Quote:
Originally posted by Smurf
Dear comenow
Yes, I thought as much. I always had a hard time trying to come to terms with the fact that such a high percentage of amateurs go broke and disappear and all the old sayings. Two things could explain this: 1) The old sayings are correct but nobody follows them. 2) The old sayings are wrong.
I would suspect point 2 to be correct. I mean, it's right there! If a system suffers from stop losses then stop losses are wrong. However, there's a way out of this. Trade smaller volume. I know this is not sexy and it doesn't correspond to new traders' ideas of buying a Jag after three months. I think it works, though. I do it myself anyway and with huge success, but nobody wants to hear about trading much smaller volume (and consequently delaying the purchase of the Jag).
I'll leave you with a thought. A Business Week story on the bonds trader John Merriweather (the guy from the book "Liars' Poker" about Salomon Brothers) pretty much stated that one thing he learned as professional trader was, above anything else, ride your losses until they become winners. This sounds as insane advice. Even more so considering the trouble of LTCM. However, how does that correspond with things that rookies are taught?
Comments appreciated.
Cheers,
Smurf
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Dear Smurf,
Let me tell u my situation. I started spread betting on currencies about 18 monts ago. B4 that I had no experience of trading at all. I spent a lot of time reading and studying b4 taking the plunge. I use a simple lagging trend following system and I win consistently. I never wanted to buy a jag because I don't really care for nice cars and the like. I trade to have financial freedom so I don't work for someone else.
Any way, the 1st thing I noticed when I backtested different systems was how much worse they do when you factor in stop losses. However, I was starting out with only £2,000. I was betting the smallest amount I could (£1 per pip). A lot of times a pair would take out my relatively tight stop and go in my favour if i were not stopped out. However, it happened enough times that I would have been wrong by 100-200 pips. Without a stop, that would have meant a few losses would have taken me out of the business.
I am now in a position to bet £10 a pip, but I am not in a position to risk large sums of money. In the end, it is really a matter of what u can afford to lose. Would I have longed Euro/USD b4 xmas without a stop if I had a lot of money. Of course, I would. Trading would be very easy if u can afford to lose large sums of money on paper and wait it out. But if u have 2000 in ur account and the margin call comes, u are effectively done and dusted.
However, I would like to know at what point u would throw in the towel if u r wrong without a stop loss.