Based On Your Evaluation You Have In Free Cash Flow. 3 Important Trading Tips and Tricks

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3 Important Trading Tips and Tricks

In today’s article I would like to summarize all the important things that I have learned in trading in the last decade. So let’s get to it!

1. Risk management and positive RRR

We started working with the team three years ago on our private fund and application. At the beginning, we asked ourselves one fundamental question: “How can we shift risk management to a really high and sophisticated level?” Please note that our first steps towards working on our own fund were not about which broker to use, which server to have or which strategies we should use. All these questions would not be significant if we did not understand that the basis of successful trading is mainly high-quality risk and portfolio management.

Market advantage does not last forever. Strategies fail over time (although some may work for years), markets change faster than ever before, and pullbacks have been, are, and always will be. So the question is – what is the best way to deal with it? These are all aspects that need to be addressed at the level of risk management, not at the level of brokers, servers and strategies.

For my part, the most important thing is to create a concept of how to look at money management holistically. Our elemental approach is based on the philosophy that each strategy in the portfolio is like one employee in a large company. And the meaning of managing such a company is not based on the fact that each employee should receive the same part of the company’s resources (the same percentage of capital), but each employee should have dynamically distributed resources based on how they work; how effective they are and how they contribute to the company as a whole. Therefore, our risk management is based on a very dynamic assessment of the actual performance of all “employees” in real time. This means, not only from the point of view of their individual efficiency, but also from the point of view of their functionality as a whole. Based on such assessment, different resources are dynamically allocated to each “employee” in time.

At the same time, it is important to consider all the resources of the company as a whole (we can look at this as cash flow), and these resources also increase or decrease globally depending on how the company operates as a whole.

In such a management model, it is important to consider many different aspects, from the analysis of the quality of each trade, the distribution of the latest as well as all existing trades through the various analyzes of capital, volatility and current market quality. The model is therefore very dynamic and literally every minute it can change the allocation of resources to each “employee” as well as the entire company. Of course, I will not give more details on this topic.

The point I’m writing this for is very simple: it’s really important to have a clear idea of ​​how to manage your capital. You don’t need sophisticated models if you don’t plan to manage a lot of money, but if you are a small “regular” trader you need to know what percentage of capital you are risking per trade. If such risk makes sense from the point of Monte Carlo analysis (and the maximum possible Monte Carlo drawdown) and also have a specific plan on when and how to increase or decrease the volume of contracts and how to deal with strategies and patterns that currently have a bad period (such strategies do not should receive the same funding as those who progress well).

I highly recommend trading with a positive RRR. From my personal experience – it’s easy to find beautiful, smooth equity with a negative or 1:1 RRR, but later commissions and slippage come in and the cards change radically to your disadvantage.

Also, I suggest a book called “Define to Position Sizing”, which I used as inspiration for my fund.

2. Regular maintenance and adaptation

From my experience over the last few years – whatever market edge you have, whatever approach and trading path you have, your edge will need occasional changes, updates and maintenance (even if you trade discretionary).

Some changes are stop-loss and exit changes (better adaptation to new volatility); sometimes it’s regular optimization; sometimes small changes in the basic idea of ​​the border. Occasionally, auto-adaptive requests and algorithms will do some of this work on your behalf. But even then some varying levels of regular maintenance will be required.

There is no definite advantage that you can trade without any change. The markets are changing too fast and therefore it is necessary to make corresponding changes in parallel with them. From time to time, it is necessary to change the composition of the portfolio; periodically change the market or time frame or change the amount of positions due to constant change in volatility. These are all things that come with experience and are very important.

If you were to look at this from another angle – it is like in any other profession in life. Whatever you do, new trends, new tools, new requirements keep coming and we have to learn to adapt. If we don’t, we can’t be successful in anything in this dynamic world (not even in business).

The good thing is that it’s not as bad as it may seem. Simply, it is important to trade and gain experience, to accept that we will never be perfect and that we will occasionally make mistakes – learn from them. The more we trade, the easier it will be to make the decision to make occasional changes so we can adjust. Our decisions won’t always be right, but that’s how it is in life (if we’re reasonably diversified, the occasional wrong decision will be balanced by a series of good decisions. In our fund, we often deal with volatility and on many different levels; from regular system optimizations to proprietary auto- adaptive algorithms and indicators, to concepts that work with adaptability at the level of the entire portfolio.

The need to know how to adapt is an elementary part of survival in life. This is actually great news because it means our genes have everything we need to adapt. We just need to learn to use it.

3. Learning is a never-ending process

The previous paragraph leads to the last important point I need to discuss here – learning is a never-ending process. Trading is a lifestyle, it is a way of life. If you chose trading, and I mean really chose it, then it will probably be with you for the rest of your life. And that means there will always be something to learn, there will always be something new. And this is something that makes the trader’s journey even more exciting.

To be honest, I feel like even after more than 10 years of trading, I still don’t know much. Yes, I made significant progress. In our fund, with our team, we understand and discover truly amazing things. Although I feel like I don’t know much about trading. Maybe today I know more about risk management than why markets move the way they do. I may be able to develop a greater concept of trading and risk management today than before, but that does not mean that I have found more safety in the markets. Trading is still a path without certainty. That’s why we trade, that’s why we speculate. But what is certain today – it is no longer even an official position.

I feel like there is always something to learn. Every day we are surprised by new knowledge that requires new, creative thinking and ideas so that we can implement them in the right way. Even after 10 years I still read trading books; I learn from other traders and learn more and more new things.

There is always something to improve in trading.

And so it will probably always be for marketers. This is why you have to enjoy trading, why you have to be passionate about it in order to be successful in the long run.

On the other hand, I must say that you will learn a lot, not only about trading, but also about yourself and life. I myself am actually surprised by what I have learned about myself and life thanks to trading.

Try to approach trading with an open mind and not just from a logical point of view. That would be a mistake because trading requires logic, heart and creativity.

Happy trading!

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