Hi all,
After an excellent Monday, the next two days saw some awkward losses before a decent recovery yesterday. Trading is frustrating like that and you just have to plod on steadily. Still, the account ended Thursday up a very healthy +4.9% / +4.5R for the week to date on 8 trades split W4 L2 S2 using a 1% per trade risk, so today is another demo only practise Friday. After six weeks and 38 trades the account is up a net 18.4% with a worst drawdown of just -2.0% and the trade success rate remaining at exactly 50%. The updated summary trade spreadsheet is attached.
No live action today, so an opportunity to consider a surprising truth about trading: You really don’t have to do much to make good money at trading (but you do have to do it well).
Let’s have an example. Say you trade risking just 1% of your account per trade and have a win rate of only 50% with winners 1.3x the size of the losers on average - very achievable if scratches are counted as losers. As an intraday trader you take an average 3 trades per day for 225 days a year (that still leaves you with all the weekends, public holidays and 5 weeks’ holiday) and you get: 225 x 3 x 50% x (1.3 - 1) x 1% = 101% pa return, before any compounding. You’ve doubled the account wth an essentially random entry whilst never risking more than 1% per trade!
Play with these variables to simulate your style of trading, the above example is obviously geared towards mine. You’ll find the required trading achievements are not out of this world by any means. So, why then do so many traders fall short, in fact mostly lose money? It’s unlikely to be the required success rate, in the example that is a random 50%. Clearly, it lies with the average win:loss size.
Losing traders tend to have losers on average significantly bigger than the winners. It creates a high hurdle that is difficult to overcome and puts enormous pressure on the success rate. You now need a high win rate and that makes you fearful of losing so you trade scared and will do almost anything to avoid taking a loss because you know you can’t afford it. You’re already on the slippery slope, almost without realising it. Can you see the all-too typical problem here?
The answer? Focus on getting winners on average bigger than losers. I do it by always keeping losers small, taking a a fair number of scratches, and having the odd windfall winner. You can do it any number of ways but, however you do it, you must look to get there. It takes the pressure off the win rate, allows you to relax and achieve good returns without needing to take big risks or being a genius market reader.
The most important element here is keeping losers small. If losers are small then it’s not difficult to have winners bigger. Don’t fear or try so hard to avoid losing trades because, like death and taxes, they’re coming anyway! Embrace your losers but keep them small. Only fear big losers, and fear them like the plague. They will kill you, or at least your account. The moral here is clear:
Kill your losses before they kill you, and learn to love your small losers.
Have a good weekend!
NB I shall not be trading or posting Monday as it is a public holiday here in the UK and I shall be busy with a family get-together. Back Tuesday.
After an excellent Monday, the next two days saw some awkward losses before a decent recovery yesterday. Trading is frustrating like that and you just have to plod on steadily. Still, the account ended Thursday up a very healthy +4.9% / +4.5R for the week to date on 8 trades split W4 L2 S2 using a 1% per trade risk, so today is another demo only practise Friday. After six weeks and 38 trades the account is up a net 18.4% with a worst drawdown of just -2.0% and the trade success rate remaining at exactly 50%. The updated summary trade spreadsheet is attached.
Attached File(s)
YTD.xlsx
7 KB
|
151 downloads
No live action today, so an opportunity to consider a surprising truth about trading: You really don’t have to do much to make good money at trading (but you do have to do it well).
Let’s have an example. Say you trade risking just 1% of your account per trade and have a win rate of only 50% with winners 1.3x the size of the losers on average - very achievable if scratches are counted as losers. As an intraday trader you take an average 3 trades per day for 225 days a year (that still leaves you with all the weekends, public holidays and 5 weeks’ holiday) and you get: 225 x 3 x 50% x (1.3 - 1) x 1% = 101% pa return, before any compounding. You’ve doubled the account wth an essentially random entry whilst never risking more than 1% per trade!
Play with these variables to simulate your style of trading, the above example is obviously geared towards mine. You’ll find the required trading achievements are not out of this world by any means. So, why then do so many traders fall short, in fact mostly lose money? It’s unlikely to be the required success rate, in the example that is a random 50%. Clearly, it lies with the average win:loss size.
Losing traders tend to have losers on average significantly bigger than the winners. It creates a high hurdle that is difficult to overcome and puts enormous pressure on the success rate. You now need a high win rate and that makes you fearful of losing so you trade scared and will do almost anything to avoid taking a loss because you know you can’t afford it. You’re already on the slippery slope, almost without realising it. Can you see the all-too typical problem here?
The answer? Focus on getting winners on average bigger than losers. I do it by always keeping losers small, taking a a fair number of scratches, and having the odd windfall winner. You can do it any number of ways but, however you do it, you must look to get there. It takes the pressure off the win rate, allows you to relax and achieve good returns without needing to take big risks or being a genius market reader.
The most important element here is keeping losers small. If losers are small then it’s not difficult to have winners bigger. Don’t fear or try so hard to avoid losing trades because, like death and taxes, they’re coming anyway! Embrace your losers but keep them small. Only fear big losers, and fear them like the plague. They will kill you, or at least your account. The moral here is clear:
Kill your losses before they kill you, and learn to love your small losers.
Have a good weekend!
NB I shall not be trading or posting Monday as it is a public holiday here in the UK and I shall be busy with a family get-together. Back Tuesday.
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