Trading Techniques  |  SEP 2009

Risk Management, Position Sizing, And Probability by Brian Auit

Risk Management, Position Sizing, And Probability by Brian Auit Implement a well-planned strategy before initiating your next trade so you can sustain losses. This methodical approach allows you to consider all the factors before initiating your next trade so you can build that elusive 45-degree angled equity curve with your trading capital. by Brian Ault Say you’ve booked 16 winning trades in a row. Your account has jumped 12% in value. Your ability to define your edge has never been more focused and your confidence increases with each and every successful outcome. But out of nowhere comes— November 18, 1985, Monday Night Football. Millions of viewers watched in horror as an event still considered to be the most shocking moment in Nfl history unfolded. Within seconds, an attempted blitz literally snapped quarterback Joe Theismann’s leg, causing a horrific compound fracture and putting a definitive end to his career. This event had the same characteristics that too many traders are all too familiar with, in which a trade we didn’t see coming blindsides us and not only wipes out our profit but cripples our account to the point of “retirement” without a fresh injection of capital. This happens every day in trading and perhaps it has even happened to you. Most of us have experienced something similar at some point in our trading career. So how could we let this happen, and more important, how can we prevent this from ever happening again? You can do this by employing three simple disciplines: risk management, position sizing, and probability.

by Brian Auit