Trading Major Markets on Margin Part 2

20 ביולי 2018

Trading Major Markets on Margin: Part 2

...You need a game plan.
You need a system.
You need stops.

You need to understand true risk management and try to keep it as simple as possible at the same time .
You need discipline.
You need courage to buy when others are selling and to sell when others buying - if the correct signals are present to do so.
You need patience.
You need belief proven by evidence.
You need to test this by paper trading - or at least only trading the Dow for say $3 per point at outset.

If so and you were to decide on risking this amount per point and the stop you used on the Dow was 50 points away then the loss is $150 in this instance if wrong.

Look for trades that have risk/rewards of 3 to 10 times upside to 1 of downside whenever possible.

The upside on the Dow trade from Friday was from 24860 back to the highs and in near term it was back to 25000 - maybe 140 upside and 20 points of risk with a stop 20 lower. Or at 50 points of risk it just about qualifies as a 3 to 1 shot.
The low was 24852 on the futures.
Sometimes it works and sometimes not.
It really hurts to get stopped out and then the trade goes the way you originally thought it would.
Really hurts. More than being plain wrong usually.
But it will happen nevertheless.

On the other hand you could have got long around 24641 on Thursday and have closed out at 25000 yesterday for 360 points profit = $1080 profit before 2 points in costs.
The risk was between 20 to 50 points on the stop, so between $60 and $150 at $3 per point - so you know what you you stand to lose before the trade is initiated.

When you test it 20 times with small small numbers and see it works - or it doesn't - you can decide on whether you have a system of trading bigger numbers or not.

When you do, you can start to compound wins and losses and keep dividing total risk on ANY single trade to 5% of the total bank, 1/20th of the total bank.

If you did this with the Dow as above, (when tested to satisfaction first!) and you staked 1K with 50 points of stop it means $1000 divided by 50 points = $20 per point x 360 = $7200 profit.
For $1000 of risk.
The 20k is now worth $27,200.
Now you compound it and trade 5% of this on the next trade.
It takes less than a year to turn 10k into 1m if you can be bothered and disciplined enough.
You only need to be right half the time if the risk reward is right to begin with.
Go do the math...

There is no right way to trade. Just the one that suits your own profile and time considerations best.
This is just one way. It does work though, most of the time : )
Be lucky, whichever way you choose.