The Right Side of The Chart

BarroMetrics Views: The Right Side of The Chart

Quite amusing actually. On May 4, (the day following May 3’s inside day in the ES (E-mini [S&P] Futures)), I received an e-mail asking why I did not exit all my positions; today I received a query about why I cut 1/4 of my shorts since May 3 was an inside day.

The answer to both questions: because I don’t know what the market will do tomorrow i.e. the right side of the chart is an unknown. The best I can do is make an informed guess (decision) based on my skill, knowledge, experience and state of mind; then act on that decision with a view to managing my risk. I know that sometimes I shall be wrong and sometimes I shall be right. The important thing is to keep tabs onĀ  my risk expectancy:

(Average Dollar Win x Win Rate) – (Average Dollar Loss x Loss Rate).

Developing traders can’t or don’t seem to be able to grasp this point.

There is no system that will provide a win rate of 100% over a large sample size. Yes I know there is a US$97.00 system doing the rounds that is claiming that since inception it had a 100% result. A little thought should dispel any notion that even if genuine, the system will continue to perform.

Ultimately what distinguishes the profitable trader from the non-profitable trader is the consistency with which he manages his risk and follows his plan.

This is something the developing trader is unwilling to face: there will be losses and at times prolonged periods of drawdown; other times there will be consecutive losses and prolonged periods when it seems that every trade will be winners. In both cases:“it too shall pass”. Know when to press your position size; and know when to minimize it. This is a skill we all need to learn.

7 thoughts on “The Right Side of The Chart”

  1. yes this is by far the most i came to agree with you ray.

    and this will also by far the least understood by the under developed trader.

    they will always straggle with the unknown, hence with all the FA and TA and who knows what.

    whereas the developed traders straggle to balance their state of mind.

  2. “…is the consistency with which he manages his risk and follows his plan.”

    only, and only he/she has a system that has an edge over a long period of time.

  3. just to let you know i did make some but far from covering my stock exposure.

    i’ll be licking my wounds tomorrow.

    what a night!

  4. Hi Coconut

    I am sorry to hear about your open losses.

    Yes I am short crude, S&P and EUUS. But I am uncomfortable with this sort of volatility because we are looking at Black Swan events and it makes risk management difficult.

    Take care and all the best

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