so many traders, thinking that they have to max out their holdings in any one position, leaves them exposed to far too much risk as you've seen.

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Let's look at another example of the power of dividing your capital. Remember the horse race analogy? What happens if you place four trades all at the same time? Stock #1 - $2,500 Stock #2 - $2,500 Stock #3 - $2,500 Stock #4 - $2,500 On each of those trades, you place a stop loss of 5% below your entry price. Each trade now carries risk of 1.25%, so the combined total risk to your portfolio is 5% (if each of the trades turned out to be a losing trade). But if each turned out to be a winning trade, you have limitless profit options at your disposal. On the profit side, here's what happens. Let's assume all four stocks move up to a modest 4% during a given month. That means that each of your initial $2,500 segments would now be worth $2,600, and your overall portfolio will have grown by $400. Then, the following month, you repeat that 4% win in each segment. This would increase each segment's value to $2,704, as the power of compounding pushes the total value of each mini trading account higher in terms of overall dollar return, even though the percentage return has remained the same at 4%. Now, to be fair, we're only dealing with 100% winners, and that's not realistic. What you'll discover, however, is that with the Millionaire Blueprint and the 8:5 rules, you'll be able to absorb and recover from the inevitable loss much faster than you would if you were over-allocated to just one or two positions. Let me show you an example: Let's assume that 2 of your positions reach their 8% profit targets and 2 of your positions hit the 5% stop loss. Stock #1 (8% winner) Starting capital: $2,500 Ending Capital: $2,700 Net Gain: $200 Stock #2 (5% loser) Starting Capital: $2,500 Ending Capital: $2,375 Net Loss: $125

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Stock #3 (8% winner) Starting capital: $2,500 Ending Capital: $2,700 Net Gain: $200 Stock #4 (5% loser) Starting Capital: $2,500 Ending Capital: $2,375 Net Loss: $125 Total Net Gains: $400 Total Net Losses: $250 Net Portfolio Gain: $150 In this example, you've had 50% winners, and at the end of the month, you've come out ahead (for illustrative purposes, we're assuming the time horizon for each stock was exactly 30 calendar days; you'll generally find this isn't the case). Bear in mind as you move through the Millionaire Blueprint, the goal is to increase your portfolio EVERY month. You can absorb losing trades because of the value of the winning trades outpacing the losing trades (as we've just shown you). Plus, as we'll share with you later, you'll want to manage around 4-8 positions each month (or more). As you increase the number of positions you hold, you'll discover you don't have to win every single trade ­ in fact, you can win on 'only' 50% of your trades and reach that 4-8% per month target. Even if you have a lower month, for example, the scenario we showed you above would have added 1.5% to your portfolio (which is short of the 4% target), you've still achieved the important objective of growing your portfolio. In months where the market is dicey at best, you'll discover you'll still outperform the major averages with this plan ­ then, when the markets are hot, you'll quickly make up the difference from that lower profit percentage month. That's because the 8:5 Rules allow you to maximize gains when you hit a winning streak and protect as much of your capital as reasonably possible when the market is against you. Don't be afraid to cut a loser ­ you'll be that much closer to recovering and profiting with a winner. Special Tip: Remember that you are after PERCENTAGE gains on every trade and consequently during each trading month. A Common mistake traders and investors make is trying to make "dollar" gains. An 8% gain is an 8% gain no matter whether you have $500 on the trade or $5,000.

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Stay completely focused on your percentage gains. Our minimum desired gain on any trade is 4% (and we'll show you how you can target that). Our target gain on every trade is 8%, but we'll also share a little trick you can use to get more than 8% when you hit a stock where the price keeps going up.

Step 2: Calculate your profit target

The next step in the 8:5 equation is to determine your profit target. Here the goal is to achieve a profit of 8% on every position you enter. We also want to have plans in place to capture a much bigger profit when a stock gets really hot. Once you've determined your entry price in a position, all you need to do is multiply that amount by 1.08 to get what we call your target exit price, i.e., profit target, or 8%. The formula is as follows:

For example, if we were buying a $10 per share stock, we would have the following profit target price:

Once you have your target exit price, you can enter a sell limit order to ensure automatic execution at the price you've set. This is the main step in guaranteeing you capture that profit, and that you don't let it slip away into the investment ether.

