One of the most famous trading strategy that was ever used was the trend following strategy. This was evident to current economic climate, if an instrument was in established trend ,it will more or less continue in its current direction regardless up or down.Amplified by trend followers ,the movement probably will sustain ,towards weeks or even years.
Then there was a statement released publicly towards trading , 95% of most traders often lose, similar to 95% of business startups.But we will focus on trading for now.
Stops, or stops loss almost always accompany any trend following strategy. In my opinion one of the ways that most traders lose money. But without a SL preset,the account will in much potential to lose especially with overleveraging. The results, with or without stops both will lose money, one slowly or the other quite fast. The reason was the way the strategy is executed. The strategy is geared towards professionals or experts with years of trading experience. If you teach this to newbies ,or even apply this to robots it will lose money some way or another. Traders often got 'killed' in ranging period which can occur anytime anywhere without any warning. You can imagine how many times they will stop out. Once the trend is back in place will the trader hold on into their position to recover some of the losses?
Using hedging or using a bidirectional grids or using williams MM which is adding trades to winners, the trader can not only make money but withstand drawdowns during the ranging period.Most strategy are not much equipped to endure prolonged range period which is their biggest weakness.Standing the dd is a must to eliminate losses and getting the needed profit.
Most cash in during losses which is not the way business work.WHo would cash in during losses? We will only close 'trades'/cash in during profits.Such is the way that most teachers tought their students. Plus there is a psychological advantage,since we would look at dd as temporary. On the other side DD is looked as permanent which is booked loss. Loss and wins are never permanent unless booked. They would book during losses, which could be psychologically damaging. Some traders even said trading is a lot more mentally challenging. But they always tell to damage their own mental state.eg book in a loss.
I conducted in an experiment several months ago using EURUSD using bidirectional grid, i added to winners.Eventually the account suffer a total DD of -900 pips which i closed with regret. The trend eventually appears,which on paper,if i would continues using the strategy would nett me profit,eliminating -900p with a plus. That was a lesson learned. We must be able to withstand initial dd,before getting the profit.But this would be easier to execute rather than the usual trend strategy MM.In the basic trend strategy ,if you missed the winners, thats a death blow to your account ,plus suffering losing streak.Even sleep is not permissible, you must catch all trades.
Using stop entry orders(hedging), no trades will be missed, you could have a nice night sleep.To me the advantage outweights the disadvantages, even by having bigger DD.
Each to their own. If your not comfortable trading, dont, trade only when your comfortable.Does that make psychologically sound?
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