They say every dog has its day, and apparently, the first time this was written down was in a letter from Queen Elizabeth I (1533 – 1603) to her brother.
Well, I think every sound trading strategy has its day. What will make you a success in trading is what happens in the meantime when your strategy is not working. In this article, I will share a few tips that helped me become and remain a profitable trader.
I started to trade in 2006, but it was first in 2014 that I turned profitable and remained profitable. A big switch in my trading was to trade signals on the daily chart and breaks to major lows and highs helped my account to take leaps higher. From 2014 to the end of 2015 my account was up by 59% vs 15% for the S&P 500. 2016 was a losing year and most of 2017 was also bad until I started to trade cryptos and had a great year. 2018 was also good and most of the profits were derived from indices and commodities trading. 2019 has been not good and I am down by about 24% on the year. Looking at it from 2014 my account is still up by 205%, while the S&P 500 was up by about 87%, keeping me a profitable trader.
Risk Warning: Past performance is not indicative of future results. Forex, Spread bets, Cryptocurrencies and CFDs are leveraged products and can result in losses that exceed deposits.
What Helped Me Remain a Profitable Trader?
My ability to keep risks contained has been the number one factor helping me out. Early on, I learned that one should not lose more than 1.5% of the account per trade, and this is something that I have stuck to for more than ten years.
Today, with the help of simulators I know that a strategy that is right 45% of the time and has an average profit of 2 times the typical loss, has a 62% probability to have a 50% drawdown if the max loss per trade is 5% of the account.
The only way to bring the risk down to zero percent is to make sure the max loss per trade is 2% of the account. Yet, even if this simulation was calculated over 100,000 trades there still a chance that a strategy like this might experience a 50% drawdown. The better the strategy the more can one risk per trade, but the average retail client does not have a profitable system. Most of the time they don’t even have a system, so no money management will help. Yet for traders that use a sound strategy, it is vital to not risk more than 2% of the account.
The second factor that helped me is to reduce the account size. From 2016 to mid-2017, I was struggling with my trading. I was also about to buy a new home so it was natural to reduce my trading account. The effect of trading with a smaller account helped me to keep my focus, and then when I started to get back in sync with the market I quickly expanded my account size.
A final tip is to take a break. When I notice that my system is not in sync with the market I reduce my trading activity. It would be great to know beforehand when a system will stop working, but it is difficult to see it until it has started to eat into your profits. However, when it is clear that your strategy is not working it is time to take a break. Maybe a few weeks or a few months will do the trick. It will also keep you mentally fit for the next time your strategy has its day, and more importantly, you will have money to be able to take advantage of the next bull leg of your strategy.
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