The other day, Alpha Trader contributor and must-follow Twitter personality @donnelly_brent made this observation: – There are times in trading when you have to take on a task that is too big for your comfort.
But still in control.
You need to be able to drive the car fast enough to win … But not so fast that you slam into a wall.
Do you generally trade too big, or too small?”
I think this is an interesting topic and a good question because it covers the insights that many people ignore. Do you trade independently or systematically? If it’s the former, Brent is absolutely right, if it’s the latter, I think the opposite is true.
Business people make explanatory decisions. Often this explanatory nature is important, but it can be. The point is, they are marketing a particular story and they need to evaluate it accordingly based on how much credibility there is in the story, because good stories are rare and opportunities are few and far between.
The all-time champ of discretionary trading is George Soros who once famously noted that, ““It’s not whether you’re right or wrong, but how much money you make when you’re right and how much you lose when you’re wrong.” Soros of course was wrong a lot, but his single greatest talent was to bet huge when he was right. The quintessential example of that style was the British Pound trade when Soros made one billion dollars ( back when a billion really meant something) in a matter of a few weeks.
Soros is a proven trader; he will constantly research the market to test his theory and if the price moves in his direction, he will exit the market completely. In the pound war with the Bank of England, Soros created a business legend by betting all his money on this business.
But if you are a real trader like you, Soros’ method is probably the fastest way to trade. Because the market is trying to catch different results. Commercial marketing is not driven by explanations, it focuses only on business practices. The idea is that some patterns are so repetitive and predictable that if you can set a stop and target on your trades, a good path can be created. Good results.
One of the most focuses I exchange is that cost frequently switches from highs and lows. There’s more to it of course but the most point is that in shorting it is more likely to be a pullback than a continuation and in the event that you get the settings right you’ll benefit from the energetic. My setup is exchanging at a 1:1 risk-reward proportion so I as it were got to be right 51% of the time to be positive.
You should think of the business as a factory that produces food that tastes the same, not as a business decision that may or may not be delicious depending on the day. So it is better to trade with a good idea on the same scale. In fact, I think a small business in business will always have an advantage over a larger business because most batches of donuts can be spoiled (the difference is different) and when you lose inventory, it is easier to absorb such a loss. thing. Lose it and adjust accordingly (reduce your equity) which is small.
The standard procedure is based on the law of large numbers and therefore requires a small length to capture the small edges. There is a reason why Ken Griffin’s Citadel can buy and sell 100 shares a billion times a day at tenths of a dollar, has a 51% win rate, and still make thousands of dollars a year. But that is a far cry from the $1 billion Soros makes from a carefully thought-out macro account. Investors rarely understand the difference between the two, and in the pursuit of profit, they often make the dangerous mistake of making judgment calls.
