Mistakes...I've made a few!
Posted: Sat Jan 03, 2004 9:18 am
Hi guys,
I thought this topic would be useful to people out there reading this forum so decided to put it out there.
I trade on a long term trend following basis but not completely systematically. I take trades based on a set of criteria but not in a totally systematic way. The amount risked per trade however is always the same.
Anyway, after having a pretty successful 2003 I decided (in my infinite wisdom...NOT!) to double my percentage of equity risked. I figured at the time that this made sense and I was feeling somewhat confident given my past performance.
It turned out that this was the worst thing I could possibly have done. I was uncomfortable with the level of risk so took losses too quickly without giving the trade time to breathe thus missing out on trades which would have been very profitable for me and if I had been trading in the same fashion as before I would have definitely been in.
This led to a near 50% drawdown. I think I discovered alot about my stomach lining and the amount of pain I was willing to take. So, quite close to my 50% drawdown point I decided I would go back to my old style of trading and risk the % of equity I was risking before.
Of course, just as I decided to do that I hit 3 great (at least so far) trends.
I have learnt a few things from this - don't risk more than you think you can handle. A systematic, back-tested approach would have helped me to be better mentally prepared for the drawdown which I had. Don't get overconfident or lose confidence for that matter. Try and maintain a level of risk that gives you emotional balance and allows you to make correct trading decisions. The last year has given me a lot to think about and made me realize that you don't always know as much as you think!
I hope my experience may help others to avoid the mistakes I made or to maybe empathize or maybe just gloat!
Thanks for giving me the opportunity to share this with you.
rs
I thought this topic would be useful to people out there reading this forum so decided to put it out there.
I trade on a long term trend following basis but not completely systematically. I take trades based on a set of criteria but not in a totally systematic way. The amount risked per trade however is always the same.
Anyway, after having a pretty successful 2003 I decided (in my infinite wisdom...NOT!) to double my percentage of equity risked. I figured at the time that this made sense and I was feeling somewhat confident given my past performance.
It turned out that this was the worst thing I could possibly have done. I was uncomfortable with the level of risk so took losses too quickly without giving the trade time to breathe thus missing out on trades which would have been very profitable for me and if I had been trading in the same fashion as before I would have definitely been in.
This led to a near 50% drawdown. I think I discovered alot about my stomach lining and the amount of pain I was willing to take. So, quite close to my 50% drawdown point I decided I would go back to my old style of trading and risk the % of equity I was risking before.
Of course, just as I decided to do that I hit 3 great (at least so far) trends.
I have learnt a few things from this - don't risk more than you think you can handle. A systematic, back-tested approach would have helped me to be better mentally prepared for the drawdown which I had. Don't get overconfident or lose confidence for that matter. Try and maintain a level of risk that gives you emotional balance and allows you to make correct trading decisions. The last year has given me a lot to think about and made me realize that you don't always know as much as you think!
I hope my experience may help others to avoid the mistakes I made or to maybe empathize or maybe just gloat!
Thanks for giving me the opportunity to share this with you.
rs