Trade Management

In trading, it’s not about how much you make, but rather about how much you don’t lose.

Bernard Baruch

15

Start Small

With few exceptions, there is no successful strategy that works on a $500,000 account that can’t work on a $5,000 one.

Newer traders are especially prone to blowing up. It’s almost a rite of passage. That’s why you want to start small. Don’t focus on total profits. Instead, look at percentage changes.

Building consistency will build your confidence.

16

Trade Often

George Soros famously made $1 billion betting against the British Pound in the early 90s. One shot wealth is more the exception than the rule. Think about how big that position was and where the money for it came from…and what if he was wrong.

Few traders earn their living off only a handful of profitable trades. Instead, they make money through hundreds, if not thousands, of small trades.

Trading often allows the law of averages to work in your favour. It ensures that no one trade or string of them will obliterate your account.

17

Focus on Decisions, Not Outcomes

If you make good decisions, profits will follow.

Humans are hardwired for recursive learning, using feedback to adjust. Trading is a lot like poker. Even with the best hand, you can lose. The best poker players and traders don’t worry about whether they win or lose on any given day or hand. Instead, they make sure they make the best decisions possible, knowing that the outcomes will turn in their favour over time.

Keep in mind, even proven strategies can and do break down over time. Focusing on making the right decisions helps us separate luck from strategy.

18

Every Trade Should Have an Entry, Target, Stop, and Size Before It Starts

This is one of the hardest concepts for newer traders to grasp. Knowing your entry, target, stop, and position size is essential to risk management.

Without knowing these ahead of time, you open yourself up to potentially devastating losses.

What many people don’t realize is these don’t have to be exact numbers. Actually, traders often use zones, targets, candle closes, and the like to structure their trades.

Even if a trader uses the time of day to exit a trade, they still keep fail-safe risk parameters in place just in case.

19

Don’t Touch Your Stops

It’s far too easy and all too common for traders to move their stops.

Once you’ve clicked your mouse, you’ve sealed your fate. With rare exception, adjusting your stops during a trade is a recipe for disaster.

We set our stops to keep our losses in check.

Once we start fiddling with them, we’ve removed a critical constraint and opened ourselves up to the potentially devastating consequences.

20

Understand Market Correlations

This is for our forex traders, especially.

When investors want safety, which currencies do they typically pick? The Japanese Yen or the U.S. Dollar. What about more risk? Try the Turkish Lira if you can stomach it.

While each forex market is unique, many correlate to one another. Correlation is a measure between -1 and +1 of how two markets relate:

• +1 means the two markets move exactly in the same direction.
• -1 means the two markets move in exactly opposite directions.
• 0 means the two markets move entirely independently of one another.

Forex traders need to keep this in mind when they take positions across multiple currencies. Otherwise, they may find themselves with concentrated risk in similar forex markets.

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