Thats pretty good risk management... personally I go down to around 0.5% on standard scalps, but on what I perceive to be high probability plays, I will go up to 2%... on "in between" stuff I will do around 1%... a string of 1% losers and 2% losers can lead to some pretty ferocious drawdowns during my bad trading periods (if I do not scale back to 0.5%)... the upside of course is that I can get some equity curve spikes during the best trading periods... I live for these periods, as do we all...
LONGEVITY: Staying alive as a trader
- Thread starter candletrader
- Start date
Thats pretty good risk management... personally I go down to around 0.5% on standard scalps, but on what I perceive to be high probability plays, I will go up to 2%... on "in between" stuff I will do around 1%... a string of 1% losers and 2% losers can lead to some pretty ferocious drawdowns during my bad trading periods (if I do not scale back to 0.5%)... the upside of course is that I can get some equity curve spikes during the best trading periods... I live for these periods, as do we all...
For an experienced trader I think the biggest risk comes from external factors. It can be something as trivial as trading when you have an illness or hangover, which is probably more of a concern to discretionary traders who need to be on top of their game, to serious personal or family issues, such as divorce/breakup, death, lawsuits or caring for an infirm or elderly parent. The problem is that you often don't feel impaired, but realize only later that your judgment or concentration was subpar.
These components have allowed me to survive:
A Plan - I use three R's here. Realistic, rock solid and respected. This plan encompasses the areas of:
Trading stable - The stocks and ETFs I focus on. I don't care about or trade anything outside of it. I do add, but add slowly and only after I have paper traded the stock and feel comfortable with it. When I trade a newly added stock I use only 25% of my normal exposure, and then increase as I gain more experience with it.
Exposure per trade - Having fixed lot sizes or percentage of capital. I use a scale, "x" amount of shares for risk/reward ratios of "x". When the r/r ratios are higher I increase the exposure, and decrease the exposure with lower r/r ratios or questionable plays.
Strategy - After daytrading exclusively for 7 years with never holding overnights, I began swing trading 2 years ago. This was a very challenging time. I revamped my entire plan and reassessed my strategies. It's amazing how conformity with one timeframe serves as a handicap for another, initially. Later I found that the two schools of thought complimented each other. Having several strategies is great, however the real challenge is having the discipline to use a strategy at the right time. Multiple strategies in multiple timeframes allows you to take advantage of more opportunities. Without discipline, more opportunities means more trouble.
Resource requirements - from the quote platform and OES right down to the Post-It notes, I keep track of everything I need (cost, reason, and status). I use MSFT Outlook calendar to remind me of when I need to have maintanence and upgrades done. When one of these requirements needs to be changed I do it, It doesen't matter if its the B/D I use or a hard drive.
Meetings - No not with anyone else, with myself. Once a month I assemble a presentation, as if I were a CEO making a presentation to shareholders. It may sound a little off the wall, but I found so many faults and open issues that needed to be resolved in the process. I then go to a quite place two days later, a distance from home and review the plan, its a real eye opener.
Journal - its entries are only valuable when they are honest and reviewed regularly.
Last, the ability to change. The environment is always changing, and adapting to the change permits survival.
A Plan - I use three R's here. Realistic, rock solid and respected. This plan encompasses the areas of:
Trading stable - The stocks and ETFs I focus on. I don't care about or trade anything outside of it. I do add, but add slowly and only after I have paper traded the stock and feel comfortable with it. When I trade a newly added stock I use only 25% of my normal exposure, and then increase as I gain more experience with it.
Exposure per trade - Having fixed lot sizes or percentage of capital. I use a scale, "x" amount of shares for risk/reward ratios of "x". When the r/r ratios are higher I increase the exposure, and decrease the exposure with lower r/r ratios or questionable plays.
Strategy - After daytrading exclusively for 7 years with never holding overnights, I began swing trading 2 years ago. This was a very challenging time. I revamped my entire plan and reassessed my strategies. It's amazing how conformity with one timeframe serves as a handicap for another, initially. Later I found that the two schools of thought complimented each other. Having several strategies is great, however the real challenge is having the discipline to use a strategy at the right time. Multiple strategies in multiple timeframes allows you to take advantage of more opportunities. Without discipline, more opportunities means more trouble.
Resource requirements - from the quote platform and OES right down to the Post-It notes, I keep track of everything I need (cost, reason, and status). I use MSFT Outlook calendar to remind me of when I need to have maintanence and upgrades done. When one of these requirements needs to be changed I do it, It doesen't matter if its the B/D I use or a hard drive.
Meetings - No not with anyone else, with myself. Once a month I assemble a presentation, as if I were a CEO making a presentation to shareholders. It may sound a little off the wall, but I found so many faults and open issues that needed to be resolved in the process. I then go to a quite place two days later, a distance from home and review the plan, its a real eye opener.
Journal - its entries are only valuable when they are honest and reviewed regularly.
Last, the ability to change. The environment is always changing, and adapting to the change permits survival.
Since becoming a full time trader, I'm very risk averse and longevity in the business is something I always think about.
For me, my number one goal is to eliminate all debt, including my mortgage. If I hit a long dry spell and can't or don't want to draw funds out of my trading accounts, at least my living expenses will be close to negligible, removing any pressure to perform.
Next is to be well diversified among trading styles and accounts. If I do the work and build a stable of non-correlated strategies that I can trade simultaneously, the chances of them all going cold at once are slim.
Alternate income sources is the next goal, probably rental properties.
Having to go back to working for da man is something I will do everything possible to avoid and is extra motivation to always consider the downside first.
The three rules of trading, in order of importance (A. Elder):
1. Preserve capital
2. Achieve consistent returns
3. Achieve large returns.
For me, my number one goal is to eliminate all debt, including my mortgage. If I hit a long dry spell and can't or don't want to draw funds out of my trading accounts, at least my living expenses will be close to negligible, removing any pressure to perform.
Next is to be well diversified among trading styles and accounts. If I do the work and build a stable of non-correlated strategies that I can trade simultaneously, the chances of them all going cold at once are slim.
Alternate income sources is the next goal, probably rental properties.
Having to go back to working for da man is something I will do everything possible to avoid and is extra motivation to always consider the downside first.
The three rules of trading, in order of importance (A. Elder):
1. Preserve capital
2. Achieve consistent returns
3. Achieve large returns.
Real estate is good but you still have a risks like liability lawsuits.
I prefer portfolio of municipal bonds( tax free ) which covers all vital expenses.
I think the way you use stops is better then constant size. After while you just know when to hit it and when to be careful.
Walter