Additional protecting your trading activities

February 17th, 2013, 12:07 PM

Just putting in a thread to try and help people go the "extra" step in protecting their trading capital.

A lot of people don't realize that stop loss orders aren't sufficient during extreme market conditions. You need to consider the use of options as an additional tool on top of the futures products that you trade.

There is an entertaining and factual book that should be required reading for all traders: "When Supertraders Meet Kryptonite" by Art Collins. In this book he interviews about 40 traders and you see stories of all the wonderful ways in which a trader who does everything right, can lose all their money in adverse markets.

Read that book and then start developing your own methods (using options or spreads) to ensure your losses are limited during those unpredictable times.

March 12th, 2013, 01:09 PM

A quote from Murray Ruggiero, appropriate for this thread:

"[One thing discretionary traders sometimes say] is they trade that way because it makes their drawdowns less than with mechanical systems. All that means is they haven't traded long enough. Going to the casino once and saying "My method for playing blackjack is good because I was never down more than $500" wouldn't hold up if they went back to the casino one thousand times. If they were the best blackjack player in the world, they would figure out that they're going to blow out, say, 250 betting units. ... you always have less data on your discretionary trading that makes your drawdown number more suspect. It just means your disaster hasn't occurred yet."

p233, Market Beaters, Art Collins.

Additional protecting your trading activities

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Additional protecting your trading activities