Because if 70/100 trades according to your strategy will be profitable, and the 30 un-profitable ones came first, then you would be wiped out. That needs to be figured in... What is the probability of that happening? Balancing out the risk... Natalie
reduce market correlation to 1-2% intraday, use relative strength to both buy and sell at the open/ sell @close. if your holding 100% longs/short, you'll get burnt. think about it some news breaks, all the bids/offer collapse... you'll probably back test the system, select how you're going to get the 1-2% correlation i think
Ok, that's a nice "piece of market wisdom," which I'm sure is true most of the time. But what about using margin in the circumstance I outlined in my first post-- not increasing your risk per trade, but taking more of the same risk. Could you explain your reasoning as to why using margin in this way is still a bad idea?
Corso... What a mind. You do bring up some stuff. Is your goal then to not "blowup" or end up at no worse than -0-, worse case scenario and with "no" debt? ! Interesting thought. "Hey guys I succeeded. Didn't lose my whole margin account!" "Ok You pay for the drinks" "No can do. I didn't make much either! Had too many positions..."! Diversification leads to mediocre returns, imho. I tried that swing trading and had too many neutralizing experiences. No different than in investing. One seeking to do 'as well as' the broad markets, and/or other fund managers and/or trying to outperform by a 'few' points... can spread their risk. Manage fewer positions but manage them well... scale in, scale out... more fuel to your (profitable) positions in healthy trending/continuation patterns; and utilize options stategies for leverage therein. IMHO... concentrate on fewer but higher probability opportunities. Don't you need some sleep?
meant to say you bring up some 'decent' stuff. Probably make a good financial talk show host. Seriously. Consider that after you get some more experience. Can still trade. iceman
If your system is producing a reliable, steady increase in your equity, then (assuming this steady growth will continue) using margin is a good way to double up the rate of increase. Conversely, if a trader is still in the "learning" stage, seeing plenty of losing trades along with the winners, and not yet consistently profitable, then use of margin is probably not rational. You'll just break your bank twice as fast, or at least draw down twice as far after a given series of losing trades.