“The central message is, ‘knowledge is not power. Education is not the key or the answer. In the end, the only thing that matters is what you can do under pressure. The strength of a great tree is the roots and the trunk, not the branches.’” – Ryan Litchfield


In one of my former articles, I revealed that the most difficult task in trading is the attempt to retain your accumulated profit when things aren’t going your way. If the returns accrued in easy markets are extremely difficult to defend in bad markets (at least some part of the returns), then the most important trading skill is the ability to defend the returns on your portfolio. This also has to do with the ability to defend a trading portfolio. The point is to make sure that you lose as little as possible in bad markets, using very small sizes, stop loss, breakeven, trailing stop and take profit in your trading. During a losing streak, which would never announce its arrival, trading accounts and/or the returns on them can never be defended successfully with big position sizes.

It’s your long-term survival in the markets that can make you a permanently opulent trader. Kenneth C. Griffin had a humble beginning as a market speculator. When managing relatively small amount of funds, he was successful, and as a result, bigger funds were entrusted to him. Griffin has been one of the most successful hedge funds managers of all time. What do you think is his average returns per month? Well, for those who invested, huge rewards followed which Griffin attributed to his exceptional investment skills. Specifically, annual performance has been in excess of 20% since 1998. He’s already up by 15% this year.

To many traders out there, it isn’t sensible to look for around 20% returns per annum. I understand the reason behind this feeling; most traders only have small amounts of money. For example, an annualized gain of 20% doesn’t make sense on $1,000 unless it is $100,000. One former trader who was a consistently losing trader was complaining that his loss was due to the fact that he’d no enough money. Eventually, a bigger amount of money was given to him. He thought that would enable him to use bigger lot sizes. Things worked for him in the short run, but when a losing streak came in, he couldn’t survive it. This means that if one can’t manage small amounts of money successfully, it’s doubtful one would be able to manage big amounts of money successfully. The most important trading skill will forever be the ability to move ahead (no matter how slowly) no matter what the markets do.

Who’s a Winning Trader?

Who’s a winning trader? One who usually survives bad market conditions is a trader that’s truly great. A winner knows that even with 10% – 30% returns per annum, she/he will soon grow rich. A winner isn’t someone who doubles her/his account time and again. A winner is the person who can survive in the markets for the rest of her/his trading career – no matter how small the annual profit is. A winner doesn’t fear loss for she/he knows that a loss would only take away a very small portion of their account (something negligible). A winner knows that after a loss, she/he will still be breathing, and therefore she/he has nothing to be afraid of. A winner doesn’t dread taking trades from new setups because of a recent string of losses.

If you gain between 30% to 50%, or more than that per annum, you’re a victor. If you gain 20% or 15% returns per annum, you’re a victor. If you gain 10% or 5% or 2% in a year, you’re a victor. You’d just need to be thankful for the fact that your capital is intact (those who have had big drawdowns on their capital are worse off). You’re still a winner even if all you have at the end of a trading year is your capital; as long as your annualized loss is less than -10% (those who have had margin calls are far worse off). You don’t need to lose what you have before you can appreciate it. As a risk manager, when in a losing streak, the more frustrated you are, the calmer you got to be (knowing that a winning streak is around the corner). A good year is ahead.

Please, leave any trading misconceptions behind.

Permanent victory in the market may be hard to achieve, but it’s not impossible. Despite the fact that some academics and economic theorists espoused the line that it’s impossible to profit on the long term, many people active in the markets – traders, investors, and some analysts – have known for years that markets aren’t efficient and that they’re affected by people’s behavioral and emotional biases and attributes. Small position sizes enable you to continue staying in the markets, for your portfolio would be your reinforcements when the market conditions are favorable to you. It pays to continue to stay active in the markets, for the best trading months and years may still be ahead of us.

I conclude this article with quotes from Ryan Litchfield:

1. “A good trader is ambidextrous. Upside and downside moves are seen as equal opportunity. A good trader appears fickle and almost too willing and eager to leave trade that is not going as planned. A good trader never loses. A good trader sees the small amount of money associated with being stopped out as a cost not a loss. The good trader sees that cost as the price to find out if a potentially big move would happen.”

2. “Ok, so if you can’t dictate the outcome, then your odds are 50/50 every day that you are in the market. 50/50 you say??? Yes 50 / 50. Time and time again the market moves the opposite way that was expected. News stories can reverse the direction of a stock or market and the market often reacts the opposite way the news might suggest. Trading must involve a comprehensive plan for a move in any direction.”

3. “Contrary to popular wisdom, being successful in the market has little or nothing to do with winning. In fact trading, which is often compared to warfare and battle, is not about winning and losing at all. If it rains on your picnic did you lose? Hey it looked like a nice day. Was it your fault that a sudden storm showed up and your picnic was washed out? Since you can have nothing to do with the direction of a stock or the market, how can you win or lose? The market is going to do what it is going to do whether you play or not, all you can do is to act and react so as not to get run over. If you have taken a position and it moves against you, it is not your fault unless you did not anticipate that possibility and have an exit strategy in place.”

NB: Please watch out for my coming articles with these titles: ‘Making Money out of Losses – A Blessing in Disguise,’ ‘Achieve a Better Hit Rate with Gap Trading (Using the Logic Yourself),’ ‘Play the Markets Victoriously with Nano-cent Accounts,’ ‘Why It’s Difficult to Do the Right Things in the Markets,’ ‘How to Identify a Sideways Market – Be Safe!’ ‘A Negative Expectancy System – Pushing Against the Wind?’ ‘Trading Signals,’ ‘An Intraday Moves Catcher – A Wealth Generating System,’ ‘Unlock the Power of Everlasting Triumph in the Markets (Parts 1 – 12),’ ‘How to Handle Uncertainties in the Markets,’ ‘The Issue of Stops (Come Back! Oh Come Back!),’ ‘A Hedge Funds Strategy,’ ‘My Hedge Funds Strategy Update,’ ‘Experiment with Different Exit Tactics,’ ‘Mastering the Market Equilibrium Zones – A Time-sensitive Method,’ ‘How I Apply Risk Management – Part 3,’ ‘A Simple Positive Expectancy System – Trading Effortlessly,’ ‘Testimonies from My Subscribers,’ ‘Resist the Lure of High Risk – Part 4’ ‘Worst-case Scenarios – Facts Are Sacred,’ ‘Effective Swing Trading in Forex,’ ‘Gap Trading Revisited,’ ‘3 Recent Gap Trades,’ ‘Developing the Right Attitude towards Losses – Part 4 (Losses Aren’t Abnormal),’ ‘The True Holy Grail – The Long Sought for,’ ‘Forex Trading Vocabulary,’ ‘ Clarifying Some Issues – Part 6,’ ‘Navigating Turbulent Markets – A Double Timeframe Analysis,’ ‘Before You Open that Trade,’ ‘Cogent Trading Biases,’ ‘Overview of My Signals Strategies – Can You Become a Super Trader?,’ ‘Optimization of the USDCAD Hedging Strategy – Bringing the USDCAD to Subjection,’ ‘Uncertainty Has Become My Ally – An Interview with a Dogged Market Speculator,’ ‘The Cost of Discipline,’ ‘2 Examples of the USDCAD Hedging Trades,’ ‘Monthly Market Review,’ ‘You Are a Blessing to the World of Trading,’ ‘Annual Trading Results (2011) – I Was Perfecting My Trading Skill,’ ‘2012 – Another Year of Victory in the Markets,’ ‘Monthly Trading Report (December 2011),’ etc.

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

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