Thursday, July 30, 2009

Maximizing profits on a 1 star day:

At out Trading RM morning meeting we discussed what is appropriate trading and emotional reaction for a 1 star day. (We often quantify days and trades as 1 star/3star/5star). Many of us graded yesterday, Wednesday July 29th, a 1 star day.

Was it a hard day? No, it was an easy day for the guys who traded less decisions and/or traded less size. This led our firm to a discussion of maximizing a 1 star day. If you can cut your losses on every 1 star day you will most likely pay yourself more than you can make on a 5 star day over the course of a year.

Assuming each year we have 120 1 star days, 90 3 star days, and 40 5 star days; consider the 2 hypothetical traders below:

You will notice above that by cutting the losses on a 1 star day in half your yearly earnings will go up by 120% (assuming the data above). I encourage readers to go through their numbers and see how their years would change if they limited 1 star days.

Every idiot on the street nails the 5 star days. The question is can I tread water on the 1 star days in the meantime???

**Trading RM Real Time is a product geared towards identifying market characteristics, including 1-5 star days. Trading RM Real Time is available for a monthly fee and gives our traders and edge. Traders out there who are interested in Trading RM Real Time can email or can find information here**

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