Sunday, July 22, 2012

Trading Process - Step 12


The Trading Process - Follow The Plan - Step 12

I see comments like these everyday, especially in many of the retail trader blogs:
"I had a losing day today, so I think I need to add a filter..."
"After 4 consecutive losses, I have to go back and re-test..."
"Starting today, my plan is now that I will double my position after a loss, to recover more quickly..."


Maybe you've even said one of the above.  All of them spell Trouble.  With a capital T.

The lesson is simple:  Once you have a well thought out, well researched plan, STICK TO THE PLAN!


Next: Don't Overleverage

4 comments:

  1. Good post Kevin, can I add to have realistic expectations?

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  2. Yes, great point! Too many people think 100% a year, with a 5% drawdown, is realistic. Those people are usually quickly disappointed.

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  3. "Don't Overleverage"
    What's the rule of thumb here? In other words, how do I know when I'm over leveraged?

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  4. That is step 13 in the process. I'll post that either later this week, or early next week.

    Quick answer: It really depends on the instrument, and your style. So, for example, if you are trading ES overnight, and you are trading more than 1 contract per $10K in your account, you probably are overleveraged. Risk of ruin, and maximum drawdown are 2 ways to measure this.

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