Nick you may want to consider making this post a "sticky note" so it doesn't get buried, I think this should be required reading for all your members. Just my opinion.
When it comes to considering trading a signal at anything over 1X, there is one thing you MUST do:
CONSIDER THE "BEST CASE", BUT PLAN FOR THE "WORST CASE"
I have been an active member at LFT.org for about 6 months now and have heard the cries of traders who's accounts have been decimated trading "safe" signals like AMP, Pendy and now Viper. All three of these guys are very good traders (even Pendy, he had a error in judgement on the last trade, but I feel he will recover). As good as these guys are, they are all susceptible to taking losses at any time, and even at breaking their rules.
The allure of the Risk Multiplier function in Simple Trader is that you can trade a "safe" signal that may turn a relatively low % gain with low draw down at an "Amplified" rate to multiply your gains. The Risk Multiplier is an excellent tool, but needs to be used responsibly and intelligently to be effective. When examining a trader like Vipers performance, it is very tempting to follow his signal at 5-10X risk. With a minuscule closed draw down if just over 2%, "on paper" you stand to gain over 130% in 6 months while risking no more than 22%...that almost seems like a no brainer, right? WRONG! While Viper has a stellar track record, his systems allows for up to 10% open draw down before he closes out. This is the "Worst Case" but needs to be part of your plan. At 10X it will only take this happening 1 time in 5 years to COMPLETELY RUN YOUR ACCOUNT TO RUIN. While in the meantime, for Viper it will be little more than a speed bump that he will recover over the course of 2-4 months.
I'm sure your intelligent enough to do the math for anything other than 10X so no need for other examples. Here are some things I have heard from traders for why they crank up the risk.
"I need to increase the risk, my account is small and I need to overcome the signal costs"
If you cant afford to trade a signal at 1X profitably or you can't accept the "worst case" then you cant afford to trade that signal. Period.
"The trader never let a trade go this far before"
You need to do better due diligence. If the trader posted his "worst case" and you were not aware that his "worst case" was much worse that the 6 months of trading results that you "see" on myfxbook, then you need to ask questions and do a better job with your research. I know some of you are new this and as my Dad would say..."First time, shame on you, second time, shame on me" (Right Nick?....hehehehe)
"The trader has not had a loosing month in years, I thought I was safe."
Welcome to the real world. Did you really think that someone can just trade forever without having a loosing month?
There were a few others, but you get my point.
What you have to understand is that the trader trades at "1X". Once you start trading at a multiple, even a modest 2X, YOU HAVE TAKEN THE RESPONSIBILITY OF MANAGING RISK AWAY FROM THE TRADER AND HAVE PLACED THAT RESPONSIBILITY ON YOURSELF. The main reason for coping the trades of a "professional" should not be because they have some "secret sauce" way of making money. The reason guys like Viper, AMP, and TA are profitable is because they understand HOW TO MANAGE RISK!!!! So why take that away from them? The reason YOU cannot make money trading for yourself is not because you cant read a chart, it's because you have not mastered the skill of managing risk, so why are you taking on that responsibility?
Now I am not going to say that it's bad to use the risk multiplier. But IMO to use it properly, your going to have to set your own "max draw down"...it can be either the traders max draw down, or a level that you are comfortable with. Your a big boy (or girl) and elected to take on the responsibility of managing risk, so set your stop and let the trader do his job. If he goes beyond your "comfort zone", your covered. If he breaks his rules, your covered. I really recommend setting your own max draw down even if your trading at 1X, you never know what may happen.
By doing this, you can take advantage of winners, while capping your losses. So in effect your getting the best of both worlds. The only drawback is that you may wind up stopping yourself out of trades that the trader winds up profiting from, but hey, you took on the responsibility of managing risk, so welcome to the real world!....hehehehe
Remember guys, when it comes to risk, consider best case, plan for worst case.
Peace!
When it comes to considering trading a signal at anything over 1X, there is one thing you MUST do:
CONSIDER THE "BEST CASE", BUT PLAN FOR THE "WORST CASE"
I have been an active member at LFT.org for about 6 months now and have heard the cries of traders who's accounts have been decimated trading "safe" signals like AMP, Pendy and now Viper. All three of these guys are very good traders (even Pendy, he had a error in judgement on the last trade, but I feel he will recover). As good as these guys are, they are all susceptible to taking losses at any time, and even at breaking their rules.
The allure of the Risk Multiplier function in Simple Trader is that you can trade a "safe" signal that may turn a relatively low % gain with low draw down at an "Amplified" rate to multiply your gains. The Risk Multiplier is an excellent tool, but needs to be used responsibly and intelligently to be effective. When examining a trader like Vipers performance, it is very tempting to follow his signal at 5-10X risk. With a minuscule closed draw down if just over 2%, "on paper" you stand to gain over 130% in 6 months while risking no more than 22%...that almost seems like a no brainer, right? WRONG! While Viper has a stellar track record, his systems allows for up to 10% open draw down before he closes out. This is the "Worst Case" but needs to be part of your plan. At 10X it will only take this happening 1 time in 5 years to COMPLETELY RUN YOUR ACCOUNT TO RUIN. While in the meantime, for Viper it will be little more than a speed bump that he will recover over the course of 2-4 months.
I'm sure your intelligent enough to do the math for anything other than 10X so no need for other examples. Here are some things I have heard from traders for why they crank up the risk.
"I need to increase the risk, my account is small and I need to overcome the signal costs"
If you cant afford to trade a signal at 1X profitably or you can't accept the "worst case" then you cant afford to trade that signal. Period.
"The trader never let a trade go this far before"
You need to do better due diligence. If the trader posted his "worst case" and you were not aware that his "worst case" was much worse that the 6 months of trading results that you "see" on myfxbook, then you need to ask questions and do a better job with your research. I know some of you are new this and as my Dad would say..."First time, shame on you, second time, shame on me" (Right Nick?....hehehehe)
"The trader has not had a loosing month in years, I thought I was safe."
Welcome to the real world. Did you really think that someone can just trade forever without having a loosing month?
There were a few others, but you get my point.
What you have to understand is that the trader trades at "1X". Once you start trading at a multiple, even a modest 2X, YOU HAVE TAKEN THE RESPONSIBILITY OF MANAGING RISK AWAY FROM THE TRADER AND HAVE PLACED THAT RESPONSIBILITY ON YOURSELF. The main reason for coping the trades of a "professional" should not be because they have some "secret sauce" way of making money. The reason guys like Viper, AMP, and TA are profitable is because they understand HOW TO MANAGE RISK!!!! So why take that away from them? The reason YOU cannot make money trading for yourself is not because you cant read a chart, it's because you have not mastered the skill of managing risk, so why are you taking on that responsibility?
Now I am not going to say that it's bad to use the risk multiplier. But IMO to use it properly, your going to have to set your own "max draw down"...it can be either the traders max draw down, or a level that you are comfortable with. Your a big boy (or girl) and elected to take on the responsibility of managing risk, so set your stop and let the trader do his job. If he goes beyond your "comfort zone", your covered. If he breaks his rules, your covered. I really recommend setting your own max draw down even if your trading at 1X, you never know what may happen.
By doing this, you can take advantage of winners, while capping your losses. So in effect your getting the best of both worlds. The only drawback is that you may wind up stopping yourself out of trades that the trader winds up profiting from, but hey, you took on the responsibility of managing risk, so welcome to the real world!....hehehehe
Remember guys, when it comes to risk, consider best case, plan for worst case.
Peace!
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