You can only trade if you are financially viable... There are many ways to achieve financial longevity in this game... for example, one of my trading associates maintains a $300,000 account and never takes more than a $250 risk.... this is a 0.08% risk per trade.... yes you read that right: less than 1/10th of 1% risk per trade... with risks like these, it is conceivable to stay in business for several eternities... Others of us (myself included) are more cavalier in the sorts of risks we take... for example, I will sometimes risk 2% of my account on a single trade (when I do this, I am risking 25 times more than my risk averse friend!)... as you can imagine, such activities result in an equity curve with drawdowns more volatile than a wild roller coaster ride... however, I ensure my longevity by the utmost care and attention that I give to my trade selection and to my exits... Another way to achieve longevity in the trading game is to have major investments in passive income assets (primarily property) so that even if your trading risks are on the large side and result in massive drawdowns, your property income inflows allow you to quickly make up for the trading losses... What methods do you guys use to ensure that you are trading for the long run and will not simply end up as a statistic?....
The possibility of self destruction cannot be elimated. The probability of avoiding self destruction is enhanced by strict stop discipline. If you are hell-bent on trading without stops, any of the following will benefit you (or somebody): 1. BURN your capital... That's right... in the fireplace. At least you'll feel some heat. 2. Send your money to the local animal shelter. Dog lover that I am, any money sent in that direction warms my heart. 3. Send you trading money to ME. At least I will turn it into beer! Get it? IF YOU TRADE WITHOUT STOPS, YOU ARE DOOMED!!!!!!!
Trading is easier if you have other income source. You have it, you'll probably stay alive longer You don't have it, you can try to earn money from the markets. If you have small amounts of money, you'll have to trade more aggresively to earn for a living. High risk simply means risk of failure is high, too. If you have a lot of money, you can trade less aggresively and if you're quite successful - you can make a living from trading. Conclusion: the richer you're, the higher chances of staying longer as a trader. Aside from risk management, of course. Certainly, it's not a rocket science!
Agreed. My dad calls it "staying power." He learned it from John Galbraith of horse-breeding fame. I call it the trader's worst nemesis: under-capitalization.
I use time stops Once upon the time I discovered them, I thought I'd found something new. But essentially, it's just logical and can be a very powerful tools to escape change of sentiment just before it happens, during the period of indecision. For example, when I scalp, I use i.e. a 3-bar timestop when entering a particular kind of counter-momentum / spike trade; Once price has tested the same level (tick) in the relevant direction for 3 bars, the reversal momentum essentially stalls and turns into potential consolidation, thus a launchpad for breakout in the opposite direction, which is exactly what you don't want. (You might even talk of a potential flag) I actually think this works in almost any timeframe. But you definitely have to experiment with the number of bars that works best on that timeframe and issue and then stick to that. Don't change around / modify timestops while you're in a trade. Make sure you develop a good strategy, otherwise you're in for a fool's play. Nothing is worse than a too late / too early timestop. And unless your timestop is well tested and defnied, it's gonna be either... Any discussions with other timestop users are welcome. ~The Scientist
I have an annual stop-loss amount. If I lose x dollars trading for the year, I stop. It helps to keep me in line.
I risk a very small amount of money on each trade, about 1/3 of 1% on most days, up to 1% in certain situations but this is very rare. I also have quarterly and yearly stop amounts that, if hit, would keep me out of the market for the duration of that time. I also think its very important for a trader to look after their health, eat right, exersise, keep a good mental outlook etc. Savings is very important because you will not be profitable every month or every quarter. If you can spread yourself out a bit obviously that will help. We have commercial real estate as well as our chatroom business that all help in that regard. Brandon
Candle, Great post! My solution involves running a small software consulting company. That way I can take on 1099 income when I find it and augment my trading. Additional benefits include the ability write off software, hardware and office expenses against the consulting and thereby not having to set my trading up as a business. Other benefits include sep-ira, expense accounts etc. Since I live in California it's easy to mix the two without significant effect on my trading.
AMEN. Good point. It's a good idea to try to keep the psychological and financial pressure away from your trading (account) wherever possible. I'm still running my Jewellery Design & Manuf. Business part-time. Nevertheless, no matter what you do, it's definitely best if the other income sources don't interfere with your trading - both time-and attention-wise. To keep an edge it's good to try to put all your time into work, research and study on the subject. It really pays off. Just my 5 cents. ~Scientist