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Risks tilted to the downside amid trade uncertainty
The IMF is out with its annual report on China. They say:
- risks are tilted to the downside amid trade uncertainty
- China should maintain flexible yuan if tariffs rise
- China could intervene to support one in adverse scenario
- China GDP growth could slowed to 4% by 2030
- escalating trade tensions could warrant China stimulus
- China augmented government debt to top 100% of GDP in 2024
- The yuan is not significantly overvalued or undervalued. In line with fundamentals
- IMF has been pressing China for more exchange-rate flexibility, less intervention in currency markets
- China should open up more sectors to foreign competition to put its economy in best position to deal with trade pressures
- Risk of Ruin-Never risk more than 1% of your total account capital on any one trade.
- Position Sizing-Use your capital at risk to understand the right amount to trade based on the securities volatility.
- Capital at risk: Never put more than 6% of your total capital at risk at any given time on all positions.
- Trailing stops- Always have an exit strategy to lock in your winners.
-Never play macho man with the market. Never over-trade relative to the equity in your account
-his first mentor has “steel hard emotional control”
-always liquidate half his position below new highs or lows
-after having 60-70% draw-down, he was so depressed he nearly quit. “Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?”
-he then first decided to learn discipline and money management. Become disciplined and business-like about trading
-“Now I spend my day trying to make myself as happy and relaxed as I can be. If I have positions going against me, I get right out; if they are going for me, I keep them”
-Be quicker and more defensive. Always think about losing money as opposed to making money. He always has a mental stop. If it hits that number, he is out no matter what
-“Risk control is the most important thing in trading” Stop out at near 10% monthly draw-down. He never wants to lose 10% in a month
Paul Tudor Jones is one of the greatest traders that’s ever lived. He has the long term record to prove it.
Here are 10 principles that made him a successful and profitable trader.
Here’s how it works.
If I make an outrageous prediction or label a prediction outrageous and I am wrong, I respond to criticism like this:
“Well, I said it was an outrageous prediction.”
This discounts my responsibility for being wrong to some degree. But if I am right, I will say,
“look how brilliant I am. I made an outrageous prediction and it was dead on.”
Outrageous predictions are used to manage impressions. One defers responsibility if wrong and gloats incessantly if right.
It is a manipulative gambit.
People, who make outrageous predictions know exactly what they are doing. Their potential reward is much bigger than the risk they are taking of being publicly laughed at. Many people have made a career by being right once about a major event that nobody expected (usually a big market correction).
Predicting and speculating have a lot in common, but they are also very different. By definition, predictions are about dealing with factors, you have no control over. When you speculate in the stock market, you also don’t have control over which one of your trades will be profitable and for the most part how profitable it will be. You could improve the odds, but you can’t impact the outcome of each individual trade. When you speculate, you put your own money at risk. You could be right for the wrong reasons and make money (lucky). You could also be wrong despite having an edge and still lose money (no approach has 100% success rate). Since you have very little control on some of the variables that impact your results, it doesn’t really make sense to speculate about only one outcome, because in this case you are getting prepared for only one outcome. The solution – You develop several different scenarios and you prepare for each of them.
A) You could be wrong
- where is your stop loss?
- How much of your capital are you going to risk?
B) You could be right (more…)
Risk is a very negative word for many, but as a trader you have to face financial risk (even ruin for some kamikaze traders) every day. But to make a living trading stocks you have to face risk in a bold way. IMO, the greatest opportunity for success goes to those who are not afraid of taking risks and at the same time managing risk in a proper way (and knowing excessive risk may lead to total ruin). By that you have to analyze risk in accordance to potential reward and to feel a little bit of fear. Success may come to those without fear, but many of the fearless have fallen by the wayside (and we never hear about them).
Actually, the biggest risk is not taking any risk! If you want to make money trading, you have to take risk. There is no way you will make money by being risk-averse.
That also means not afraid of looking stupid. Remember that learning is inhibited by caution and experimentation. Children who are afraid will never learn. Children with totally risk-averse parents will struggle in an uncertain world. Children are in general not afraid of looking stupid and they are therefore much more adaptive than adults. Just look at how easy they learn a new language. (more…)
Trade the market, not the money
• Always trade value, never trade price
• The answer to the question, “What’s the trend?” is the question, “What’s your timeframe?”
• Never allow a statistically significant unrealized gain to turn into a statistically significant realized loss (ATR)
• Don’t tug at green shoots
• When there’s nothing to do, do nothing
• Stop adjustments can only be used to reduce risk, not increase it.
• There are only two kinds of losses: big losses and small losses, given these choices – always choose small losses.
• Risk no more than 1% of AUM on any single position
• Never risk less than 1% of asset under management on any single position (as long as your models are performing well)
• Don’t Anticipate, Just Participate
• Buy the strongest, sell the weakest (RSI)
• Sideways markets eventually resolve themselves into trending markets and vice versa
• Stagger entries & exits – Regret Minimization techniques
• Look for low risk, high reward, high probability setups
• Correlations are for defense, not offense
• Drawdowns are for underleveraged trading and research
• Develop systems based on the kinds of “pain” (weaknesses) endured when they aren’t working or you’ll abandon them during drawdowns.
• Be disciplined in risk management & flexible in perceiving market behavior
• It’s not about the best RAROR, it’s about the best RAROR for your trading personality