1. Losing traders fear losses and crave profits. Winning traders eliminate both fear and greed.
Great traders experienced a lot of losses and drawdowns in their lifes, so they don’t fear them. Losses are already familiar to them.
They know, that the biggest enemy of a trader are emotions. So the best attitude is not to be influenced by fear of loss or desire for profits. The more you fear something, the more you’ll experience it. The more you desire something, the less benefits you’ll have from it.
If you’re scared of driving at high speeds, Formula 1 career will never be a good option for you. If you’re scared of losses, trading will also never be a activity suited for you.
2. Losing traders care where the market will move in an hour, today or tomorrow. Winning traders don’t care where the market will go.
Why manual traders are so attached to their positions or market direction? The deep psychological reason behind it, is that they’ve made the trades with their own hands and heads. So they start worrying about the outcome. The automated systematic traders on the other hand, let computer programs do the job, so they cannot blame themselves or the market for the outcome of particular trades.
Why it is important in trading? The less you worry about the positions and about market direction, the less emotions can negatively impact your trading.
3. Losing traders look for 100% return a month. Winning traders look for 100% return a year (without compounding).
To achieve 100% return in a month, you have to trade with very high leverage. The most probable result trading with too high leverage is -100%. Winning traders use medium to low leverage. They may lose 30% from time to time, but with proper strategies, they are able to double the account every year. And if they combine medium leverage with the power of compounding , returns can be much higher. (more…)
Archives of “leverage” tag
rssHedge Fund Managers' Vernacular
As there is a considerable amount of industry-specific jargon used in Hedge Fund Managers’ monthly reports, please see the below glossary to explain some of the more arcane terminology.
* Challenging conditions = double-digit down month
* Cautiously optimistic = single-digit down month
* Constrained risk profile = we bottled it at the bottom
* Alpha = imaginary friends
* Beta = punting
* Alternative Beta = punting in stuff we can’t spell
* Negative gamma = we lost money, but it wasn’t our fault
* Positive gamma = we lost money, but it wasn’t our fault
* Theta/Kappa = our research department has been on a junket
* Negative correlation = everyone else made money
* Prudent cut in leverage = we went to Antigua for our holidays
* Liquidity issues = “Thank-you for calling XYZ International Capital Markets. Unfortunately all our sales operatives are receiving their P45s at present. Your call is important to us, so please try again later, perhaps if there is ever another bull market in this rubbish…”
* Re-optimised portfolio = we threw out the baby, bathwater and the bath
* With hindsight… = ouch
* Healthy growth in AUM = how bad must the opposition be?
* Modest outflows = they wanted to redeem the lot, but our small print is world-class
* Material outflows = would anyone like to re-invest in my new minicab venture?
George Soros – "It's not whether you're right or wrong…"
The full quote – “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”
Soros’s style of trading is very unforgiving and he is always ready to admit when he is wrong and cut his losses. Admitting one’s mistake is one of the key things to successful trading – he or she will be psychologically prepared to take action to reduce their losses without much delay.
How many of us always hold on to unrealized losses, and hope or even believe that the stock will regain its price? I guess many of us are guilty of that. Some stocks drop in price for a reason and there are even more reasons for them to drop further until you realize how bad your unrealized losses are!
As Soros take huge positions and high leverage in his trades, he has to be decisive to cut loss so as to lose as little as possible when he is wrong. On the other hand, when he is right, he make sure his profits can more than overcome his losses several folds. He understands he cannot be right all the time – the principle is to minimize your loss when you are wrong and maximize your profit when you are right.
Risk Management -From ASR TEAM
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Risk Management for Traders
- Your first loss is the best loss.
- Let winning positions run and cut losing positions short. The market is always right.
- I finally understand why Kirk always says risk management is the most important thing.
- Always know your exit. Before any trade is made, you must always identify your stop beforehand and then follow it without hesitation if it triggers.
- Patterns and trends matter more than I thought…paying attention to them can provide better entry/exit points.
- Patterns and measured moves are key but you have to wait until a pattern is triggered and the trigger holds.
- Being patient and waiting for confirmation instead of trying to anticipate market movements.
- Risk is greatest when everyone who wants to buy has already done so – Apple is the latest example!
- Position sizing is my first and last line of defense.
- Leverage is for losers.