Hello dear reader,
there are 3 things that I try to avoid in trading, and probably you should try to avoid as well. Or at least you should think about them and see how they work for you:
1) I do not like fixed amounts in trading. For example stops of 30, 50 or 150pips. These do not make sense to me, really. There is no “safe” amount in the markets: actually in the markets nothing is safe. An assumption like a stop loss “that works”, remains an assumption. And in the market I have learned that assumptions can be, and often are, very costly. Particularly fixed amounts do not reflect market dynamics and where the market is on different timeframes (e.g. is it close to a large daily or weekly area of profit taking?). So I consider fixed amounts dangerous. When you hear someone talking about fixed stops – run! I never use fixed stops, my stops are calculated based on what I see Program Trading and professional trading are doing in the markets.
2) I rarely pyramid. I can give the impression I do it, like in the recent AUD/USD (second) short if you followed it, but the reality is that each trade has its own risk management according- in my trading analysis – to a very conservative risk management. When you try to pyramid things can get out of control pretty quickly. I have studied Money Management and Position Sizing extensively. You can find here a paper published for IFTA/SIAT on the links between Money Management and Trading Objectives.
3) third and most important, I often see a lot of assumptions, made all the time. From justifying price action through news, a very common practice, to “knowing” that we have a short or a long in a specific market. Some assumptions really follow biases we have in a market. It happened to me in the past, quite a lot. But not anymore now. I know that following the guidance of the big boys who move the market, the edge is strong enough and I have no need and no interest to guess or assume a thing about the markets.
The only two assumptions I do on the markets are the following: the markets can do anything, at any time. The markets are a dangerous place: learn to protect your capital. Rule #1 of trading!
Have a good day.