“ It is only when a trader is trading with too large a position size that they get margin calls, and if this is a common practice in their trading activities, then I very much doubt they will be around to trade for much longer anyway.” – Sam Evans
Hello:
I’ve observed that 80% of traders are on the right side of the market when they enter a trade; yet overall, 90% of them lose money on the markets. Why? Because no one shows them how to profitably manage what takes place after they get in! That’s why I’ll always say that one’s survival on the markets has nothing with one’s ability to predict the markets accurately. While one may adamantly try to make a prediction by making use of indicators, reading the news or following a neighbor’s tip, one has no control whatever of what’s really happening. The more one tries to predict the markets, the more the markets make one appear like a practical fool. The markets don’t respect one’s education, nationality, race or social standing.
If you make 5% per year or per month, you’re a good trader. Making 5% within any period whatever means you experience losses, but you’re able to recover them. Don’t measure your own trading skill by comparing yourself with other traders, or you’ll end up being haughty or chronically discontented with your trading results, even if you’re surviving the markets. Contentment with small profits makes one survive the markets; discontent with small profits makes one fail.
Martingale And Anti-martingale Trading Systems
In this article, I’d like to briefly discuss the Martingale trading system. Originally, martingale referred to a class of betting strategies popular in 18th century France. Both martingale and anti-martingale are position sizing strategies, which can be used to win trades and/or to maximize profit from trades. Both are high-risk trading strategies, and not at all suited for inexperienced traders and traders with low risk tolerance. Investopedia describes Martingale system as a money management system of investing in which the dollar values of investments continually increase after losses, or the position size increases with lowering portfolio size. This is a very risky method of investing. The main idea behind the Martingale system is that statistically you cannot lose all the time, and therefore you should increase the amount allocated in investments - even if they are declining in value - in anticipation of a future increase. The Martingale system is commonly compared to betting in a casino. When a gambler using this method loses, he or she doubles his or her bet. By repeatedly doubling the bet when he or she loses, the gambler will (in theory) eventually even out with a win. Of course, this is assuming the gambler has an unlimited supply of money to bet with.
The thought is no trader can lose a series of consecutive trades as the market will reverse at any time. By doubling the position size, a winning trade can thus recover previous loses and can yield profit. In a falling market the average entry price for entering trades also falls because of falling stocks, equity or currency prices. Martingale trader must ensure virtually unlimited supply of money so that he/she can remain alive in market till he/she wins. Also there is chance of margin call if trades are done using burrowed money.
Anti-martingale is just opposite to martingale system. Here the trader doubles his position size after every trade he wins. The idea is to maximize the chance of profit in a trending market. Like martingale it is also a risky practice as traders can lose more than the accumulated profit amount by losing only one trade.
Because of recalcitrant fallacy, hordes of traders would continue to be greedy despite trying experiences. Greed comes from the thought that one setup will reap good profits, and so we tend to force a setup where non exits. Fear comes from the feeling of losing profits once a trade has been taken. Any deviation of price from the defined setup creates doubts that this trade could reverse and so there’s a tendency to close out the position too early, for a small profit, only then to watch the price continue moving in the desired direction. Conversely, there’s also a propensity to hang on a losing trade in the hope that it’ll ultimately turn in our favor.
Many Forex traders use high lots and leverages to make significant profits in a short period of time. A trader may want to surprise his girlfriend with sudden wealth. If sudden wealth is what you’re looking for in Forex, you might get it by sheer luck. However, you can never survive in the long run, should you plan to continue trading. You need to desist from trading strategies that encourage high risk or/and don’t emphasize sound risk management. You need to ignore marketers and software vendors who don’t give no-nonsense risk management recommendations. Trading is no joke: it’s real. The roof over your head might well be at stake. Please take survival methods serious.
One more quote from the great Sam Evans ends this article:
“..My first priority in my trading rules is to manage my risk, than worry about the profits. Leverage is a powerful tool when used in disciplined hands, and a dangerous one in reckless hands. Just remember, it is not the market that takes money from the trader. It is the trader who gives their money to the market by not sticking to the rules of disciplined risk management at all times.”
Your questions and opinions are highly welcome.
Thank you.
With best regards,
Azeez Mustapha
Forex Signals Strategist, Funds Manager &Coach
Senior Analyst
FX Instructor, LLC
Email: amustapha@fxinstructor.com
And my past articles are also available at: www.ituglobalforex.blogspot.com
NB: There is risk of loss in trading, but it is possible to be a successful trader.
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