Monday, 9 November 2009

Is 3 to 5 better than over 50?

Let's Look at Losing Trades. There are two types of losing trades - those that are part of your trading plan and those that are not.

When I first started on the floor, I was in and out of the market 30 to 50 times a trading session. Over time I learned that a big amount of trades did not turn into a big amount of money. What I was reacting to was price rather than to the order flow. I  have carried that same hard learned lesson with me when I switched to trading electronically.

I believe that my methodology of using range bars helps me focus on order flow. I take a position and go with the flow while other traders are jumping in and out of positions and missing the move. 3 to 5 trades a day is what my expectation is. On many days, it would be even fewer if I scaled out more often than 3 times. I just run out of bullets- no more contracts left to sell, and the first trade today was one of those. I took profit where I had to on the last 1/3rd.  But, I have found that 3 is a magic number for me and I can usually find a valid re-entry if the market continues.

I expect the market to move in my favour immediately after entry. If it doesn't, I watch even more carefully to see if there is a reason to bail.  30-50 trades a day gives you that many more chances to make mistakes. Every time you put a position on, you are taking on risk. It is better to put on the sure trades with increased size than to be in and out all day, tiring you out faster and burning money in commissions. At $4 round trip, your 30 trades cost you $120 while my 3 cost me $12. Over a year the difference an be over $20,000  just on a 3 lot size.

So losing trades that are a result of my trading plan are fine. I expect 25% to 30% of that type of loss. The other type of loss, the losses due to impulse are not fine. Impulse or "I've missed the bus" trades are the enemy of every trader. It still happens to me if I lose focus due to tiredness, being unwell or some external worrying. Either buckle down and focus or don't trade. When I am trading, that's all I focus on. No phone calls, no TV, perhaps some classical or jazz music in the background.

Today was good. We woke up and were at our consoles by 7am London time and had a trade almost straight away. Lucky I had my third espresso at my desk. I switched from a Starbucks espresso machine to one of those Nespresso machines that my daughter K. gave me as a surprise.  She said she had enough of espresso grounds all over the trading desk.


No comments:

Post a Comment