BarroMetrics Views:  Trading Competitions

Jeff Moodie  asked:

I find it very interesting that the range from first to third was so large. It makes the FX trading look awfully tough.

I wonder what the total stat chart looked like, if over 90% lost money in the game for instance.

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Jeff, in this case, I believe that only the first 3 made money. But this is not a reflection of the ‘toughness’ of FX but a reflection of the inexperience of the competitors in trading competitions.

Much more so than the other two components (Trading Plan and Winning Psychology), Risk Management is strongly affected by the participants’ desired outcomes.When trading for a living and wealth accumulation, I am looking to take advantage of the magic of compounding. But this is not available to us in a competition. In a comp we are faced with making the most money in a prescribed period. For this reason, both luck and experienced money management is called for.

Luck is important because the ideal situation would be for the first two or three trades to be large winners. This builds a base on which to increase the returns. But what if Abudantia abandons us? What if the trade-by-trade randomness kicks in at a time when we would prefer that the trade to play true.

That’s when imaginative and creative position sizing kicks in.

My first two trades were losers; and they incurred the maximum loss (20% per trade of funds with GFT). Yet I can tell you I still have a strong chance to make above 200% by end March. For this to be true, I need to win at least one of the next two trades and preferable win both.

Now, when trading in normal circumstances I would never risk 20% per trade. Indeed losing 20% is a sign that I am in Ebb state and need to cut exposure. But this does not apply to the competition account. For me, the 40% is the norm and to be expected.

So you see, the rest of the Daniels Comp merely showed that most of the competitors had little experience in trading in comps rather than show that FX trading is tough.

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