Trading Philosophy – General Understanding of the Markets.
Building Trading System
Risk Control
Ø Novice
Day Trading, Scalping and Tape
Sunday, October 23, 2011
Thursday, October 20, 2011
Profit: how do you handle it?
Consistency is a sign of professionalism.
Weird question, isn't it? You pocket it, you smile, brag, drink, spend on that even bigger screen TV or even smarter phone... right? Well, yeah - under one condition: after making that profit you managed to keep it. If you are anything like 99% of the rest of the players then the following complaint will sound very familiar to you:
I started the day so nicely, got this and that trade right, and if I just fainted right then it would be the best day of the month... but I pushed for more, lost some, felt regret, wanted to get it back, pushed again, lost all my profits... then I just couldn't accept that it all evaporated, and tried again and again... only to finish the day deeply in red. WTF?? (which as we all well know means Why The Failure??)
If you can't related to the above, just skip the rest. You are not human, why bother with our human problems. If you can though, here is the advice I regularly give in the room when someone hits great winning streak in the morning. Make it your standard operating procedure, and you will never find yourself in that frustrating situation.
1. Decide for yourself how much of your today's profit you keep no matter what and put a "stop on your account" so to speak at that level. My rule of thumb is 75%.
2. On all further trades manage the stop level and position size in a way that doesn't jeopardize more than the rest of the profit made earlier (in that rule of thumb it will be 25%).
3. Each time you make another profitable trade, move your account stop up to protect some of this additional profit as well. My rule of thumb is 50% of new portion. This is not unlike trailing stop, only applied to your trading account.
4. If your "trailing stop" is hit by a losing trade, you are done for the day. Go enjoy life or switch to paper trading if you want - but no more actual trades. Switch to demo mode if your software allows it. Go away from your computer altogether if you suspect you have weak discipline and may give in to temptation.
5. If your winning streak continues, close to the end of the day start trailing even tighter - 75% of all new profits (again, not unlike trailing stop principle where you tighten it more and more as price advances in your favor).
To put it all into numbers for illustration purposes:
Let's say you made $1000 in the morning trades. Your stop is at $750 now (if you want to go with my management; adjust to your risk tolerance if it's different from mine). Now, if your next trade loses $150, you have only $100 to lose before you stop trading for the day. You lose $250 - you are done, no live trades today anymore. Your next trade made $300 - trail your stop by $150, so now it's at $900. The next one made $400 - trail the stop by $200... etc, you got the idea.
This approach will save you a lot of frustration and make you much richer. Don't let the idea of "but what if I miss a great trade" tempt you - there will be a market tomorrow too. Trading is continuous process of many trades, and it's a combined result of them all that matters. Consistency is a sign of professionalism.
I can't remember, nor can I find on the fly, who said this: market is the easiest place to make money and the hardest place to keep it. Very true. If anyone knows the author and gives me a clue, I will add the name.
Weird question, isn't it? You pocket it, you smile, brag, drink, spend on that even bigger screen TV or even smarter phone... right? Well, yeah - under one condition: after making that profit you managed to keep it. If you are anything like 99% of the rest of the players then the following complaint will sound very familiar to you:
I started the day so nicely, got this and that trade right, and if I just fainted right then it would be the best day of the month... but I pushed for more, lost some, felt regret, wanted to get it back, pushed again, lost all my profits... then I just couldn't accept that it all evaporated, and tried again and again... only to finish the day deeply in red. WTF?? (which as we all well know means Why The Failure??)
If you can't related to the above, just skip the rest. You are not human, why bother with our human problems. If you can though, here is the advice I regularly give in the room when someone hits great winning streak in the morning. Make it your standard operating procedure, and you will never find yourself in that frustrating situation.
1. Decide for yourself how much of your today's profit you keep no matter what and put a "stop on your account" so to speak at that level. My rule of thumb is 75%.
2. On all further trades manage the stop level and position size in a way that doesn't jeopardize more than the rest of the profit made earlier (in that rule of thumb it will be 25%).
3. Each time you make another profitable trade, move your account stop up to protect some of this additional profit as well. My rule of thumb is 50% of new portion. This is not unlike trailing stop, only applied to your trading account.
4. If your "trailing stop" is hit by a losing trade, you are done for the day. Go enjoy life or switch to paper trading if you want - but no more actual trades. Switch to demo mode if your software allows it. Go away from your computer altogether if you suspect you have weak discipline and may give in to temptation.
5. If your winning streak continues, close to the end of the day start trailing even tighter - 75% of all new profits (again, not unlike trailing stop principle where you tighten it more and more as price advances in your favor).
To put it all into numbers for illustration purposes:
Let's say you made $1000 in the morning trades. Your stop is at $750 now (if you want to go with my management; adjust to your risk tolerance if it's different from mine). Now, if your next trade loses $150, you have only $100 to lose before you stop trading for the day. You lose $250 - you are done, no live trades today anymore. Your next trade made $300 - trail your stop by $150, so now it's at $900. The next one made $400 - trail the stop by $200... etc, you got the idea.
This approach will save you a lot of frustration and make you much richer. Don't let the idea of "but what if I miss a great trade" tempt you - there will be a market tomorrow too. Trading is continuous process of many trades, and it's a combined result of them all that matters. Consistency is a sign of professionalism.
I can't remember, nor can I find on the fly, who said this: market is the easiest place to make money and the hardest place to keep it. Very true. If anyone knows the author and gives me a clue, I will add the name.
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