Thursday, February 21, 2013

Playing defensive

Over the last 24 hours or so the indices have attempted to move downwards, the catalyst being the release of the FOMC Minutes in the US. This has caused me to lose some open profits, however I have not lost any trading capital. I have been stopped out of a couple of long trades today, but all that was lost was the profit element. It was somewhat typical as well that, on one of those positions, my stop was briefly touched, and equated to the low point of the day. But who was to know that would happen? The downward move may have continued...(and may do so tomorrow).

As a result I am extremely lightly invested at the moment, and will wait to see what occurs over the coming sessions to see if the bias in the direction of any new trades will need to change.

With the additional rules as described in the e-book addendum, the main change in my results to the basic system has been a huge improvement in the retention of cash equity. This is at the cost of a small number of profitable trades being eliminated, that under the original rules would have been kept open, but in overall terms the average profit per trade (expressed in terms of R) has jumped up.

Remember that a traders' main goal is to minimise losses, while maximising the profits. Certainly the changes have kept losses and drawdowns to an absolute minimum. This can only help those traders (particularly from the psychological point of view) who like the idea of trend following, while being mindful of the potential associated drawdowns.

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