Commodity Trader George Kleinman offers us a few important tips, through Elliot Gue of the Wall Street Winners...
"If emotions kill you in the markets, then the way to survive and thrive must be by being unemotional.
"Years ago, a successful trader friend of mine cashed in on a major score in wheat. I saw him in the Member's Dining Room and said something to the effect of 'You must be feeling damn good, having cashed in right at the top.'
"He was a calm sort of fellow, and I still remember what he said: 'George, when the markets treat me well, I don't dance in the streets and when they don't, I don't beat myself up. Always remember this: Slow and steady wins the race.'
"Years later, I think I know what he meant by this. A loser hopes too much. He has an inability to get out of a losing trade early enough because he keeps hoping the market will turn back his way.
"There's one way to avoid this: Don't get attached to any position. This shouldn't be an ego thing. There's always another market and another day.
"I've seen thousands of trades from hundreds of brokerage clients over the years. I've seen what those who make money do, and I've seen what the losers do.
"Invariably, the losers make the same mistake. They make money initially, maybe even more than winners do, but there always seem to be those few large losses that wipe out whatever gains had built up.
"A few years ago, the Chicago Mercantile Exchange had an advertising campaign in which they tried to teach the public how to trade-an impossible undertaking.
"There was a full-page magazine ad that pronounced, 'Do not risk thy whole wad.' How profound. Yet this is the mistake too many novice traders make. They bet too much money on one trade or one market.
"This is the first tenet of good money management. You must know how much you're risking on a trade, and unless it's a small percentage of your risk capital, don't take it.
"I could start to get into theoretical probability here, but common sense is better. Some of the most important advice to listen to is to plan for slow and steady gains with minimal drawdowns. The way to do this is by quickly cutting the losses on bad trades.
"How much should this be? Definitely no more than 10 percent of your total trading capital, and ideally 2 to 5 percent per trade.
"If you trade and risk only 5 percent on each trade, you'll need to be wrong 20 times in a row to be totally wiped out, and you'd need a poor trading system for that to actually happen.
"To avoid major drawdowns, follow these other tips:
- Diversify. Don't put all your eggs in one basket, and don't put all your chips on one roll of the dice. This reduces the opportunity for any one trade to be your last.
- Stick with the trades that work and cull the ones that don't. If you don't have the discipline to get out of the bad trades when you need to, make it a personal rule to place a stop-loss order the moment you enter the trade. Tell your broker that if you haven't given him a stop, he or she should twist your arm until you do. Believe me, your stops won't be hit on the best trades.
Once you have a reasonable paper profit on a trade, move up your stop, and never let it turn into a loss."
No comments:
Post a Comment