Amount per trade and consistency define the top 1% of traders.

Our aim

From our last report, we had some trades go against us for a time. We managed that occasion to an eventual near breakeven. However, it was an uncomfortable period of trading.

Our principal aim is to protect the fund. (Which seems a contradiction if a detrimental trade is allowed to build).

In defence, we got very good at scaling-in and turning a negative situation into a profitable or neutral outcome.

Reward to risk

However, a disproportionately magnified stop distance to a planned target, will, from time to time, result in a loss that is more significant than our usual win.

Psychologically this is hard to take. We can find ourselves moving our stops to accommodate the possibility of one more scale-in to save the day. Works sometimes but is a recipe for a shocker.

From taking a breakeven after a two-week hold and management of a detrimental trade has been a good thing because going forward we have reaffirmed our trading rules.

We now trade a planned reward to risk of not less than one to one. No exceptions.

We do not have the flexibility to scale-into a detrimental trade, but actually, that is a good thing. Moreover, as a result, we expect to take smaller (controlled) losses which is acceptable.

After our experience that concluded soon after my last report, we’ve traded small as we build confidence and consolidate our revised approach.

5-levels of ‘amount per trade.’

We have 5-levels of ‘amounts per trade’. We trade the lowest amount when our approach changes and until we can prove profitability. Also, our trade amount increases to the next level after a string of three successful trades. It reduces, however, one level with any failed trade. With three failed trades in a row, we reduce back to the lowest setting and start the build process again.

This method is in contradiction to nearly every beginner; they, generally, increase trade amount after a loss and reduce after a win.

How many traders win?

There are no definitive figures on how many are profitable at trading. But from everything that we have read, it seems to be in the region of 20%. That is not the full story, however. The 20% contain vast differences regarding profitability.

Tennis provides a useful comparison. Consider the world tennis rankings. Those within the top 200 (the 20%) are net winners. In other words, they win a bit they lose a bit, and with expenses, it is difficult to make a living. The top 100 (the 10%) are more consistent winners and consequently win more significant amounts. But it is in the top 10 of players (the 1%) where we find big rewards.

To stretch this analogy one last time, where do we stand in the rankings? Entering the top 100 with a goal of reaching the top-ten within two years. Which, in trading reality, is nothing more complicated than systematically building the higher levels of ‘amount per trade’ for extended periods.

August

Light trading only expected in August. A family wedding then, as others are on holiday,  two dogs to look after and probably more involved than usual in the family business until the end of the month.