The good thing about sharing in this blog is that, it is presenting the opportunities to meet some people that I would not have met. Talk about TW, a full time trader, who emailed me for a chat. As usual, with the defensive nature of humans, I was trying to figure out “what does he want out of me”. I even asked him if he was selling something to me :D But I mistook his good intention that he just wanted to meet a fellow trader to talk about trading and exchange views and ideas. TW, I apologise :)
I forgot to ask his age, but my guess is probably early thirties. Humble and sincere person. “Down to Earth” kind of guy. He begin to introduced himself and probably the most surprised thing is that he quitted his job even before he becomes proficient in trading. It was a year since turning full time trading and he admitted that he only managed to make enough to survive. To me, this is tremendous achievement for first year of trading. I cannot even make enough to survive. But maybe this is the difference, when you are at the brink of survival, you tend to be very determined to succeed.
Even in a casual talk like this, I was able to gain insights and understand more about the reality of trading from him. I learned more about risk management and not that I do not know the importance of it previously, but it is just different when you have a real person talking about it and his experience. It comes out stronger. He mentioned that he was tweaking the same trading system that we used and adopted a more defensive approach to trading. He sets his cut loss at 3% and profit take at 6%, yielding a 1:2 risk-reward-ratio. True enough, he may not be able to ride a trend to it’s end for bigger profits, but he gains in win rate and has lower fluctuations to his account. This is important when you start trading; do not lose too much. You will be less emotional and your capital protected. It is something that I overlooked as greed climbed onto me. I was taking up bigger positions, blindsided by the potential upside. Instead, I should have focus more on losing as little as possible. In other words, play great defence first, and only learn how to attack when you know how to defend properly. Read more…