Editor's Note:The following article by Stephen Leeb was originally published in Aggressive Trader in November 2017.

My indicators have been exceptionally good guides to moves in ETFs. But up to now I have left it up to subscribers themselves to decide how to apply them. That is, I haven’t offered guidance on what percentage of your trading capital to allocate to any one trade. As a result, many of you may not have benefited to the fullest extent possible.

So I’ve been hard at work constructing a trading system to help you take better advantage of my indicators. The results are extremely good. They’re so good that I think subscribers will happily accept some inevitable trade-offs between making fewer trades but enjoying far higher total returns.

The system may sound simple, but like many simple things it took time to figure out. Here’s how it works.

You start with the amount of capital you are comfortable investing overall in high-risk, option-dedicated strategies from AT. You divide this into three “pots.” Let’s call them pots A, B, and C.

Today, based on positive readings, I recommended a call option on iShares 20+ Year Treasury Bond ETF (Nasdaq: TLT), which is an ETF that represents a collection of long-term bonds. That trade will go into pot A.

If I make another trade before I close this one out, it will go into pot B. And if I make a third trade before closing either A or B, it will go into pot C. (In the past two years I have never had more than three trades outstanding at any one time, which is why I have just three pots.) If I had three trades going at the same time and closed one out, let’s say pot B, the next trade would go into pot B.

Now let’s suppose I close out pot A, the TLT option, before I have recommended another trade. Then the next trade I recommend would come from whatever funds are now in pot A. In all cases, you would reinvest 100 percent of those funds in the newest trade. In other words, you compound the results within each pot.

Compounding With Less Risk

The big advantage to this system is that the compounding comes with lower risks. Typically, trying to compound gains is very risky, and that’s particularly true for options. But by dividing your funds into three separate pots, even if one crashes and burns, the others are intact.

On balance our trades are dedicated just to the indicators, not individual stocks within an ETF. Indicator-based trades on ETFs are correct about 80 percent of the time. That means there’s a strong likelihood that at least one pot will have multiple successes with very few misses.

And with the largest ETF miss around 20 percent, even if that pot suffers, it would still leave one or both of the other pots with a string of successful trades whose gains are compounded.

Our system lets you diversify your capital while still benefiting from compounding. And compounding is the key to making major money. Even if two pots have mediocre – even negative – returns, with the bulk of successful trades concentrated in the third pot, the gains in that pot will likely be high.

It Really Works

I went back and applied this method to all our trades since the start of 2016, which is when we began using the indicators. Only pot A showed a large profit. Pots B had a relatively small gain and C had a relatively small loss. But the gains in pot A were high, high enough so that you would have multiplied your overall capital many times – even though pot A started out as just one-third the total amount of capital you were allocating to aggressive trading.

You don’t need to take my word for it. Feel free to ask to see spreadsheets. Everything is documented, including screenshots of when each trade was made.

There are lots of parallels to increasing the odds of success by applying a trading system. Take black jack, for example. Counting cards will definitely give you an edge on the house – but to benefit from that ability, you need a proper trading system. The same goes for poker or any other game that involves probabilities.

I wish I’d paid more attention to the importance of trading systems earlier. But better late than never. While there are no guarantees, I believe that if you follow my system, you should have a very happy 2018.

Jim (and Stephen), is there a place I could see more detail about your pot system. I am very interested in it as we move forward with its use. Also, Stephen, did you mention spreadsheets with your results a while back? I wasn’t sure if that was you or Scott. I’d love to see how these results developed. Thanks for sharing this with us.