Thursday, April 11, 2013

A very simple overview

Here is a short bullet point plan to help you with your trading:
  • If you want to incur small losses relative to your trading equity, then trade small;
  • If you want to incur big losses relative to your trading equity, then trade big;
  • Losses are inevitable, therefore to avoid big drawdowns, and possibly blowing up your account, trade small;
  • Risking a small amount on each trade allows you to have an 'emotional indifference' to each position, thereby allowing you to follow your rules;
  • Having such a mindset allows you to accept small losses as a cost of doing business, and avoids you letting them develop into big losses;
  • If you want to receive small profits, then use profit targets or oscillators;
  • If you want to receive big profits, then do not limit your profits - let them run until price tells you when to exit;
  • Price is the one metric you can easily use on any stock, commodity, index or forex pair, or any other instrument that you want to trade.
The conclusion - use good risk control, concentrate on price action, cut losses short, let profits run. Sounds like the very foundations of a good trend following strategy, which has been used by many of the most successful traders and Market Wizards.

With trend following, you have limited downside, with unlimited upside. The current performance of my own positions, and the minimal drawdowns incurred, reflect this. Refer to this post for more.

To learn more, pick up a copy of my e-book, or look at the 1-2-1 training or mentoring options.

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