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Here's a real trading example from a trade we recommended in June, 2011:

Tenet Healthcare (THC): This recommendation was to enter at the market on June 13, 2011. You would have entered at a price of $5.95; next you would have set your initial stop loss at $5.65, which is 5% below your entry price. Under the 8:5 rules, you also would have set an automatic exit price of $6.43 (your 8% profit target). In the case of THC, you can see that the stock price moved up in just 5 trading days and hit the 8% target price of $6.43 on June 17, 2011. With the basic rules, if you had an automatic exit price set, you would have exited the stock at the price of $6.43 on June 17. That's because with a sell limit order, your broker must execute your trade when the stock trades AT or ABOVE your specified price ­ here, $6.43. And you would have had a quick, tidy 8% gain.

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Let's look at one more example, Delek Holdings (DK):

Delek Holdings (DK): This recommendation was to enter at the market open on June 27, 2011. You would have entered at a price of $13.96, and set your initial stop loss at $13.26 (5% below your entry price). As you can see, DK moved up quickly and would have hit its 8% profit target on June 30 at $15.08. Another quick 8% gain. Now, not all stocks are going to move that fast and not every trade will be an 8% winner. What you want to master is the concept of discipline: having a strategy and sticking to it. This profit strategy represents ONE HALF of your personal trading plan (that's the profit half). Even though you can see on the chart above that the stock price continued to climb, don't think about 'missed profits' -- you 'walked away' with an 8% gain. Anytime you walk away from Wall Street with a gain, you're beating the market.

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Step 3: Calculate your stop loss price

We've already covered the importance of setting a stop loss on every position you enter into to help reduce your downside risk, but here this principle deserves a bit more illumination. Perhaps the biggest reason to place a stop-loss order in is that if a stock you buy declines by 5% within a short time of placing that trade, either the technical or fundamental validity of the trade no longer exists. In other words, the reason the stock was selected in the first place is no longer valid, and that means you'll want to cut your losses and move on to more profitable positions. Remember the woman we mentioned in Section 2, the one who stood by and watched her portfolio disintegrate? When we asked her what kind of protection she had in place for curtailing losses, her answer was simply, I don't have any. Sadly, this is the case for most investors. But not us, that's because together we're armed with a simple to follow strategy preventing us from falling victim of poor planning. Now, to further illustrate the importance of having a stop loss, let's take a look at one example of a former widely held blue chip stock whose value essentially vanished. Imagine you held General Motors stock in 2001. Times were great, and the stock had delivered nice gains. In fact, it was trading near $100 a share. Then disaster struck, and a series of mishaps, along with a bear market, put the brakes on GM shares and caused them to slow to around $60. Most investors held on to their GM position, and many others actually bought more shares with the idea that an eventual rebound in a stalwart company like this was just around the corner. Fast forward eight years, and those once-mighty GM shares had essentially become worthless. The moral of this story is never, ever, chase a losing position. The sooner you can cut a loss, the sooner you can make up that loss in a more profitable position. We've said it before, but we can't emphasize this enough. Trading is the art of playing the percentages. If you put yourself at a disadvantage by letting one loser take down your entire portfolio, it could nullify the odds you have of winning with multiple trades. And, by placing a tight stop loss of 5% on every trade you make, you are limiting the risk in your mini accounts to just 1.25%. Now, to calculate your stop loss, all you need to do is multiply your entry price by .95, which is your 5% stop loss.

