3 Important Trading Tips and Tricks
In today’s article I would like to wrap up all the important things I have learned in trading in the last decade. So let’s get to it!
1. Risk management and positive RRR
We started to work on our private fund and application with our team three years ago. At the beginning, we asked ourselves one basic question: “How can we shift risk management to a really high and complex level?” Please take notice of the fact that our first steps towards working on our own fund weren’t about which broker to use, what server to have, or what strategies we should use. All these questions wouldn’t be meaningful unless we understood that the base for successful trading is mainly a high-quality risk and portfolio management.
The edge in the market doesn’t last forever. Strategies fail in time (already though some may work for years), markets change faster than they ever did before, and drawdowns were, are, and always will be present. consequently, the question is – what is the best way to deal with that? These are all aspects that need to be resolved on a risk-management level and not on the level of brokers, servers, and strategies.
From my point of view, the most important thing is to create a concept of how to look at money management as a whole. Our elemental approach is based on the philosophy that each strategy in a portfolio is like a single employee in a large firm. And the point of managing such a firm isn’t based on the fact that each employee should receive the same part of the firm’s resources (same percentage of capital), but each employee should have dynamically allocated resources based on how they are doing; how effective they are, and how they are contributing to the firm as a whole. consequently, our risk management is based on a very dynamic real-time evaluation of actual effectivity of all the “employees”. That method, not only from a point of view of their singular effectivity, but also from the viewpoint of their functionality as a whole. Based on such evaluation, different resources are allocated dynamically to each “employee” in time.
Simultaneously, it is important to take into account all the firm’s resources as a whole (we can look at it as a cash flow) and such resources are also globally increased or decreased based on how the firm is doing as a whole.
In such a form of management, it is important to consider many different aspects, from analysing the quality of each trade, the dispensing of the latest ones, in addition as of all existing trades by different examination of equity, volatility, and current quality of markets. The form is consequently very dynamic and literally it can change every minute the dispensing of resources to each “employee” and also the whole firm. Naturally, I won’t give out any more details about this subject.
The point for which I am writing this is very simple: It is really important to have a clear idea of how to manage the capital. You don’t need complex models if you don’t plan to manage big money, but if you are a small “ordinary” trader you have to know what percentage of the capital you risk per trade. If such risk makes sense from the point of the Monte Carlo examination (and maximum possible Monte Carlo drawdown) and also to have a specific plan on when and how to increase or decline the amount of contracts, and how to deal with strategies and patterns that currently have a bad period (such strategies shouldn’t receive the same resources as those that are doing well).
I strongly suggest to trade with positive RRR. From my personal experience – it is easy to find a beautiful, smooth equity with negative or RRR 1:1, but later on commissions and slippage come in and cards radically change in your disadvantage.
Also, I suggest a book called “Definite to Position Sizing”, which I used to get inspiration for my fund.
2. Regular maintenance and adaptation
From the experience I have attained over last few years – at any rate edge in the market you have, at any rate approach and trading path you have, your edge will need occasional changes, updates, and maintenance (already if you trade discretionary).
Some changes are changes in stop-loss and exits (better adaptation to new volatility); sometimes it is regular optimization; sometimes small changes in a basic idea of the edge. sometimes, some of this work will be done by auto-adaptive requirements and algorithms on your behalf. But already so, some different levels of regular maintenance will be needed.
A definite edge that you could trade without any changes regularly doesn’t exist. Markets are changing too quickly and consequently it is necessary to make adequate changes in similar. sometimes, it is necessary to change the composition of the portfolio; sometimes to change a market or timeframe, or to change the amount of locaiongs thanks to the ever-changing volatility. These are all things that come with experience and are very important.
If you would look at this from a different angle – it is like in any other profession in life. at any rate you do, new trends, new tools, new requirements are regularly coming in and we need to learn to adapt. If we don’t, we can’t become successful in anything in this dynamic world (not already in trading).
The good thing is that it isn’t as bad as it may look. Simply put, it is important to trade and gain experience, to reconcile that we will never be perfect and sometimes we will make mistakes – to learn from them. The more as we trade, the simpler it will be to make a decision about occasional changes to be able to adapt. Not always will our decisions be correct, but that’s how it is in life (if we are reasonably diversified, the occasional wrong decisions will be balanced by series of good decisions. In our fund we are dealing with volatility a lot and on many different levels; from regular optimizations of systems to proprietary auto-adaptive algorithms and indicators, up to concepts working with adaptability on the level of the whole portfolio.
The necessity to know how to adapt is an elemental part of survival in life. This is truly great news because it method that in our genes there is everything necessary for us to adapt. We just need to learn how to use it.
3. Learning is a never-ending course of action
The past use leads to the last important point which I need to discuss here – learning is a never-ending course of action. Trading is a lifestyle, it is a life path. If you have chosen trading, and I average really chosen, then it probably will be with you for the rest of your life. And that method that there will always be something to learn, there will always be something new. And this is something that makes the path of a trader already more exciting.
To be honest, I have a feeling that I nevertheless don’t know much already after more than 10 years in trading. Yes, I have noticeably moved forward. In our fund, with our team, we are realizing and discovering some really incredible things. already though I have a feeling I don’t know much about trading. Maybe today I know more about risk management than why markets move the way they do. Maybe today I am capable of developing a larger trading and risk management concept than before, but that doesn’t average that I have found more certainty in the markets. Trading is nevertheless a path without certainties. That’s why it is trading, that’s why it is a speculation. But what is certain these days – it isn’t already a civil servant position anymore.
I have a feeling there is always something to learn. Every day we are amazed by new findings that need new, creative thoughts and ideas to be able to implement them in the right way. already after 10 years I nevertheless read trading books; I learn from other traders and I am finding out newer and newer things.
In trading there is always something to enhance.
And that’s how it’s probably always going to be for traders. This is a reason why you need to enjoy trading, why you need to be passionate about it in order to be successful for the long run.
however, I have to say that you will learn a lot, not only about trading, but also about yourself and life. I am truly surprised myself of what I have learned about myself and life thanks to trading.
Try to approach trading also with an open mind and not only from a logic point of view. That would be a mistake as trading needs logic, heart and creativity.