The following is an excerpt from Every-day Traders and even though this interview took place back in 2001, the lessons still strongly resonate today. Indeed, this interview still makes an appearance on many FX blogs and forums around the world. This is a long article, but well worth the read. Grab a cup of coffee (or a beer) and enjoy...
Scott is a foreign exchange (FX) trader based in Sydney. He has extensive industry experience and, in light of FX trading becoming more popular in recent years, was a prime candidate for this book.
Many may struggle with Scott’s perspective, yet the underlying philosophy of profitable trading makes complete sense. In a nutshell, Scott’s trading style is ‘cut the losses and let the profits run’ and while this is something that we hear time and again and put down to one of those old yarns running around, Scott takes this to a level that many may not comprehend or even desire. It’s natural for us to believe that we are in control—or at least for us to desire to be in control—of our destiny, and in trading that means being in control of the decision-making process of when and what we buy. This is the last thing on Scott’s mind. In fact the only thing on Scott’s mind is risk control, which is ironic, because most new traders do it the other way around. For them, first comes entries and exits, then some risk control for good measure.
In recent articles we've been discussing risk management, so today I'd like to extend the conversation and introduce leverage. If you've not read the first two articles HERE and HERE, then it's probably worthwhile before starting on this one.
We all know about the "2% Rule", technically known as Fixed Fractional Position Sizing and how it enables us to correctly equalise risk on all positions. Any decent book or course that discusses risk management will highlight this. However, in real time trading, specifically when it comes to trading equities, one learns very quickly that the amount of capital needed to fund positions using the technique will exceed the cash value of the account, as was discussed in the most recent article. So what to do?
It's that time of the year again - school holidays. I'm often asked what people should do with trading positions when on holidays. Unfortunately there is no simple answer. For example, are you away for 2‐days, 2‐weeks or 2‐months? Will there be reliable and secure internet access at your destination? (TIP: Do not login to a trading account using free Wi‐Fi). Do you have a hand‐held device that allows access? What are current market conditions?
Whilst each holiday will be different, here are some ideas...
As much as we'd like to wake one morning and be a better trader, taking your trading up a notch will take some effort and work, not unlike succeeding in any field. From experience, I find the best way to move forward is to question everything and then make it your own. Specifically, make minor adjustments to a core concept so it better suits your personality.
Long term readers are aware of my 'aha!' moment in the early 90's after reading PPS Trading System by Curtis Arnold. Obviously having a personal connection to the strategy was important for success (regardless of how good a strategy might be, if it doesn't 'feel right' you won't be able to execute it). But my trading moved forward in the 18-months that followed because I made small adjustments that not only made sense to me, but also made the execution of the strategy easier for me. Comfort creates sustainability which in turn leads to long term success.