Monday, March 14, 2011

Why I keep losses small and quick...

If you look near the bottom left of this blog; you will see a table of all the trades I have made since I started back trading at the beginning of this month. You will notice that after my winning trade in $LEI, there have been 6 (really 5 since the 2 transactions in $LEI were really one trade) losing trades in a row but yet I am still gross profitable. This is how you keep your self in the game; by preserving your account and confidence. I generally do not risk more than 2% - 2.5% of account on any single trade and I hardly ever have more than 1 - 2 open trades at a time.

In addition, I very rarely hold a position over night unless I have a decent profit cushion to protect me against an over night gap up/down. So worst case scenario for equity is generally a draw down of about 5% after one losing day and maybe about 10% after 2 -3 losing days. However, I know that when I land a winner or two or three; they're gonna make up for the losers and then some.

Take for instance my $LEI trade which landed me about a 20% gain on my account or roughly ten times the size of my average losing trade. This trade has allowed me to take ten or so losing trades in a row and my account will still be around break even not including commissions of course! So this keeps me in the game until I land another big winner or two that will push my account up to new highs and keep it growing steadily!

I know I am not perfect and that I will not always follow my rules. Also I know that my system is not perfect and that it will produce losers from perfect set ups. So I protect my account against inevitable losing trades by keeping risk per trade small. But I also know that I am capable of catching the occasional big winner and these are what will keep my account growing over time.

Hope you find this useful!

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