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The formula is:

For example, if we are entering a stop loss for the $10 stock, we would set the following stop loss target:

The calculation is the easy part. The harder part is to make sure you honor that stop-loss and not let a losing position get out of hand. Fortunately, doing this is a simple matter of placing your order properly. Special Tip: Never, ever MOVE a stop loss LOWER. Don't do it. Using the example above, a critical mistake investors and traders make is to see the stock price closing in on their stop loss price and becoming emotionally attached to their stock because they love the name, or are convinced it will turn around and subsequently 'change' their stop loss price to give the market more 'room to breathe'. Big mistake. So if a trader suddenly sees the price at $9.75 and decides to move his stop loss lower to $9.00, he's just DOUBLED his risk in the trade. Furthermore, if the price moves down and takes the trader out at $9.00, he now needs TWO winning trades to overcome that one loser. With the 8:5 Rules, if you suffer one losing trade it takes only ONE winning trade to remain in a state of PROFIT. The rules are put in place to keep you safe and protect your capital and minimize risk. Let's review the math for that, so you'll believe it: Position 1 Entry Price: Stop Loss: $10.00 $ 9.50 (For this example, we'll use the straight 5% Stop Loss)

Let's assume you have a $2,500 mini account (from your Capital Division). Thus, you hold 250 shares.

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When the stop loss is hit, the value of your mini account would become $2,375. (250 * 9.50 = $2,375.00) Position 2 (Following the loss above, you move on to a new position) Entry Price: $10.00 Profit Target: $10.80 With the new capital base following the loss in Position 1, we have $2,375 to put on this trade. So, you'd purchase 237 shares at $10.00 per share. When the profit target is reached, the value of your mini account would be $2,559.60 ­ or, across the two trades, you've still increased the value of this mini account by $ 59.60, despite having suffered a 5% loss on Position 1. If, however, you had made the mistake of lowering the stop loss to $9.00, as we described in our example above, you would have had $2,250 to utilize on Position 2 (250 * 9 = $2,250), and would have purchased 225 shares at $10.00 per share. Then, when Position 2 closed out with its 8% gain the net account balance would become $2,430, (225 * 10.80) -- leaving you with a net $70 loss across the two trades. All because you lowered that stop loss. That's why it is so important to stick to the rules. They are designed with TIME in mind ­ by TIME we mean across a series of trades (over weeks or months) the percentages will be in YOUR favor. Let them work for you.

Step 4: Enter Your Orders

Entering orders in with your brokerage firm is relatively simple, but you have to make sure you do so in a particular fashion if you want to be aligned with the Millionaire Blueprint. Typically, you'll use Market Orders for your entry price. A Market Order tells your brokerage to buy or sell an investment immediately at the best available current price. Once that order is filled (and once you know precisely your buy price), then you can place the following orders: Sell Limit (In Dollars). This is your profit target price. Stop Limit (In Dollars). This is your stop-loss price. A Sell Limit order is one that tells your order brokerage to sell a set number of shares at a specified price or better. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled. A Stop Limit Order is an instruction to your broker to sell a security when its price falls to a particular point. Once the price hits that predefined exit point, the Stop Limit Order essentially becomes a market order, and the trade is executed. So, in our $10 stock example, we would set our Sell Limit Order at $10.80, and our Stop Limit Order at $9.50.

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Here's a quick recap of the step by step action plan in the 8:5 rules.

2011

1. Divide your trading capital into four equal parts. 2. Multiply your entry price by 1.08. This is your profit target price. 3. Multiply your entry price by .95. This is your stop-loss price. 4. Enter all three orders a. Market Order establishing the position b. Sell Limit (profit target) c. Stop Limit (stop loss) At this point, only one of two outcomes will be possible: 1. Your stop loss is hit, and the trade is over. 2. Your profit target is hit, and the trade is over.

