Behavioural road-map score: 6.5 out of 10.
Darn sub-prime turmoil, you will be my downfall !
Just kidding, the sub-prime debacle has nothing to do with my trading results. I’d put about half of these losses down to behavioural losses. The rest of the losses just ‘are’.
Finding the right tree
I’m in the early stages of playing around with a new risk-return profile. It’s an experiment, which if successful, may help in getting me out of my trading funk before the year end.
With the sun now shining here in the UK, I have clocked up quite a few hours in the great outdoors. Being outside has given me the chance to observe and learn from nature; from trees in particular. My thoughts have centered around seed dispersion strategies, a crucial part of ensuring reproduction. I’ve noticed how some tree’s put their energy into producing a handful of seeds, covered in tasty, juicy fruits – this encourages animals to eat the fruit and unwittingly play a key role in spreading the seeds far and wide. Other trees release thousands of small seeds, exploiting optimal weather conditions to ensure that even if the majority of these seeds and pollens end up in our noses, giving us hayfever, a small few will find their way into ideal locations for future growth. The strategies are diverse, and endless in number, but there is a seeming inverse relationship between the number of seeds produced by a tree and the likelihood of each seed’s survival. It’s all about finding the right strategy to suit the tree and the environment.
This got me thinking about risk management and position sizing. I have the niggling feeling that I have been trying too hard to ensure a weekly profit, when the environment may be better suited to an apple tree approach i.e., focusing on less trades (seeds), and employing more of a ‘let the winners run’ philosophy, that implies more failed and break-even trades, with the hoped for upside found in greater profit from those few winners, which will be less in number. What this means is that my weekly results will be more volatile, but over the next few months I hope for a handfull of winners to carry the equity curve to new highs. Let’s see what becomes of this.