Friday, September 24, 2021

Sticking with the process

My historical win rate is about 30%, so with the majority of my trades generating losses, I have learnt to accept losing money along the way.

To me, what is far more important than the monetary outcome of any one trade is whether I am sticking to my process and my execution:
  • Did the setup meet my criteria?
  • Was the position size and monetary amount risked correct?
  • Was my order to open placed at the correct level?
  • Did I follow my stop methodology?
If I can answer those questions in the affirmative, I have nothing to criticise myself about - I cannot control the buying and selling of others, and consequently what price does post-entry.

My sole focus is to stick to my process.

That, combined with good risk control and the knowledge that I will get into profitable trades at some point which will more than cover those losses, helps me keep my mental equilibrium during losing streaks. 

Over time, I've become conditioned to expect to lose on any trade. I've had runs of 10 or more consecutive losing trades in the past, and fully expect to do so again. My worst run was 28 losing trades out of 31. But I am very aggressive in cutting losing trades. And, every so often, out of the blue, you get into one position which takes off in the direction you are trading, more than covering those small losses, powering up to new equity highs.

As I've mentioned before, trend following is an extreme example of the Pareto Principle.

Richard Dennis opined that 95% of his profits came from only 5% of his trades. 30+ years later, adopting similar principles and beliefs, my own performance and analysis told me a similar tale.

You tend to spend most of the time scratching around, making a bit, losing a bit, and technically being in a drawdown. Most traders are unable to accept that, and seek comfort in having a high win rate.

As another trader recently commented to me, the above sounds simple - and it is. BUT, we all know that doesn't equate to it being easy to follow. Trading is not where it is you against the market, it is you against yourself.

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