bone, Please explain why you disagree and please explain how I give to much credit to my fellow human beings. Thank you
Personal observation over a long trading career (started early 1990's) combined with learning about the prior trading history of many of my new clients (175+) that I have worked with over the years. The term "Trade Management", tossed around like a shallow cliche, is treated with mock reverence. From what I've observed it's little more than a brief afterthought in aspirations of new trading system designers. I have learned that the vast majority of aspiring traders spend 95% of their energy and focus upon trade entry and the management of said position just gets one or two cursory rules that are frequently overridden by "discretion". Too many new traders just "wing" trade management - it's a case-by-case gut call. But it's trade management that ruins traders, and not trade entry. In fact, traders should pass on entries that by virtue of the range or volatility conditions will not accommodate a hard stop-loss. It's just unrealistic for any new trading system designer to assume that a real trader in real markets using legal methods is going to consistently have even a slim majority of his trades that are never underwater. That is reality. Just my 2cents, because I was asked.
Thanks bone, I can respect comments because they are from experience. Great write up. I admit to the "just "wing" trade management - it's a case-by-case gut call. " Would you agree that most newbies simply don't know how to develop a proven trade management plan that is repeatable? Thanks
One's "edge" changes with the years of account building and definitions change with one's experience. My edge has evolved from year one to now, I see now where I was wrong when I started. i.e. Having a bottle and new traders think in terms of filling up the bottle with bottom on up, and now I think in terms of starting at top going down. So my "Risk Management" is all I concentrate on, finding the signals that offer smallest risk and smallest possible of losses based on past occurrences, then you can throw bigger amounts of capital at it. I do believe as young trader though, to understand Risk Management be impossible, I think it be more of evolution to get there. Everyone starts with wanting to make more money than what they been doing or faster track for retirement funds. And any of this can be learned. So what may be your Edge is based on what you know and believe in, there is no right or wrong answer.
A major problem for newbies with respect to trade management is they are not ready to accept losses. A strictly defined trade plan GUARANTEES that you will have losses. It is impossible to succeed unless one is ready to take them without question....or evasion.
there isn't just one way to do risk management, there are hundreds of variations when you figure out the right ones, that creates an edge in your trades
Well, it's a journey of discovery to get there - which can be quite expensive no matter what road you go down. And most systems that back test well just don't hold up under live market conditions and ever-changing market cycles. And you can piss away ALOT of money messing around with one-lots in ES in the interest of learning for yourself. Sadly, it seems like the trading system vendor and education business is one giant pit of vipers, felons and con men. That aspect deserves and requires extreme skepticism but there are a handful of good eggs out there. Out of thousands, I know of just a few that actually work and hold up over time IF the client is willing to put in the work. An outstanding problem are gullible and naive clients looking for fast and easy and are too lazy to work at it. Those types destroy good honest educators. Personally, I put a great deal of effort into screening clients for suitability. I turn away more than I accept. In fact, it's not uncommon for my own client references to advise me not to take a particular prospective client on based on their own independent discussion with them. Too many people are drawn to trading who are lazy and demand certainty - lousy untenable personality traits for a successful trader.
That is a true fact. There is "edge" in legitimate, sound trade management. Wanna know why there's edge ? Because a milk toast "coin flip" trade entry can become profitable with a robust, well designed trade management system. And by definition that is EDGE.
A losing trade can't be considered successful unless you're still trying to find out something. You are saying this because your system does not incorporate market volatility . Market volatility tells you whether the current trend is continuing or not, giving you exit signal.
Well, semantics aside, having your trading system stop you out of a trade is part of ANY successful trading system. Good traders that by any metric are successful take losers all the time. Like a boss. Stone cold.