A friend of mine asked me if I was an aggressive or a conservative trader. I think it’s because I’m actually quite an aggressive trader. I have 35 positions on. There has been more. The portfolio is geared 12 times. However there’s a catch.
My edge is risk and money management. Even though there’s a lot of trades. None of them can individually take the portfolio down. By having a lot of trades I reduce the volatility in the portfolio, because the portfolio will be well diversified as a result.
However it’s possible for any trade to individually carry the portfolio on the up side. Let’s pretend for a second that we take these trades all at the same day. Because they would all be a 1% bet the worst this the worst that could happen is that you lose 30% +- dividends and costs. On the 30 trades.
A certain percentage of these trades has a potential to make profits, and another to make losses. Since not all these will lose it means our actual risk is not 30%. It’s lower, depending on the ratio between wins and loses.
Of the percentage of trades that will be profitable. A percentage of those trades will knock it out of the park. My goal is to find these trades and put them in as much size as I can without risking too much of my chips, or giving away too much of the open profit. I don’t wanna be right in finding these trades and still lose money.
Of the percentages of the losing trades, I wanna lose as little as possible. Since I can’t avoid these, know in advance if they’ll be losers, or how many there will be. I have to assume every trade will be a loser and limit each loss to 1% of my chips
My job is to take each and everyone of those trades and let the law of probabilities play themselves out.
If I get stopped out on a trade like Distell. That single trade would have paid for 24 trades. All I have to then do is to pay for the remaining 6. Now the situation changes to the worst that could happen is you lose nothing. Because you’ve put yourself in a situation where all 30 trades have been paid for. There’s no limit to how much you can get.
That’s the game I’m playing.
All my trades pass through some test, and give a reason why I should take them.
The market being in a trend will be the main reason I’ll be in a trade. However making sure that
I execute on those trades each and every time is more than the characteristics I use to define a trend and when to get on and off it.
Because you can’t afford to miss too many of those big ones because they are so few.
So the answer to the question is, I’m conservative with my losses and aggressive with my winners