April 8, 2013

Logical Market Update: Risk Management and Position Sizing – Using Trade Manager

Risk Management and Position Sizing – Using Trade Manager as a Part of the Diversified Trading System

Last week’s employment numbers brought as good an excuse as any for the markets to kick into gear with solid two-way trade in equities, treasuries, forex, and precious metals.  The equity markets gapped down, treasuries, precious metals, and the U.S. dollar all gapped higher and quickly found stronger footing to continue the moves. 


The Birds Were Chirping!

It was a day that provided more opportunities than this trader could take advantage of.  A day when the “birds where chirping” for the entire session– users of the DTS Hawk, Falcon, or Eagle trading systems will understand what I’m referring to.  For those who have yet to look into these DTS products the “birds chirping” makes reference to the numerous signals generated by each  – the Hawk Micro Scalper, Falcon Trend and Eagle Swing trading systems. 


Even though I was positioned for the downside move it was a day when having positions to manage got in the way of taking advantage of the intraday opportunities.  The type of day that exemplified the superiority of all three DTS trading systems.  A day that I am sure will be repeated many times over in the future. 


Risk Management Remains Important


As defined by Wikipedia.com, risk management is the identification, assessment, and prioritization of risks (the effect of uncertainty on objectives, whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. 


Position sizing is likely the most important element of successful trading; it is the part of a system that determines whether or not you’ll meet your objectives.  This element of risk management determines how large a position should be traded based on account size (cash available), the current volatility of the instrument being traded, and your trade objectives.   Most if not all successful traders use an automated (algorithmic) system for determining position sizing and to be frank it is what separates winning traders from losing traders. 


Trade Manager from Indicator Warehouse automatically calculates the correct amount of contracts or shares based on your account size or market volatility.  Automated stop-loss management and position sizing eliminates most of the problems most individual traders have. 

Review again what I stated just above that although I was well positioned for Friday’s down move – managing those positions which was a necessary part of reaping the rewards of the moves themselves actually got in the way of taking the numerous opportunities in the various markets that were being “called” repeatedly by the DTS trading systems.  It was a huge lesson in using the correct trading strategy – day trading and position trading both require (actually demand) good risk management.  Trade Manager does the job across the board and is an essential trading tool that ensures that you take the maximum profit from all your trades. 


Day trading vs. Position Trading:


The markets will continue to whip around before the final tops are put in.  Sector rotations will continue as will algorithmic trading.  Many of the “old rules” of trading have not benefited market players much and I am a huge advocate that the Conventional Wisdom style of trading will only lead to eventual bankruptcy.  The status quo is changing – make no mistake – and there is no turning back.  The patterns in play will complete and the next phase as much as we as human being believe we can control things will roll over many as it corrects over 100 years of advance. 


This is where using a dependable trading system; such as the DTS system will benefit a trader’s P&L.  So much so that I am including the discussion again:


Diversified Trading Systems (DTS) – Trading with the Birds:


 As a technical analyst with many years of experience I find myself going over charts throughout the trading day – but I get asked many times how to find trades without having the years of experience or knowledge that often exhausts the novice trader quickly as it strains emotions, and even the ability to see clearly.  Well, here is the good news!  You don’t have to comb over charts looking for signals or confirmations to trade with DTS.  DTS does the “combing and hunting” for you.   


DTS offers three “birds” to trade with – the Hawk Micro-Scalper, the Falcon Swing Trader, and the Eagle Trend Trader.  All are available separately and here is the really good news, you can plug several markets into each component (Hawk, Falcon, or Eagle) to cover, equities, treasuries, futures, precious metals, or forex.  With the markets seemingly spreading the action across the spectrum it is now possible to receive signals and react to them with clarity and accuracy. 


Traders should remain in play as trading opportunities on an intraday and short-term basis will continue.  Diversified Trading Systems (DTS) via its three (Hawk scalper, Falcon swing, and Eagle trend) systems remains my choice to use as it offers a complete and unique system to trade with.