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Trading least risk while trading at your worst
Well I've just come out of two VERY nasty days of trading. Had 5 losses in one week (not that the weeks even finished) which is a first for me.
Howz my account? Dented oh yes, but I'm no fool. my risk is relatively low per trade so all I've lost is this months profit. Last months profit and my account is still intact.
Earnt a little of this months profit back this morning too.
I'm quite pleased my system has been able to handle a rough patch like this.
However I'm always interested in improvement.
Paul Tudor Jones in the book, Market Wizards, explains that when his systems are trading at their worst, he also wants to trade with the least risk.
This sounds effective and simple, but when you think about it it's very complex.
When do you scale down your trading size? At what point do you scale it up again?
One of the things that catches my attention is say I have two losers and decide to scale down my risk, when I start getting winners again, I'll only be trading with a small position! My losers were big and now my winners are small. I've basically taken the losses then missed out on a big part of the equity 'recovery'.
There are a lot of things to consider in improving once account like for example your gonna do the things that you should do as the owner of that account.
A lot depends on the expectancy of your system. How often is your system right vs. wrong. How does your average loss compare to your average win. How likely is 5 losers in a row. Can you identify the market conditions where your system works well and those conditions where it doesn't?
Also go to Trading Education - Van Tharp has spent a lot of time figuring out what makes traders successful. One of the key things is position sizing and understanding system behavior. Download the free version of the Position Sizing Game and look at some of the free resources available on the site.
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