Last month I was reading the book ‘The New Market Wizards’ by Jack D Schwager. In this book the author interviews some of the Super Traders. One of the Super Traders is Randy Mckay a veteran futures trader in currencies. He is among the few who have gone from a starting account of several thousand dollars to double-digit million dollar gains. Over his entire career he has been profitable for his own account in eighteen out of twenty years. It will be more than worthwhile for traders like us to learn how he could do this.
One of his advice for traders is “Never let a loser get out of hand.” As a trader we can be wrong even twenty to thirty times in a row but we should be sure we still have money in our account to trade. This is possible only when we don’t allow losing trades to get out of our hands. He goes on to explain how he does this. According to him he risks 5 to 10 percent of the money in his account. If he loses in a trade, no matter how strongly he feels, on his next trade he will risk no more than 4 percent of his account. If he loses again, he will drop the trading size to about 2 percent. He will keep on reducing his trading as many as three thousand contracts per trade to as few as ten when he is facing a cold spell, and then back again.
This drastic variation in his trading size, he says, has been a key element in his success. There is a logical reason for this, according to him. When we are trading well we have a better mental attitude. When we are trading poor we begin to start wishing and hoping. Instead of getting into trades we think will work, we end up getting into trades we hope will work.
In other words, by following this strategy, when our trading is going through a poor stretch, we want to wait until we get back into the proper frame of mind.
Source: The New Market Wizards by Jack D Schwager.
