3 essential trading tips and tricks

In today’s article, I want to summarize all the important things I’ve learned in trading over the past decade. So let’s tackle it!

1. Risk management and positive RRR

We started working on our private fund and application with our team three years ago. To begin with, we asked ourselves a fundamental question: “How can we take risk management to a really high and sophisticated level?” Please note that our first steps towards working on our own fund were not about which broker we use , what server we have or what strategies we should use. All these questions would not matter if we did not understand that the basis of successful trading is mainly quality risk and portfolio management.

The market advantage does not last forever. Strategies fail in time (although some work for years), markets change faster than ever, and drawdowns were, are, and will always be present. Hence the question: What is the best way to deal with it? These are all issues that need to be resolved at the risk management level and not at the broker, server and strategy level.

From my point of view, the most important thing is to create a concept of how to look at money management as a whole. Our fundamental approach is based on the philosophy that every strategy in a portfolio is like an individual in a large company. And the rationale for managing such a company is not that each employee should get an equal share of the company’s resources (equal percentage of capital), but that each employee should be dynamically allocated resources based on how they are doing; how effective they are and how they contribute to the organization as a whole. Therefore, our risk management is based on a very dynamic, real-time evaluation of the actual performance of all “employees”. That is, not only from the point of view of their singular effectiveness, but also from the point of view of their functionality as a whole. Based on such an evaluation, each “employee” is dynamically assigned different resources in terms of time.

At the same time, it is important to consider all the resources of the company as a whole (we can think of it as cash flow) and such resources will also increase or decrease globally depending on how the company as a whole is doing.

In such a management model, it is important to consider many different aspects, from analyzing the quality of each trade, distribution of the latest trades as well as all existing ones, to different analysis of equity, volatility and current quality markets. The model is therefore very dynamic and can change the allocation of resources to each “employee” and also the entire company literally every minute. Of course, I will not reveal any more details on this topic.

The point I’m writing this for is very simple: it’s really important to have a clear idea of ​​how to manage the capital. You don’t need sophisticated models unless you intend to manage a lot of money, but if you’re a small “normal” trader, you need to know what percentage of capital you’re risking per trade. If such a risk makes sense from the point of view of Monte Carlo analysis (and the maximum possible Monte Carlo drawdown), and also having a concrete plan when and how to increase or decrease the number of contracts and how with Dealing with strategies and patterns is currently going badly (such strategies should not be given the same resources as those that are going well).

I strongly recommend trading on positive RRR. From my personal experience, it’s easy to find nice smooth equity with negative or RRR 1:1, but later commissions and slippage kick in and the cards change radically to your disadvantage.

I also suggest a book called Definite to Position Sizing that I used to get inspiration for my fund.

2. Regular maintenance and adjustment

From the experience I’ve gathered over the past few years – no matter what market advantage you have, whatever approach and trading path you have, your advantage will require occasional changes, updates and maintenance (even if you’re trading discretionary).

Some changes affect stop-loss and exits (better adaptation to new volatility); sometimes it’s regular optimization; sometimes small changes in a basic idea of ​​the edge. Occasionally some of this work is done on your behalf by autoadaptive requests and algorithms. Even so, some varying levels of regular maintenance are required.

There is no clear advantage that you could trade constantly without changes. Markets change too fast and therefore it is necessary to make appropriate changes in parallel. Occasionally it is necessary to change the composition of the portfolio; occasionally changing a market or timeframe or changing the number of positions due to ever-changing volatility. These are all things that come with the experience and are very important.

If you were to look at this from a different angle – it’s like any other profession in life. Whatever you do, new trends, new tools, new demands keep coming in and we have to learn to adapt. If we don’t do that, we can’t become successful in anything (not even in commerce) in this dynamic world.

The good thing is that it’s not as bad as it looks. Put simply, it is important to take action and gain experience, accepting that we will never be perfect and will occasionally make mistakes – in order to learn from them. The more we trade, the easier it becomes to make a decision about occasional changes in order to be able to adapt. Our decisions won’t always be right, but that’s life (when we’re diversified sensibly, the occasional bad decision will be offset by a series of good decisions). In our fund, we deal with volatility a lot and at many different levels; from regular Optimizations from systems to proprietary auto-adaptive algorithms and indicators to concepts that work with adaptability at the whole portfolio level.

The need to know how to adapt is a fundamental part of surviving in life. This is actually great news because it means that everything we need to adapt is in our genes. We just have to learn how to use it.

3. Learning is a never-ending process

The previous paragraph leads to the last important point I need to discuss here – learning is a never-ending process. Trading is a lifestyle, it’s a way of life. Once you’ve made a decision to trade, and I mean really made a decision, it will probably stay with you for the rest of your life. And that means there is always something to learn, there will always be something new. And that makes the path of a trader even more exciting.

To be honest I feel like after 10+ years of trading I still don’t know much. Yes, I’ve made significant progress. In our fund, with our team, we are realizing and discovering some truly incredible things. Even though I feel like I don’t know much about trading. Perhaps today I know more about risk management than why markets move the way they do. I may now be able to develop a greater understanding of trading and risk management than I used to, but that doesn’t mean I’ve found more safety in the markets. Trading is still an uncertain path. That’s why it’s trading, that’s why it’s speculation. But what is certain these days – it’s not even a civil service position anymore.

I feel like there is always something to learn. Every day we are amazed at new insights that need new, creative thoughts and ideas in order to be able to implement them properly. Even after 10 years I still read trade books; I learn from other traders and always find out new things.

There is always something to improve in trading.

And it probably always will be for retailers. That’s one reason you need to enjoy trading, why you need to be passionate about it, to be successful over the long term.

On the other hand, I have to say that you will learn a lot not only about trading but also about yourself and life. I’m surprised myself at what I’ve learned about myself and life thanks to trading.

Also, try to approach trading with an open mind and not just from a logical point of view. That would be a mistake, because trading requires logic, heart and creativity.

Happy trading!