Tag Archive: trade size

Stop Staring At The Screen

An old friend  shared how discouraged he was with not being able to manage his impulsive trades. That evening we decided to observe how he traded the US  session.

He certainly was hard working and eyeballed every 5 minute bar.  He had a reasonable trading strategy, but on several occasions strayed from the original plan, and “analyzed” various opportunities on the fly.  Quite a few times, I had to stop him from committing to a trade regardless if it eventually won or lost.

My friend was too eager to make money. (In his case, to make up for  previous lost investments.)

Based on his trading methodology, I explained how he could use a simple filter, as well as an alarm alert.  After he prepared a simple trade management plan and set the alerts, I told him to just leave his laptop. If he wanted he could watch TV, read a book, or even review market updates from Bloomberg, Forexlive etc – just not watch the currency rates or the charts.

He need not be dismayed – many traders were like him. These traders who stared painfully  at every movement, hoping to catch an elusive winner, ultimately put on impulsive trades. No amount of self restraint would have helped.  For my friend, it was better to have a strategy that would not require watching the market so intently.

By using a filter, we let the market scream out to him when his edge was in play. Once the alert had been activated, he could review how feasible the edge was in the current market condition – and if he decided to take the play – to monitor the market for a potential entry or set a limit order.

If successfully executed, he needed to set the necessary stop and take profit alerts, be watchful over when the next major event or announcement would be made, and just leave his laptop.

Simply not being glued to the screen  is itself  a major step to avoid impulsive trades.


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Risk More, Earn More

littl121 post on August 22nd, 2015
Posted in Trading Tags: , , ,

“Have you increased your trade size?” – A friend asked me point blank. We have not met for several months, and he stuffed this in my face. What happened to “you look great?” What a ___? (I know you are reading this.)

I fumbled “yeah, of course I have, well … ” and whatever soundbites I could piece together as an intelligible answer.

Well … in a way I think I have. You see my friend successful as he is, founded his game on the traditional premise – more risk, more reward. His question hoped to gauge my maturity in the game.

Simply, if you get a 100% return on what you risk per trade,

 

Risk         Potential Reward

$1000       $1000

Risk         Potential Reward

$2000       $2000

 

Risk more, you lose more or win more.

My friends know I do not risk more than 1% of equity on any trade. I confess on occasions, I have lost self control. I let greed overwhelm me, I doubled everything – and risked 2%.

Sigh, so even if I increase my trade size by one zero, two zeroes – it is still a timid trade compared to the millions he risks. But I was answering truthfully nonetheless – 1% of a larger equity base is a larger trade size …. well, … except these days, I oft risk only 0.5% instead ……

 

Previous per trade

Risk         Potential Reward

1%         1%

 

Now per trade

Risk         Potential Reward

0.5%       0.7% to 1%

(higher spreads these days)

 

My friend focuses more on profit potential a.k.a. greed, whilst I focus more on risk mitigation a.k.a. paranoia. That is why he is a longer term trader whilst I am a very short term trader. The forex market, quite unlike its equities peer, is not a viable long term asset class in terms of fundamentals and its dynamics highly disadvantage the retail trader.  Yes, sometimes currency pairs trend for a long duration, but not due to fundamental valuations. Managing risk is about the only trump card a retail forex trader has. Hence, in the forex market at least, I am happy to be risk averse. Throw this in with hard work, and we get a highly respectable annual return with much lowered risks than long term trading.

Why not increase risk back to 1% and double the return? Seriously?! Finance 101 !

Risk more, you lose more or win more. That’s the universal truth —- in gambling.


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