Wednesday, September 10, 2014

Q & A

1. Your signals are conflicting
A. There are always different trends in the market. If you look at the hourly charts, you may say the market is flying but the daily chart may say the market is breaking down. The market always has different time frames. Your trading basis/ bias should also have different time frames. I have 3 different accounts catering for different times frames and different goals. What your time frame is, depends on your risk, goals and needed returns. You must define these 3 before you even start trading, before you start following (your/ someone else's) signals. Then, you search for a proper instrument in the market.

2. Your signal is a fail
A. That is correct. If my signal always works, I would be a billionaire by now with a Year over year % returns of >1000%. I am not. My returns are decent in all timeframes and consistently beat the market. I see that they are positive in all time frames. Importantly to answer the question, my signals are profitable most of the times. Sometimes they do fail, I agree.

3. So, how do you prevent a big loss?
A. Risk sizing is very important. If the market acts erratically, if you met with an accident (and did not trade for few hours/ days), if something unthinkable happens and the trade goes against you - you should still be in a situation that your account will survive. You can always win tomorrow, but surviving till tomorrow is the key to trading. Hence, you should adjust your position sizing to reflect your risk/ survival etc. 

When you take a signal, it is always important to think how much loss you can bear for a position.
I prevent big losses so that my account will survive the unthinkable. However, things do go against me but I keep such incidents to very very few. 

4. What should you do?
A. There is somethings called using stops. And there is something else called following a methodology. Before following me, I suggest you to go through my thought process and methodology. It doesn't matter if you subscribe to paid investment analyst/ guide, you still have to think what their plan is. Unless someone takes your money into their hands and works for you, you must use appropriate thought process. 

Then, there are stops. Like I said above, you should review your risk, and adjust your stop in case the position goes against you. You must use manual / autostops for all your positions. If the position goes completely against you and the position opens higher/ lower, unfortunately you still close that position. There is always tomorrow to work on your next profitable trade.

5. How is your performance decent if you hit stops often? 
A. We must make sure that the number of profitable trades are more than the number of losing trades. Position sizing again plays a role. If you use all our account into one trade and that trade goes against you, you cannot withstand the fear and will dump that position out of panic too soon = You won't give the trade, enough time to work for you. 

6. What timeframe is most profitable for me?
A. Market conditions are not always the same. When volatility is very high, traders profit a lot. In 2011, my trading portfolio had a return of 44%. Sometimes, investors gain nothing. In 2012, my long term portfolio had returns of 3% (vs SPX return of 0%!!). In 2013, When volatility is low, traders loss money to brokerages via commissions while swing traders are king. So, the portfolio performance depends on volatility of the market. 

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