Blown account - HELP- with risk management and discipline

[Hoggums]

Just my opinion. But if it comes to running winners or cutting losers it's a damn sight easier to get out lof losing trades. Once you master getting out of losers quickly, you can then concentrate on running the good ones. Trust me it's not as easy as it sounds, I'm still struggling with this part.

I personally don't subscribe to "letting the winners run". I have limits on all of my trades and they are placed at where I think the index will meet support/resistance. But I usually hold on until that limit is reached unless the charts signal a trend change.

Letting winners run implies you don't really know which way the instrument will go next.

A profit is a profit - take it. If the instrument then goes through resistance/support then you can get back in and ride it further.

I used to let them run and time after time watched those profits disappear. I am far more profitable now I define the start and end conditions of the trade before I open it.

(just my 2c - no doubt there'll be lots of disagreement to follow..)

 

[ceydababy]

I personally don't subscribe to "letting the winners run". I have limits on all of my trades and they are placed at where I think the index will meet support/resistance. But I usually hold on until that limit is reached unless the charts signal a trend change.

Letting winners run implies you don't really know which way the instrument will go next.

A profit is a profit - take it. If the instrument then goes through resistance/support then you can get back in and ride it further.

I used to let them run and time after time watched those profits disappear. I am far more profitable now I define the start and end conditions of the trade before I open it.

(just my 2c - no doubt there'll be lots of disagreement to follow..)

True. I try and hold until I see my reversal pattern (opposite of the pattern to get in) I rarely manage it though ! I am still occasionally getting shaken out with 10 point retracements against me. The focus is to try and hold my nerve and discipline to run the winners until I see that exit signal. Before I start I know where I am getting out if it goes belly up.

 

[RedGreenBen]

After blowing a spread betting account yesterday i was wondering if anyone had any words of wisdom to share on risk management and discipline

Ive been doing some of these psychological test and found them rather useful:

You don't need psychological tests (IMHO) you need a proven strategy/system and then you need to apply it without deviation. And the best way not to deviate..?... don't deviate.

Ben

 

[dilesh23]

did you try the trader personality one? the report at the end has a few points which i thought sounded rather good :|

As with the other confidence "biases," optimism benefits businesspeople, politicians, and other professionals whose ability to attract business often depends on their attitude. However, in the financial markets, excessive optimism can lead to superficial analysis and denial of important, negative evidence.

The optimistic trader may find himself holding excessive risk in his portfolio while denying evidence of growing dangers. Many optimistic traders who believed in the "New Economy" and the outstanding growth potential of internet stocks found themselves over-exposed to the volatile technology sector in late 2000 and 2001.

"Cut your losers short" is an old Wall Street adage. It addresses a common trader error - the tendency to hold losing positions too long. This is the single most common and costly mistake traders make.

Most traders avoid thinking about losing positions, and typically they hope for a “comeback” so they can exit the trade at “break-even.” Ironically, if a trader is bailed out by the market, they tend not to learn from their mistake, leaving them more vulnerable to later losses.

Most “Rogue Traders,” including Nick Leeson (Barings) and Toshihide Iguchi (Daiwa Bank), who both lost over $1 billion, could not muster the courage to bail out of losing positions in the beginning, and then they developed illegal techniques for hiding their snowballing losses.
The trader Brian Hunter lost $6 billion on natural gas spreads in 2006 at Amaranth Capital. Previously, he had caused a near collapse of the fund in May 2006, but by holding onto his losing positions in May, he turned a near disaster into a large gain during the summer. The second time his positions reversed in Fall 2006, he was not bailed out by market events, and the fund collapsed.

One of the three tenets of the 2002 Nobel-prize winning theory of economic decision-making called “prospect theory” is that people avoid taking losses, even when that avoidance will likely lead to larger losses later. For example, when faced with the choice between (1) losing a definite amount of money, or (2) gambling on a "come-back," most people prefer to take the gamble. Most people will choose the gamble even when they know that the odds are objectively against them.
"Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong."

LOW SCORERS:
Remember that you are still susceptible to holding onto losing positions, especially after recent or large losses.
As always, be sure to follow your stop-loss rules. If you don't have a defined money management system, then be sure to put one in place.
When new information changes your assessment of a position, be sure to re-evaluate it. Would you buy this position now?

wishing i had taken it before

 

[BigDrew]

1) Know who you are in the market (are you a trend follower, a reversion to mean player etc)
2) Understand risk, expectancy and position sizing (Read Van Tharp for a clear idea of these ideas). Understand that the amount you risk is at risk. If you need to, keep a wad of cash notes on your desk to remind you so you don't suffer from the the casino chip effect. The market's money is actually yours. Position sizing is the single biggest determinant of whether you a) survive and b) prosper
3) Trade smaller, especially when the markets are volatile.
4)Trade even smaller
5) Trade only when you have an edge and have some rules for getting in, scaling in or out and knowing when you don't pack a clue about what to do next(in which case get out)
6) Buy the thickest rubber bands you can find and intertwine 5 of them together and put them over your wrist. When you violate your own rules, stretch the rubber band as far as it will go and then let go so it leaves a red welt on that soft inside part of your wrist. If this doesn't work, do it again. If that doesn't work, slap yourself through the face, hard. Really, really, hard. It works.
If you made some money after breaking your own rules, repeat the above twice so you don't get into bad habits.
7) Read Brett Steenbarger and Mark Douglas
8) Trade even smaller. If you hold overnight you position should be much much smaller than what you might hold during the day.
9) Remember you don't have enough time to get rich fast. You can build rich over time
10) If you're spreadbetting or trading retail forex, remember you're trading against your bookie, not on an exchange, so expect to get stiffed, expect your stops to get run and expect them to lean on the spread. They can't help it, it's in their blood and business model.

 

[dilesh23]

6) Buy the thickest rubber bands you can find and intertwine 5 of them together and put them over your wrist. When you violate your own rules, stretch the rubber band as far as it will go and then let go so it leaves a red welt on that soft inside part of your wrist. If this doesn't work, do it again. If that doesn't work, slap yourself through the face, hard. Really, really, hard. It works.
If you made some money after breaking your own rules, repeat the above twice so you don't get into bad habits.

I like the idea of this, better then the slitting of the wrists i was planing for the next time i have a losing trade