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Small, Consistent Wins the Race

The real key to successfully growing your money is to achieve small, consistent profits over time. Now, ask yourself this question: how much does a $10 stock have to rise in price to grab an 8% profit? If you've done your Sell Limit calculation, you already know the answer is a mere 80 cents. Yet what do most people hope to achieve when buying a $10 stock? They think about the stock jumping to $15, $20, $30 or even $50 per share. Of course, these kinds of moves certainly do happen, but they represent totally unrealistic expectations. Moreover, failure to achieve these kinds of results in one or two stocks often leads to frustration and disappointment with more modest gains. Our advice? Don't be afraid to hit singles and doubles. Winning in the markets is like playing baseball. You'll score more often and win more games by consistently hitting singles and doubles then swinging for the fences at every at bat. If you seek consistent realistic profits with your trading capital, you'll find the market will give you those 4-8% returns far more frequently than it will give you those 50%, 100% or 1,000% returns. That, in essence, is the foundation of the Millionaire Blueprint and the 8:5 rules. That's yet another reason why we recommend using a percentage of your total portfolio with this plan ­ so you can be excited to know that you are regularly growing your portfolio on a monthly basis. Just like a building you must start with a solid foundation before you begin building, and that's exactly what you now possess. A foundation to build your portfolio over the next decade and beyond.

Thoughts on Probability and Stock Selection

We've mentioned the concept of probability when trading, and we used the horse race example to highlight the notion of covering the field with your bets. One thing for certain is that when you trade, you are going to be right sometimes, and wrong other times. When you are wrong, try not to look at it as a failure of judgment. Rather, look at it as a consequence of the odds working against you. Conversely, when you are right, avoid the temptation to think of your judgment as the reason you came out on top. Rather, also look at it as a case of the odds working in your favor, removing emotion from the process. Now, this is in no way an attempt to absolve you of the responsibility of trying to select the best stocks out there. It is, however, a simple realization that nobody can predict the future when trading. If we could, we would all be billionaires, and nobody would need a service like the Millionaire Blueprint.

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Once you accept the fact of your infallibility with respect to your stock selections, you can ruthlessly and objectively employ trading tools such as sell limit orders and stop losses. Another way to look at the notion of probability in stock trading is to use the analogy of rolling the dice. This is, in essence, a probability proposition. When you roll the dice, you have no way of knowing which numbers will come up. When you buy stocks, you also have no real way of knowing what the outcome will be. Fortunately, by maximizing your bets when your number comes up, and by minimizing your losses when that number you've bet on fails to come up, you can beat the game without having to roll a winning number every time. Of course, there's more to putting the odds in your favor than just successfully managing your trading accounts in accordance with the 8:5 rules. When selecting stocks, you must do so by using various techniques, including sound technical and fundamental analysis. You also have to make sure your timing is right, and you have to make sure you're not swimming against the general market tide. Yet even if you think you've figured out all of the variables, the dice may still end up on a number you haven't placed a bet on. Just remember that it's okay, as long as you have the tools in place to limit downside and maximize gains when you're right.

Introducing MARS

In our next video we'll introduce you to our stock selection Platform: MARS and show you how you can use MARS with the Millionaire Blueprint and the 8:5 Rules to profitably build your investment portfolio to reach that $1,000,000 milestone. We'll even show you how MARS fared during the past 5 years, including some shocking results from 2008 - 2011 (some of the worst investing years on record), and we'll show you where your portfolio could be in just 5 years from now using this system.

Final Thoughts

We've covered a lot of ground in the Millionaire Blueprint, and we hope you've come away with a good sense of what the plan is all about, and how the trading and portfolio management techniques we use can help you accumulate a lot of wealth over a relatively short time. If you simply do nothing else but execute the 8:5 trading rules in your own portfolio we've succeeded in helping you evolve. These simple strategies for managing your money, protecting your downside, capturing gains and diversifying risk actually, you effectively have the plans needed to build a sturdy financial structure.

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Tomorrow we start the next phase of construction which is all about picking the right materials for the job, and we look forward to seeing you then. Thank you for reading, and we wish you Godspeed in your future trades.

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A single copy of the materials available through this course may be made, solely for personal, noncommercial use. Individuals must preserve any copyright or other notices contained in or associated with them. Users may not distribute such copies to others, whether or not in electronic form, whether or not for a charge or other consideration, without prior written consent of the copyright holder of the materials. Contact information for requests for permission to reproduce or distribute materials available through this report is listed below:

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