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 on 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.