Trading Pal Blog

Have you ever seen a good trade turn into a non-event because you only had a nominal quantity at stake? Or worse have you suffered an instant devastating loss because you bet everything on the house?

Moving in and out of a position gracefully is definitively an art and it needs to be practiced to get it right.

Some people try to save on commission charges by placing an all-or-nothing order into the market. This is not a good mindset. If commission charges are your bugbear then trade commission-free instruments such as CFDs.

Before you commit to a substantial trade you need to test the waters. Dip your toe in the pool to feel the temperature. Some experienced traders keep placing small trades constantly to build-up a large position over time but mainly to test the reaction of the market at each step. Feeding the monster with little nibbles tell you how hungry the animal is (how much demand there is out there) rather than offloading it all in one hit and seeing an indigestion thru the course of sales.

This is how losers lose more than they need to lose. Offloading a bad position in one hit tells everybody else that you are giving up. Remember trading is a game of bluff. Why not have the nerve to wait for the next retracement and then make your exit more discreet.

Another issue is: How should debutants build up their trading size over time? We have heard it all. Somebody did their homework dutifully. The early trades were not timed the best but they did bring some bacon home. Then all of a sudden a major disaster happened. Those guys have been eaten alive by the market when being cocky they doubled or tripled their stake being over-confident of a favourable outcome.

The answer cam be found in your trading log. You need to calculate the average length of winning trades and losing trades. If the worst scenario in your past trading activity is a string of 5 losing trades it does not mean your should bet the house on the 6th! But you need to know how long those streaks have been in the past.

Bear in mind that markets do evolve over time and the moment you think you have it pat - the market will prove you wrong by shifting to a different pattern... just to spice things up!

The safety net is to not risk more than 2% of your capital in any and every trade. That could be quite a restriction for some but while you still have your training wheels on just pedal at a safe speed. It is less devastating for the psyche to lose money your previously earned from your trading than to lose your life savings earned the hard way thru your labour.

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