If you want to succeed at this take my advice ....the most important rule to follow is Rule #1 Protect your capital. problems is it goes against human nature and common behavior because greed fights against this most necessary skill.
Ding! Ding! Ding! Give that man a Ceegar! There's no risk too great when the only downside risk is losing OPM!!! OPM!!! The greatest too ever (for shysters).
excellent post. people may not realize that the use of a stop lowers performance (with a number that will shock them if they knew).
This has probably been said about 10,000 times but just to clarify, in case any beginners are reading this and get mislead, 52% win rate is either good or a disaster, depending on the size of your average win and your average loss. You can have a 70% win rate and lose your entire account very quickly.
There are some hard rules, such as never take a risk that could result in you going bust. Not using a stop is only ok if you have less than say 70% of your capital in the position. Otherwise you are risking a >70% drawdown which is pretty much a blowup. If you average too, then that means you have to start with even less than 70% of capital in one position. Also you cannot go short without a stop, or average into shorts without a stop. If you do either 100%+ positions with no stop, or go short without stops, then you are going to go broke, it is simply a matter of time and there is nothing you can do to stop it other than abandon both those practises. Note that numerous people have traded far longer than you have, with far greater capital, and eventually gone bust because they use the "no stops + leverage" or "shorts without stops" strategy.
The comment 2 shows you agree (and think it is obvius) that traders make bad bets almost as often as good bets. So if you dont stop/or average into losers you simply start holding the position for a longer period of time, and stop trading. I about comment 1, I still assume you close, sooner or later, losing positions that were not supposed to be stopped out in the first place. Right? Could you explain how do you do that?
To be fair, in other parts of the interview he gives clues about his approach to this matter: Mr. Cohen Answer (to another question): âIf you think youâre wrong, or if the market is moving against you and you donât know why, take in half. You can always put it on again. If you do that twice, youâve taken in three-quarters of your position. Then whatâs left is no longer a big deal. The smart thing is to start moving your feet. I find that too many traders just stand there and let the truck roll over them.â He also cites an exemple of a wrong bet in IBM in '99. That year all tech companies were delievering not so good results because consumers were not active afraid of Y2K supposed bugs. Well, Mr. Cohen thought the same thing would happen to IBM and shorted the stock some days before the releasing of its earnings. What happened afterwards is that IBM results were "amazing" and the man covered his shorts that same day, losing around $ 15 per stock. "My premisse was wrong so I closed my position instantly" he said. He doesnt get very specific about his methods and systems though.