Thursday, September 25, 2014

Losing to Win: How profits come from risk management

Peter Brandt, my favorite Trader, has written a communication on the topic: "Losing to Win".

Peter says traders have an "obsession with being "right," or put another way, their concern that this or than analysis might be "wrong."

When a trader is worried about losses, such mental worries become a major hurdle to profitability.

"Professional traders understand that the goal of trading is to make money, not to be right. Making money in the markets requires losses -- a lot of losses. ............. My default frame of mind as I enter any trade is that it will be a loser."

The management of losses does not come from searching for a better indicator. It comes improved handling of risk.

You can read Peter's blog here.

My Notes:

To come in a frame of mind that accepts losses:

 (a) Check out your volume. Are you overtrading?

(b) Accept that any trading method will be right only 40% to 50% of the time.

(c) Understand the concept of 'runs'. Often, a method that is right 50% of the time, may have six consecutive losses and then six consecutive gains. The net result is 50% winners. Understand that runs will happen all the time.

1 comment:

Sonu said...

Good weekend post!

What tools do you use for technical analysis other than channeling?

Pls create a post for the same discussion.

I am using OI analysis from website apart from RSI, channeling and MACD.