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flipside21

Registered: May 2011
Posts: 400

04-23-12 12:51 AM

Following Neke's posting about HC, MC, and LC trades, I've been thinking of doing some high conviction trades myself.

If you're a pure systems trader, any given trade is the same as any other trade. Therefore, you should risk the same for any given trade.

However, if you're a discretionary trader, you may perceive opportunities that have the rare percentage of high probability combined with being very good reward/risk. There is great temptation to bet aggressively, to take a substantial risk as % of investable funds. If you're right, it can be fortune making, but if you're wrong, it can also be somewhat devastating.

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Wide Tailz

Registered: Sep 2011
Posts: 1521

04-23-12 01:00 AM

And you can make any normal trade a Konviction trade by pyramiding in capital as you tighten your stop, provided the price moves favorably.

The result: huge position size while maintaining the initial (tiny) risk.........

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Ghost of Cutten

Registered: Aug 2009
Posts: 2633

04-23-12 01:03 AM

It can only be devastating under two conditions:

i) you are wrong more than you expect
ii) you bet too big

If you bet moderately and are not much more wrong than you expect, then your losses won't be too bad, even in a nasty losing streak.

The lesson is to choose your trading size on the assumption that the current trade will be a loser. If you do that, you will never be 'devastated' if the trade fucks up.

It's like warfare - always plan for the outcome you fear, not the one you hope for.

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Ghost of Cutten

Registered: Aug 2009
Posts: 2633

04-23-12 01:13 AM

Quote from Wide Tailz:

And you can make any normal trade a Konviction trade by pyramiding in capital as you tighten your stop, provided the price moves favorably.

The result: huge position size while maintaining the initial (tiny) risk.........

Only in a one-way momentum market. If you pyramid then tighten your stop, the first wobble against you will stop you out; whereas if you had kept your normal position, you would have the staying power to withstand noise like that.

There is no free lunch in the markets.

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tenthousandmen

Registered: Dec 2011
Posts: 728

04-23-12 04:15 AM

Quote from flipside21:

Following Neke's posting

I think its a bad idea

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Wide Tailz

Registered: Sep 2011
Posts: 1521

04-23-12 05:04 AM

Quote from Ghost of Cutten:

Only in a one-way momentum market.

Third wave, all the way. Only way to trade.

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