Most traders here trade in a Fundamental/Discretionary manner.A few others trade both Fundamental and some Technical but again in a Discretionary manner.Very few have a Sytematic or Mechcanical Trading methodology.
The following is for everyone but in particular the majority of traders here,—–And of course those who are interested —- the first 2.—They are by the look of the majority of posts SHORT TERM TRADERS as well.
This is fine—its not the “WHY” or the “HOW” that will make you profitable its the “WHAT”
Success doesnt come without some effort on your part——-infact Ive found that result is directly proportional to effort!
The aim of the following is to give you the greatest opportunity to trade by ANY METHOD you choose and have a positive expectancy
Now some general info
Short term traders need to be right more often than longer term traders as their time in a trade means that in general terms they are taking smaller profits (Yes there are some exceptions).So I would expect that to be profitable you need a method which turns a profit over 40% of trades and preferably more than 55%,Ive seen 75%.You will soon be able to determine this from your method (well in a year or so! unless you have great records of past trades!).
It is easier to achieve short term trading success by following a singular entity (futures) or a very small group of Stocks,(Watch list) rather than a longterm portfolio approach (trading 10 or so at a time)
(1) KEEP RECORDS
You must now keep a record of all trades the GOOD the BAD and the downright UGLY.In particular you NEED to know.
(a) Buy Price.
(b) Sell Price.
(c) Loss in $ terms
(d) Gain in $ terms
(e) Parcel size.
(f) Total capital being used in your trading.
(g) Have 2 sets of figures –winning trades and Losing trades seperate.
(h) Entry and Exit DATES
(i) Brokerage costs. Very important for the short term trader
(j) Stop level and seperate record of Stopped trades.
From these records you will be able to find out.(Among other things)
(1) Length of trades.Time in days
(2) Consecutive number of winners AND losers.
(3) Average win.
(4) Average Loss
(5) Risk Reward ratio Average win/Average loss.
(6) Net Position—then annual return or annualised return if partial to a year.
(7) An indication of Positve expectancy (Only an indication as we cannot compile extensive testing from just one set of records).
RECORDS will have little meaning unless.
(2) YOU SET A STOP LEVEL
On ALL your trades.
Defining a stop ( a point where you can say–Im WRONG OR My timing isnt Spot on.) gives you a finite RISK.A level which many other calculations can reference.Having NO STOP equates to having UNLIMITED RISK
Much is written on the 2% risk rule and while a good figure in general everyones method will be effected by the amount of RISK allocated.Note there is a great deal of difference to being stopped out of a trade and an open ended Losing Trade!
The biggest fear is pulling out of a trade —taking a loss and then seeing the trade turn to a profit.Ponder this–The longer you remain in a losing trade the greater this fear becomes!!
Not only that but the greater the potential loss.
QUESTION—What is better a single 20% loss OR 10 2% losses and WHY?
How important is all this?
How serious are you at turning a profit?
Do you want to be in the 3% or the 97%
You can choose to do nothing and nothing will change.
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