Never take a trade that doesn't give you a risk reward ratio of 1:3
If you have been trading for sometime, you may have come to realize how hard it is to trade successfully with a 'good' risk reward ratio. You place a small stop loss say 20 pips, profit target at 60 pips. Your trade gets stopped out and then turns around a while later in your original trade's favor. You place a big stop loss of 40 pips, profit target at 120 pips. Your relative huge stop loss acts as a buffer for the volatility, your trade did not get stopped out even though it moves about 20 + pips against you at a point. You are happy about it and wait happily for the trade to hit your profit target. At one point, your potential profit is 70 pips, then the price starts to turn around. Unfortunately, it turns adversely against you this time round and stops you out at breakeven/a loss.
I am sure many of you may have gone through the above dilemma in your trading. The truth is more than half the time, trading with good risk reward ratio can easily leads to a string of bad/losing trades and can actually worsen your overall trading performance. Sometimes if you take too many losses, even a winning trade cannot cover your losses and you might end up in a net loss situation.
Never risk more than 2 percent of your account on any trade
If you have a workable system, tested to work over long period of time, it doesn't matter how much you risk, you will end up in profit. Just bear in mind not to trade so large to the point that it is not enough to buffer for volatility and margin requirement, you should be fine. If you have been trading profitably consistently for quite a while, there is no harm in increasing your position size a little to maybe 5 percent or more, and you will get more profits and your account will grow faster.
However, if you are trading with a system that you have not been entirely confident yet, yeah the 2 percent rule is probably wise. Either that, trade with a small account size or paper trade.
My point is that the 'never risk more than 2 percent' rule undermines the potential profits of performing traders.
Technical Analysis Works
One of the biggest lies that a lot of people take in. And also one of the many ideas trading gurus like to sell through courses and books. Chart patterns, indicator figures which are some of the many popular focuses of technical analysis. Take support/resistance for instance. How would price react to them? They would either respond to them and make a reversal, or simply break through them, slicing through them like knives cutting through butter. There are usually two opposing scenarios in most patterns. Either this or that. There is no way of telling which would happen. Take a trade based on the pattern, you are actually taking a pretty big risk. One wrong guess, you will probably get a losing trade. Your chance of winning/losing is pretty much about 50%. Some people who are trying to sell (or give) trading systems/methods (some of them which are based on what I am talking about) claim that they work 60% of the time, are simply just making their risky systems/methods sound better than what they really are and gives the false impression they are high probability trading methods. To me, only a system which has been tested over a long period of time with at least 80 percent win rate, can be considered to be a high probability trading system/method (the statistics on this sentence is a personal opinion)
The unawareness over the realistic statistical probability of any trading method/system being used is one of the underlying reasons why a lot of traders can struggle for years on trading. They have been using methods that are statistically speaking too risky, and run the risk of account ruin in the long run (or short to some). You can make money today with a given trading system/method and then lose it all back easily on some other days using the exact same trading system/method. This is the problem with systems that fall short of real high probability win rate.
I am not suggesting that technical analysis is totally useless, nor am I discouraging people from studying it. My point is just relying of popular trading patterns or methods blindly is not enough to produce consistent good results. You need to think deeper through technical patterns. The winning combination that makes up a good system is not that easy to find without thorough thinking and your own personal analysis. It goes much deeper than just blindly following patterns that are found in trading books or courses.
Note: I might add other tips related arguments in the future.
If you have been trading for sometime, you may have come to realize how hard it is to trade successfully with a 'good' risk reward ratio. You place a small stop loss say 20 pips, profit target at 60 pips. Your trade gets stopped out and then turns around a while later in your original trade's favor. You place a big stop loss of 40 pips, profit target at 120 pips. Your relative huge stop loss acts as a buffer for the volatility, your trade did not get stopped out even though it moves about 20 + pips against you at a point. You are happy about it and wait happily for the trade to hit your profit target. At one point, your potential profit is 70 pips, then the price starts to turn around. Unfortunately, it turns adversely against you this time round and stops you out at breakeven/a loss.
I am sure many of you may have gone through the above dilemma in your trading. The truth is more than half the time, trading with good risk reward ratio can easily leads to a string of bad/losing trades and can actually worsen your overall trading performance. Sometimes if you take too many losses, even a winning trade cannot cover your losses and you might end up in a net loss situation.
Never risk more than 2 percent of your account on any trade
If you have a workable system, tested to work over long period of time, it doesn't matter how much you risk, you will end up in profit. Just bear in mind not to trade so large to the point that it is not enough to buffer for volatility and margin requirement, you should be fine. If you have been trading profitably consistently for quite a while, there is no harm in increasing your position size a little to maybe 5 percent or more, and you will get more profits and your account will grow faster.
However, if you are trading with a system that you have not been entirely confident yet, yeah the 2 percent rule is probably wise. Either that, trade with a small account size or paper trade.
My point is that the 'never risk more than 2 percent' rule undermines the potential profits of performing traders.
Technical Analysis Works
One of the biggest lies that a lot of people take in. And also one of the many ideas trading gurus like to sell through courses and books. Chart patterns, indicator figures which are some of the many popular focuses of technical analysis. Take support/resistance for instance. How would price react to them? They would either respond to them and make a reversal, or simply break through them, slicing through them like knives cutting through butter. There are usually two opposing scenarios in most patterns. Either this or that. There is no way of telling which would happen. Take a trade based on the pattern, you are actually taking a pretty big risk. One wrong guess, you will probably get a losing trade. Your chance of winning/losing is pretty much about 50%. Some people who are trying to sell (or give) trading systems/methods (some of them which are based on what I am talking about) claim that they work 60% of the time, are simply just making their risky systems/methods sound better than what they really are and gives the false impression they are high probability trading methods. To me, only a system which has been tested over a long period of time with at least 80 percent win rate, can be considered to be a high probability trading system/method (the statistics on this sentence is a personal opinion)
The unawareness over the realistic statistical probability of any trading method/system being used is one of the underlying reasons why a lot of traders can struggle for years on trading. They have been using methods that are statistically speaking too risky, and run the risk of account ruin in the long run (or short to some). You can make money today with a given trading system/method and then lose it all back easily on some other days using the exact same trading system/method. This is the problem with systems that fall short of real high probability win rate.
I am not suggesting that technical analysis is totally useless, nor am I discouraging people from studying it. My point is just relying of popular trading patterns or methods blindly is not enough to produce consistent good results. You need to think deeper through technical patterns. The winning combination that makes up a good system is not that easy to find without thorough thinking and your own personal analysis. It goes much deeper than just blindly following patterns that are found in trading books or courses.
Note: I might add other tips related arguments in the future.
'For the market to work, it needs people who think that they can beat it.'
