Traders Education Tutorial – Trade Strategies and Trade Management – July 1999 – Page 1
Trade Strategies and Trade Management
Robert Miner, Dynamic Traders Group, Inc.
A Quick Quiz: Answer this before continuing.
Do most successful traders have greater than 50% of their trades winners or less
than 50% of their trades winners?
If you are relatively new to trading, you probably answered greater than 50% of the
trades are winners. The purpose of trading is to make money. If you are good at the
business of trading, most of your trades should be winners. Right?
If you are a successful trader or at least have a realistic knowledge of the business
of trading, you know that the answer is more than 50% of the trades of most successful
traders are losers. I know all of the hype we hear and read about every day by
unscrupulous promoters of trading products and services want you to believe that they
can teach you to have 80%-90% winning trades if you just use their products or
services. To put it bluntly, this is simply a lie.
Why Capital Preservation and Loss Management Are Critical
If more than 50% of the trades of successful traders are losses, the average losing trade
must be less than the average winning trade to end up with a net profit over time. If
more than 50% of the trades are losers, traders are primarily in the business of losing!
That is our most frequent activity! Do you see why loss management is a critical
component of the business of trading!
The first thing you must ask yourself when you consider a trade is:
"What specific market action will indicate that I am wrong in the trade
decision and how much will it cost to find out if it is a correct trade
decision?"
When you consider a trade, do you first think about the potential profit or the
potential loss? A professional trader always considers the potential loss first. Will the
loss be acceptable within the context of my trading plan? If not, the trade must be
passed-up. If you want to succeed in the business of trading, the potential loss of any
one trade will be no more than 5% of your trading equity.
The potential loss is controllable. The potential profit is a “best guess”.
Copyright 1999, Dynamic Traders Group, Inc. – [Link]
Traders Education Tutorial – Trade Strategies and Trade Management – July 1999 – Page 2
“Brain-Dead” Trade Entry and Initial Protective Stop-Loss
In the Dynamic Trading book and Dynamic Trader Trading Course that is included with
the Dynamic Trader Software, I teach several trend-reversal and trend-continuation
trading strategies.
Once a market is in a position to consider a trade, the entry trigger-price and initial
protective stop-loss price is completely objective. In other words, at this point in time,
you don’t have to think. The market itself will either elect the conditions to enter the
trade or it will not. The trade entry, whether trend-reversal or trend-continuation, will be
completely objective. At exactly the time when a trader’s emotions are at their peak and
the chances for mistakes and costly judgements are most vulnerable, a trader should
have an objective approach to take action.
Do you have a completely objective approach to trade-entry and initial protective
stop-loss? If not, do what all successful traders do. Develop such an approach! If you
don’t know where to begin, study the Dynamic Trading book.
Manage The Trade
Have you ever been on the right side of a market move only to find that you have
eventually given back most or all of the unrealized or paper profits? Have you ever had
a profitable trade turn into a loss? If so, it is a clear indication that you did not have a
strategy to manage the trade.
If a trade is initially successful, the professional trader will always have a specific
and well defined plan to manage the trade. How, when and what market activity will be
required to adjust the protective stop-loss will be planned in advance.
These Questions Must Be Asked and Answered With Each Trade
What are the market conditions that must be met to consider a trade?
What is the specific market activity that will initiate the trade and define the intial
protective stop-loss?
What is the specific market activity that will trigger an adjustment to the protective stop-
loss in order to ensure a profit if the market moves in the anticipated direction?
If you don’t have a specific answer to each of these questions for each and every
trade, you will have a difficult if not impossible challenge to be successful.
Trading Realities
This article did not provide specific trading strategies. It was meant to be much more
important. It was meant to inspire you to develop your trading plan and trading
strategies within the context of your own trading objectives. It is meant to give you a
realistic view of trading and what you must think about and deal with to be a successful
trader.
Copyright 1999, Dynamic Traders Group, Inc. – [Link]
Traders Education Tutorial – Trade Strategies and Trade Management – July 1999 – Page 3
If you will deal with the reality of trading and avoid the promotional hype, you will
have a much greater opportunity for success.
If you need help developing your specific trading strategies and trading plan, the
Dynamic Trading book offers specific trading strategies and a trading plan that you may
easily adopt or integrate into your current trading activities.
Copyright 1999, Dynamic Traders Group, Inc. – [Link]