Professional Forex Traders vs Amateur Forex Traders

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Hello delegates and welcome to this month’s edition to the monthly letter. In this month’s letter I will be giving you all a little insight into hedge funds that I deal with, but most importantly, making you understand their concept of thinking and how vast the difference is between a professional  trader versus  an amateur trader is.

To give you a straight up answer hedge fund traders know how to capitalise on their winning trades and also know how to manage their losing trades. Full stop. End of story.

Below is part of an email with a hedge fund that I deal with. I won’t mention their name for confidentiality reasons, but let’s say they are from the northern hemisphere. What we see is a month to month break down of last year’s return for the fund at a healthy 59.57%.

 

 hedge-fund.(click image to zoom)

 

What’s more important is their maximum return for a month of 22.35% and their lowest return at a negative -4.11%. This is why we professional traders are professional traders. When we are in a winning trade we make sure that we capitalise on these trades 100%! Whether by scaling in or simply letting those profits run and run fast I say. On the flip side, when we do have a losing trade or a losing month, we must close these when they are not going to our plan.

If I expect a trade to run to a certain price point in a certain time and it is struggling to get there, I say that this trade is failing and not doing what I want it do to. I will firstly move stops to break even or lock in the little profit that is available, to ensure that my losses are kept to a bare minimum.

I won’t ‘hope’ for the trade to go my way if there are signals saying that the market wants to turn around. Don’t hope, just listen and do. Most people do not listen with the intent to understand, they listen with the intent to reply. I will repeat that. Most people do not listen with the intent to understand, they listen with the intent to reply.

A professional trader has been in the markets for years and the reason that is, is that they know how to act in a scenario of a winning month, and they know how to act in a scenario of a losing month. Let me ask you, how do you act in each of the scenarios? So please ensure that when you are winning, capitalise on your winning trades, and when you are losing, manage them effectively to protect your capital.

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Comments 3 Click Here to Leave a Comment

  1. Hi Curt. I’m a new Kto A, “2 month old” live trader.
    Your article (and David’s as well) re minimising losses is timely for me. I am having difficulty with my losses being larger than my profits (more loosing than winning trades at the moment as well). In a recent short trade I felt that the market was turning against my expectations, but, I remained in the “failing” trade until stopped out because, I was obeying the rule “stick to your strategy”. In this case the management strategy as a R:R of 1:1 with a stop at 143 Pips. I also stayed in the trade because I have seen trades which, having survived being nearly stopped out, have proceeded to be very profitable.

    My dillema is? How do I reconcile my belief that I need to surrender to my strategy to stick to my early S/L level – whatever happens – (as I believe Grant does?), with a perception that the market is turning and my inclination is to cut my losses because I perceive that the trade is failing?

    Could you give me your opinion as to how one can manage this conundrum?

    Regards and thanks ….. Roger

    1. In a nutshell what you’re asking is whether or not your stops should be flexible or not. I will answer that this way: they must be ridged to minimise your predetermined loss but flexible in order to lock in profits.

      Let’s talk about a physiological phenomenon called risk appetite. As a rational human being once a decision has been made, that is to take the risk and enter a trade, you determine the amount of money you are prepared to loose. That is the maximum point of your risk appetite. From this point on, your appetite for risk should be decreasing. So if your trade was 4, or 400 pips up, would you behave the same?

      A common mistake that new traders make is putting the emphasis on what you describe as a hit-ratio and not on dynamic risk management and the overall result with the account. It is from my experience that the most profitable algorithms have a hit-ratio of 35%. That is to say, predicatively, they are not very good and yet they make billions of dollars.

      The only way to achieve positive results is to adapt your stops to the stage of the trade.

      For example: You identify a breakout that’s 50 pips. The first stage you want to do as a trader is to get out of the risk zone. I.e. roll your stop to at least break even. Then you are in a position to make profit. If your base assumption is a break out trade for example and the market is not breaking out, kill the trade. The reason being is that you were wrong even if the trade is 4 pips up. A stop loss doesn’t have to be negative all the time. It can also be you identifying why the scenario you built your trade upon is not materialising.

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