You know what is LaoSai? The moment you flush and leave the toilet….you feel a need to repeat again….
This is it….
If you have been making good money for the past few months (Jul till now) good for you! I have been whipsawed left right centre…hahaStill, a pseudo portfolio I maintained (thru personal mailings/tracking) is still up 8++%
Other pros are doing better, but most are struggling, last year and this year….
erm…not too shabby
Backing testing and current year accuracy has been consistent…. 50% accuracy (Peter Brandt, a chart trader mentioned 30% is enough, if you know how to ride trend and cut losses)
Many of us are too concerned with accuracy and ptofitability of our trading style or systems. Often, many of us are in awe of whoever tells us how much they have made in trading.
Firstly, it not the monetary value that matters, it is the percentage. Making $2,000 trading based on a $20k trading capital or a $200k trading capital is 2 different performance level….
A trading system with high accuracy and yet without any care for risk management will bust sooner or later…. you only need 1 massive loss to wipe out our trading a/c (if you lost 50%, you will need to gain 100% tio come back to even, if you lose 80%, you need to make 500% to get back….)
So there’s really no point facinating over a holy grail or a highly accurate system….its the risk management.
I have often mentioned risk management as buying at the right time and right price, plus having stop loss and position sizing. (That’s 4 factors or 4 layers of defensive actions).
Since I am into following trend, so I buy when I see a trend developing. What price to buy? I buy when it ticks up. I have clients who chided me for this advice. ” ok can buy today huh…help me queue at a lower price, I wanna buy cheap”
Let me ask you, if you are expecting a stock to go up and make money for you…wont you be expecting to see it go up…not down? So why bother queuing at a lower price?
Let me give you a metaphor. Lets say you expect Arsenal Football club to win (I EXPECT my ARSENAL to win ALL the time anyway….heheh), would you bet that Arsenal will concede 2 goals and then go on and win 3 – 2? Or would you just bet outright that Arsenal will win? Which bet would you take? Then now look at the above trading buy action and think again…..why queue low when you expect to buy into a “winning” stock?
Next is stop out…think i have posted before, we can decide out stop based on our trading style…chart pattern will have its own stop level, buying on the uptrend dips, stop is mostly at prior low, and trend trading has its own stop positioning.
Next is position sizing. Many of us tend to ignore or have not considered this at all. Buying equal amount of Singtel which moves 10% a year and Digiland which moves 50% a day is just not right.
Lastly, which is most important actually, maximum drawdown…which dictates how much to risk per trade. But this can only be derived if you have a strict trading system to follow…not for a style where you buy based on analysts’ calls, or news etc…. Maximum drawdown is how much you lose overall (equity peak to trough) when your system has experienced its longest losing streak. Losing 30% (at least less than 50%) should be your target, and you adjust the % to risk per trade here. That’s where you can say “let’s say we risk $500 per trade based on our $100k pseuod portfolio….”
So next time you encounter a “guru”…stop asking how much you made, out of 10trades how many you win? Ask, what’s the rationale basis for you to buy? When do you decide to sell? How do you decide on your stop loss? What was you maximum chain of losses to date and how you do deal with it…. etc
Of course, the above is most relevant for trend trading
cheers and safe trading!