For the week ending last Friday, I managed to grow my account balance by 4.7%. I am holding my road map score at 7 because I traded my way out of a small daily loss instead of humbly accepting it. In this instance, events played out in my favour but I dread to think what may have transpired.
In the comments section of last week’s trading results entry, Andrew, a fellow trader, reiterates the important point that ‘you can hit home runs for a while but in the end the markets will find you out’. I have openly confessed the recklessness of my trading, that I have been trading with very large stakes in an effort to grow my account, but I cannot continue on this path any longer. Before the market ‘finds me out’, I have decided to moderate my risk. Of course, this means my profits will likely be lower, but it also reduces the probability of a large weekly drawdown undoing all my hard work. And it has been hard.
A key factor influencing the decision to reduce risk exposure is that trading generally proved difficult this week*. While I closed the week with a profit, the results of my trades suggest my approach has lost some of it’s effectiveness. How much is difficult to gauge. Indeed, the million dollar question is whether this is a temporary blip, in which case perhaps I should continue to take large risks, or indeed whether my edge (positive expectancy) has been permanently blunted. Erring on the side of caution and making the decision to cut back on the size of my positions is actually quite easy because I readily accept that chance has played a large role in getting me to where I am (off the £3500 low) and so I will not let my results breed a dangerous false confidence.
For sure, the weeks ahead will be interesting. If my trading results improve I may increase my risk but conversely, if I lose my edge, then it makes no sense to continue trading. In between these two scenarios is the perceived status quo of trading with a less sharp edge, and if this situation holds I accept that my account balance is so low that I may not be able to sustain myself. Therein lies the paradox of the decision to reduce the my risk; in one sense, it actually reduces my chances of surviving as a full-time trader. In this event I may have to seek employment elsewhere, relegating trading to a spare time activity. This is the reality of my situation and as much as I want to continue trading for a living, I am not going to fight it.
* Strangely, it hasn’t just been a tough time for me. In the forex blog world, both Globetrader and TraderRich appear to have hit stumbling blocks recently (although their approaches appear to be profitable on balance).