How to execute your trading strategy in a risk controlled environment.
The whole idea that: “you have to be in it to win it,” is a catch phase that is propagated by the industry and just another example of the “transactional bias “the industry has.
All you have to do is look at the bullet points of webinar promotions to see examples of ill advised risk taking. For example, the so called discipline they advocate, to trade a system no matter what “high uncertainty “event may occur is not in the trader’s best interest and caters to thoughtlessness.
In reality, risk management is all about when not to engage in risk. In other words, it’s about when not to trade your system. I have always used an empirical set of rules for engagement to decide, if I was going to trade my systems or not.
One of these rules of thumb is: I do not trade on days when there is a “news event that is so high in the investment public’s awareness that a big emotional reaction is expected. The recent and unexpected drop in the unemployment rate is a good example. Another is when the S&P credit rating service lowered the credit worthiness of the USA, on a Sunday!
The same applies to EXPECTED news events like the FOMC meetings.
For a robust trading system, the difference between a good year and a bad year can be the trader’s control of risk. This entails the standing aside a small percentage of the time to avoid fast market whip saw action. Again, this past Friday (Oct. 5, 2012) is a good example.
If you are one of the many traders that see these higher than average risk days as your opportunity, you will are part of the purported 90% of all traders that lose trading futures.
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