P1: PIC/PIC c06
August 18, 2008
Printer: Yet to come
HIGH PROBABILITY TRADING STRATEGIES FOR ANY MARKETS AND ANY TIME FRAMES
to happen. If you do not have the patience and discipline to wait for conditions with a high probability outcome according to your trade plan, you are not a trader. You are a game player with no respect for rules that should keep you safe, and you will eventually contribute your trading account to the pros who have patience and follow the rules. Get smart. Have a plan and trade the plan. Give yourself the edge you must have to put the odds for success in your favor. The swing entry strategy is the second of two entry strategies that may be used for any market, any time frame, and any condition. Never buy or sell at a target price. Always require the market to move in the direction of the anticipated trend to execute a trade, and I’m sure you will find your results improve substantially.
POSITION SIZE Capital preservation is a key to long-term successful trading. Almost everyone has seen the numbers of how much percentage gain it takes to make up a loss. A 20% drawdown takes a 25% gain just to get back to breakeven. A 50% drawdown takes a 100% gain to get back to even. It takes a lot to make up a significant loss. Too many traders swing for the fences with visions of big profits from big positions. That’s a pipe dream. Big positions can result in big losses that are very difficult to recover. There will come a time when you think you’ve got the market wired. Every technical position from short- to long-term points to one thing: a major trend. You break every commonsense risk rule and commit your account to the position with a wide stop “to give it room.” The market moves against you and you think it is a buying opportunity to add even more positions at a better price. You know the end of this story. The market doesn’t stop moving against you and you either exit with a major loss or are taken out by the broker when you run out of capital for margin. A major loss is very difficult to recover from, both emotionally and financially. Successful traders always have a relatively close stop. If stopped out for a loss, it is an acceptable loss. It is absolutely critical to minimize losses and preserve capital. It is that simple. Assume any trade you place could be a loser, and never risk more than a small amount of capital on any one trade or any group of open trades. The best professional traders rarely have a greater than 50% win record. That’s right. Long-term successful traders usually have more losers than winners. Most amateur traders simply don’t accept this reality, which is why they are not ruthless about limiting the potential loss on any one trade. Listen up, reader. If you have better than a 50% winning trade percentage over time, you are among the trader elite. If you get good at trading, you will have around a 30 to 40% win percentage. That is why it is absolutely, positively, unquestionably critical that the losses on losing trades are relatively small and profits on winning trades are relatively large. There is no other way to trading success.