2010-05-12: Stay in the game to trade
"The winner of a match is not always determined by who is right…but in the end…who is left."

- Tom Wiswell, Let’s Play Checkers

Successful trading is built upon using a dependable trading method. TradingAdvisor has a very strong belief that system trading is the path to trading success with its ability to objectively analyze the market with no interference from human emotions like greed and fear.

This statistical/mathematical viewpoint of the market is a tool that makes it possible to design and test different trading strategies that fit the trader's preference towards risk and reward. The trading strategies are built out of several independent models or logics. While they are all different, they are definitely linked.

Systems do ebb and flow, sometimes they do well and sometimes they do poorly. It is not worth trading a system unless you are committed to it. Otherwise, you will fall into the same trap that so many others do. You will abandon the system at the worst possible time and have to start all over, this time with less capital. To solve this problem, position sizing is a powerful tool. Rather than continually trading the same amounts, the system can also dictate when to increase and decrease your positions. This is where the money is made. The construction of a well balanced portfolio of suitable strategies and ultimately money management tools is what makes your account. Our experience is to make use of a trading system that incorporates a money management system. This is a sound and profitable approach to a complex energy market.

Most systems tell you when to buy and when to sell, but trading isn’t black and white. Some type of formula to adjust for how much to trade increases your profits. A dynamic system deciding the degree of exposure in the market is a key to success. Sometimes, even a good trading system can hit an environment that’s not conducive to its trading style. The system may get whipsawed and lose for a time, but it is still a good system. At all times the need to adjust the amount exposed in the market to accommodate for a changing trading environment.

A dynamical position sizing system may help the trader to compromise between the desire to allocate risk capital to achieve optimal growth and the essential need to protect trading capital from the risk of ruin. In trading, accurately measuring risk is a key component to developing successful money management strategies. Many successful traders consider this as being more important than trade-entry methodology. Historically, too much emphasis has been placed on entry and exit rules, whereas the determination of the proper number of contracts to trade has been treated as a distant afterthought. Knowing the statistics and probability of a system can help traders make smarter and more profitable decisions.

Understand your systems strength and weaknesses. One of the many advantages of systematic trading is that you always know what to expect from your system. Very few, if any trading strategy, consist solely of winning periods. There are periods of drawdown. The size and the length of drawdown periods vary from market to market, and are also dependent on what kind of strategies you are trading. Trading a trend strategy will most probably show the highest profit over time, but will also include the longest drawdown periods. A trading plan will increase your possibilities of being consistently profitable over time. Trading a number of strategies in different energy markets with variable correlation, will together with an advanced dynamic position sizing tool enhance your profit potential further. A profitable approach, enabling you to stay in the game to trade.