Hi Everybody,
Yesterday we had a brilliant example of why the use of correct Position Sizing is so vital to long term success. Using the Standard setups we had 4 trades on the 3min YM, 3 were loses and one 1 winner. On the surface this looks bad, UNTILL you look at the profits and losses when using correct Position Sizing. 3 -1R losses equals -3R down, BUT (and this is the important point), the one profit was +4.1R (ignoring slippage and commission). So this one profit wiped out the three (-1R) losses and put you into profit overall.
This is the main concept that most losing amateurs don’t seem to grasp, that you can have more losing trades than winners and still make money overall. Successful trading is about keeping your losses small and having big profits it is not simply about having a high % of winners. In the “real-world, having a high % of winners is actually very hard to do. Therefore it is far easier controlling your losses, as in this example. In fact if you read the Market Wizards Books, many of the world’s best traders only have about 40% winning trades. Most losing amateurs never seem to fully understand this point.
However, I understand that we all like to be “right”, so let’s take a look at the 15min trend on the Advanced Blog and see if these losses could have been avoided....
Thanks, Steve
Yesterday we had a brilliant example of why the use of correct Position Sizing is so vital to long term success. Using the Standard setups we had 4 trades on the 3min YM, 3 were loses and one 1 winner. On the surface this looks bad, UNTILL you look at the profits and losses when using correct Position Sizing. 3 -1R losses equals -3R down, BUT (and this is the important point), the one profit was +4.1R (ignoring slippage and commission). So this one profit wiped out the three (-1R) losses and put you into profit overall.
This is the main concept that most losing amateurs don’t seem to grasp, that you can have more losing trades than winners and still make money overall. Successful trading is about keeping your losses small and having big profits it is not simply about having a high % of winners. In the “real-world, having a high % of winners is actually very hard to do. Therefore it is far easier controlling your losses, as in this example. In fact if you read the Market Wizards Books, many of the world’s best traders only have about 40% winning trades. Most losing amateurs never seem to fully understand this point.
However, I understand that we all like to be “right”, so let’s take a look at the 15min trend on the Advanced Blog and see if these losses could have been avoided....
Thanks, Steve
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