I wrote an article on "Turtle Trading Rules" before. I have been recognized and supported by many friends, and some friends have privately messaged me asking for the electronic version of this book, and friends who need it can also find me through Huichat. I like this book very much. It is on my desk, and I will flip through it from time to time. Today I will write the second part of the experience of the turtle trading rules.
In this article, we mainly talk about risk management and capital management. (This article is important.)
"Today's article has about 1,600 words, and it involves a relatively high level of actual trading. It takes 6-8 minutes to read it through. Please read it patiently. It will be of great help to the transaction."
Money management is at the root of successful trading.
The so-called capital management refers to the degree of controlling market risk. Ensuring that traders can ride out the unfavorable times that every trader can encounter, traders must maximize their profit potential while controlling the risk of bankruptcy at an acceptable level, money management is an art.
------- "Turtle Trading Rules" page 31.
The first point: system failure.
Many traders have no concept of system decay.
But anyone who does trading knows that the market is divided into trends and shocks. A volatile trading system will inevitably lose money in a trend; a trending trading system will also lose money in a volatile market. Everyone knows this truth. To put it more simply, if you do business in summer, you will lose money in winter. If you trade in winter, you will lose money in summer.
Warm in winter and cool in summer is a law of nature, which cannot be changed by anyone. The market is divided into trends and shocks, and no one can change it; there are profits and losses in transactions, and the same source of profit and loss cannot be changed.
Since system decay cannot be changed or avoided, what is the real definition of system decay?
For example: how much will a trending trading system lose at most in a volatile market? The maximum loss is the decay value of this trading system. Taking my foreign exchange trading system as an example, a $10,000 account will encounter a maximum loss of $3,000 during the transaction. No matter in the historical review or in the actual transaction, there is no retracement exceeding 3,000 US dollars. In other words, the account equity of the $10,000 account has never been lower than $7,000.
$3,000 is the decay value of my trading system.
But what determines the decline value of a trading system does not only depend on the trading system itself, but also depends on the standard of fund management. Taking my trading system as an example, using 1% of the principal as the opening standard for a single transaction will result in a maximum failure value of $3,000. I have doubled the principle of fund management, using 2% of the principal as the opening standard for a single transaction, which will generate a maximum decay value of 6,000 US dollars.
The second point: How to survive the decline of the trading system?
First: optimize the success rate and result distribution of the trading system. Reduce the decay value of the trading system from the setting of the trading system. For example, we know that the principle of using the moving average is that the golden cross is long and the dead cross is short; if you simply execute the signal of the golden cross to go long and the dead cross is short, there will be a very large number of continuous stop losses in the volatile market; this kind of stop loss will lead to Significant drawdowns on trading accounts.
So how to break this distribution of success rate and trading results? Add a filter for trading signals. For example, adding a larger level of moving average indicators; adding MACD resonance. This will filter out some trading signals and improve the success rate of the transaction.
Second: use a reasonable position. For example, the frequency of continuous stop loss in the historical data of a trading system is 10 times; then it is unreasonable to have at least 10% of the position each time; because the continuous execution process will lead to liquidation.
Of course, the frequency of continuous stop loss cannot be simply understood as the decline of the trading system, and the decline of the trading system will be even greater.
Again: the decay value that traders can accept is only a big gap from the theoretical equipment. For example, my trading system uses 2% of the positions, or 3% of the positions can safely pass the decline period. However, if the overweight position is used and the account loss is too large during the decay process, it will lead to a change in the psychology of the trader. Although the account is safe, but the psychological limit of the trader has been broken, the transaction will be out of shape and
The execution is not in place. This kind of decay is not safe for traders.
For example, we are walking on a bridge. We may not hold on to the railings of the bridge when we cross the bridge; but if there are no railings on the bridge, we must be cautious and afraid when we cross the bridge. Are bridge railings useful? It's useless, but it can give us very powerful psychological hints, allowing us to overcome the fear of crossing the bridge.
In the transaction, the fund management setting of the trading system must not break through the psychological limit of the trader. Under normal circumstances, 30% of a trader's psychological expectation is the maximum risk value that the trader can accept. For example, a $10,000 account. A trader thinks that a drawdown of $5,000 is acceptable to him, and his transaction will not be deformed if the account loses $5,000, so the actual acceptable drawdown is only $1,500.
As traders we all know to control our emotions in trading. But controlling emotions is not empty talk. To control emotions requires trading combined with trading system and fund management; not to be afraid, not to be afraid is the most basic principle of fund management in the trading system.
Mastering trading psychology, not being afraid during the trading process, and striving for the greatest profit under the principle of not being afraid is successful fund management and risk management.
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