‘The more aggressive you are, the higher the gains you can expect, but the bigger your drawdowns can be. Even the best money management will not turn a losing trade into a winning one. But if the MM is well adjusted and not too aggressive, you will be rewarded… A good MM can improve the results of your trading system. So you need not have a superb trading system to make money. In the long term it’s enough to have a stable strategy with positive expectancy and proper money management.” — Urban Jaekle and Emilio Tomasini
The results of my 2 strategies are attached with this article. Trading can be a huge test of emotions. We’re not robots! But it’s absolutely possible for us to do the right things on the markets, if we’re really determined to do them. Risking very low on each trade, say 1% or 2%, would help you maintain indifference towards an individual trade; something you’d find difficult to do if you were risking 5% or 10% of your account per trade. Adhering to the Golden Rule (which makes perfect logical and rational sense) doesn’t make you avoid losses, but it ensures that you survive the markets at last. Certain traders don’t use stop loss because they want to be right with every decision. They hope a trade would soon reverse and go in their favor – sometimes it will, and sometimes it won’t. Someone who didn’t set his stop loss on a EURUSD trade 4 months ago was smarting every time he saw his huge loss running. He could’ve forgotten about that loss if he had taken it quickly when it was still small. Despite his use of 0.5 lots, he eventually received a margin call after the trade had gone against him by thousands of pips. He was deceiving himself by thinking he could close a trade after it went negative by some amount of pips. But he experienced ‘a flash spike’ downwards. He saw it and couldn’t do anything. It was the 5th time the failure to use stops would make him fall down flat.
According to Dr. Van Tharp: “The need to win money with every trade surely ends in disaster.” He forecasts that a sequence of 6 trades with a hit rate of 17% still remains profitable, provided the 5 losses are limited to 5x (-1R) = -5R and the winning trade amounts to 10R. I’ll never let any trade run without quickly putting my stops and targets.
I’m telling you all this so that you can see the long term benefits of doing the right things on the markets. “Nothing is as powerful as the truth, declared Wolfgang Kurz, a philosopher, psychologist, and CFD trader, or is it?’’
My Past Trading Results
I like both ITU Global strategy and Sure-fire strategy. They’ve left me in a profitable situation. The former has given me over 1000 pips in a few months, and the latter has given me over 450 pips in 4 weeks (though I prefer to refer to my closed trades in terms of percentage and base currency rather than pips). It’s only that my risk is usually small and in geometric patterns. I like it if my closed balance is lesser than my running equity. If my running equity is less than my closed balance, then it shows that I’m going against the Golden Rule. Take my ITU Global strategy for example; if I were risking 3 dollars for every dollar I wanted to gain, I’d have sustained about 27% drawdown in a few months. If I weren’t using stop loss at all, I’d have had even far bigger drawdown, if not a margin call. Yet this is what majority of traders find easy to do.
Most traders are looking for magical systems, while we neglecting position sizing and discipline. Trading systems take only 10% part of our success, position sizing takes 30%, and the remaining 60% is psychology. Dr. Van K. Tharp believes it might even be 100% psychology. Trading is a game of the mind. For many, trading discipline is simply a hard skill to master. If I abandon my systems, instead of sticking to them or optimizing them, where would I find a Holy Grail? During any losing streak, I know I won’t let one recent negative experience overshadow the nice aggregate performance that my trading system has provided over time. Going from one trading system to another is like a person going from one marriage to another. Little does the person know that it’s better to get rid of the problem and retain her/his spouse rather than getting rid of her/his spouse and retain the problem. What made you fall in love with your partner? Weren’t you satisfied with your strategy in the past? It’s usually an instance of the same or even a worse problem with a new mate – same problem with a new strategy.
You should continue to stick to your rules, and to optimize my systems. The ultimate objective is to be successful, and successful you’ll be. If some traders consistently survive the markets because they do the right things, you’d also be consistently surviving! Greatness is more than being good at something: it’s when a career becomes a calling and skills become expertise. You can be a great trader.
We need not fear anything! If you want to have an edge on the markets, please read my article that’s coming this Friday. Let me conclude with this quote:
‘Americans are probably more afraid than people from other countries, but now is not the time to be afraid. What you resist tends to persist and fearing… will only generate inaction for you on the trading front. This is the time to learn how to profit from the interesting opportunities ahead.” — Dr. Van K. Tharp
Your questions and opinions are highly welcome.
With best regards,
Forex Signals Strategist, Funds Manager &Coach
NB: There is risk of loss in trading, but it is possible to be a successful trader.
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