Risk control ?

[Burtakus]

For you guys that trade a system I have a question. Do you take every trade the system signals?

The reason for asking is that sometimes I get several signals and if I take all of them then I would be taking on too much risk. I only put 1% of my account at risk for each trade but sometimes I feel that if I take on more than two trades at a time I am placing too much risk out there. However more often thatn not if I woudl take every trade I woudl come out ahead. I just don't want to end up in a situation where an abrupt move wipes out 5% or more of my account.

Any thoughts would be more than welcome.

[SimSpeed]

Originally posted by Burtakus
Do you take every trade the system signals?

Hi Burtakus,

Great question. When I sit down to trade I take every signal that I recognize, but I only trade one pair at a time so I'm not under a lot of conflict. When I open a position I generally don't stack or add additional lots unless it moves strongly in my favor. I close under one of four different occurances:
(1) My target is hit
(2) I see a reversal pattern begin to form
(3) My time in trade bar count hits before 1 or 2 above
(4) My S/L is hit

Therefore, my next signal is generally a reversal and since I don't hedge I will close or already have closed the previous position before I take the next signal.

My multiple position trades only occur when the move is in my favor and my equity curve covers the stacked trade(s). In those rare cases I'm moving my S/L up as I go so only the latest trade could reverse for a relatively small loss.

Let's hear how others do it. How about yourself? Under what circumstances do your signals call for multiple entries?

Good Trading

[Burtakus]

For example:

My open position are:

S EURUSD
L GBPJPY

I am close to entry signals in:

L USDJPY
S AUDUSD

Now if I enter the L USDJPY and S AUDUSD that puts at 3% risk on a long USD because the three USD are generally correlated to a decent degree.

So my delimma is: Should I enter the L USDJPY and the S AUDUSD if I get those signals?

I would hesitate and probably not enter becase that would put my USD risk at 3% and overall risk at 4%. But by not entering if I get those signals means that I am not following my system.

[SimSpeed]

In my opinion your money management always takes president over the signal system. Yes, you may miss an opportunity here and there. In fact you will miss a lot of profitable opportunities simply because they exceed your current risk profile. Signals will come and go just as the sun shines, the wind blows or the rain falls. But if you're standing there naked because you blew up your account and can't afford to cover your A** then what's the point?

You never know when losses will gang up on you. That next stacked trade that throws your risk out of wack may be wildly profitable or it could be the start of a disastrous run that knocks you out of the game.

But in saying all that.... that's not to say don't take the trade. Risk is what you accept it to be. If your risk tolerance allows substantial drawdowns in return for disproportionate gain then be forewarned and prepared to deal with the downside because it will come in due course. If you don't want to face that kind of music then stick with a low risk profile and forget about missing trades, there's always another one just around the corner.

Be true to your goals and responsible for your actions, because nobody else can.

Trade in your comfort zone and enjoy the fruits of your labor.