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

1. Risk management and positive RRR

We started working on our private fund and app with our team three years ago. At the beginning, we asked ourselves a fundamental question: “How can we change risk management to a really high and sophisticated level?” Consider the fact that our first steps in working on our own fund were not about which broker to use, which server to have, or which strategies we should use. All of these questions would be meaningless unless we understood that the foundation for successful trading is primarily 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, and drawdowns were, are, and always will be. So the question is: what is the best way to deal with it? These are all issues that need to be resolved at the level of risk management and not at the level of brokers, servers and strategies.

From my point of view, the most important thing is to create a concept of how to see money management as a whole. Our elemental approach is based on the philosophy that each strategy in a portfolio is like a single employee in a large company. And the goal of running such a company is not based on the fact that each employee should receive the same share of the company’s resources (the same percentage of capital), but that each employee should have resources dynamically allocated based on how you are doing; how effective they are and how they are contributing to the company as a whole. Therefore, our risk management is based on a very dynamic real-time evaluation of the actual effectiveness of all “employees”. That is, not only from the point of view of its singular effectiveness, but also from the point of view of its functionality as a whole. Based on this evaluation, different resources are dynamically assigned to each “employee” over time.

Simultaneously, it is important to take into account all the resources of the company as a whole (we can see it as a cash flow) and these resources also increase or decrease globally depending on the performance of the company as a whole.

In a management model of this type, it is important to consider many different aspects, from the analysis of the quality of each operation, the distribution of the latest ones, as well as of all existing operations, going through different analyzes of equity, volatility and quality. current markets. Therefore, the model is very dynamic and can literally change every minute the distribution of resources to each “employee” and also to the entire company. Naturally, I will not give more details on this subject.

The point for which I write this is very simple: It is really important to have a clear idea of ​​how to manage capital. You don’t need fancy models if you don’t plan on managing large amounts of money, but if you’re a small “ordinary” trader, you need to know what percentage of your capital you risk per trade. If such risk makes sense from the point of view of Monte Carlo analysis (and the maximum possible reduction of Monte Carlo) and also to have a specific plan on when and how to increase or decrease the number of contracts, and how to deal with strategies and patterns that are currently having a bad period (such strategies should not receive the same resources as those that are performing well).

I highly recommend trading with positive RRR. From my personal experience, it’s easy to find beautiful, flowing equity with negative or 1:1 RRR, but then commissions and slippage kick in and the cards radically change to your downside.

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

2. Regular maintenance and adaptation

From the experience I’ve gained over the past few years, whatever your edge is in the market, whatever your focus and business route, your edge will need occasional changes, updates, and maintenance (even if you operate on a discretionary basis).

Some changes are changes in stop-loss and exits (better adaptation to the new volatility); sometimes it’s a regular optimization; sometimes small changes in a fundamental idea of ​​the edge. Occasionally, some of this work will be done by automatically adapting requirements and algorithms on your behalf. But even so, a few different levels of regular maintenance will be needed.

There is no definitive advantage that you can trade without constant changes. The markets are changing too fast and therefore it is necessary to make the appropriate changes in parallel. Occasionally, it is necessary to change the composition of the portfolio; occasionally to change a market or time frame, or to change the number of positions thanks to ever-changing volatility. These are all things that come with the experience and are very important.

If you look at this from a different angle, it’s just like any other profession in life. Whatever you do, new trends, new tools, new requirements are constantly emerging and we have to learn to adapt. If we don’t, we can’t be successful at anything in this dynamic world (not even trading).

The good thing is that it is not as bad as it may seem. In short, it is important to trade and gain experience, reconcile that we will never be perfect and will occasionally make mistakes, to learn from them. The more we negotiate, the easier it will be to make a decision about specific changes in order to adapt. Our decisions will not always be correct, but that’s the way it is in life (if we are reasonably diversified, the occasional wrong decision will be balanced by a series of good decisions. In our background we are dealing with a lot of volatility and on many different levels from periodic system optimizations to proprietary self-adaptive algorithms and indicators, to concepts that work with portfolio-wide adaptability.

The need to know how to adapt is an elementary part of survival in life. It really is great news because it means that everything necessary for us to adapt is in our genes. We just have to learn to use it.

3. Learning is a never-ending process

The above 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 have chosen to operate, and I mean really chosen, 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 path of a trader even more exciting.

To be honest, I have a feeling that I still don’t know much, even after more than 10 years in the trade. Yes, I have made significant progress. In our background, with our team, we are realizing and discovering really incredible things. Although I have a feeling that I don’t know much about trading. Perhaps today you know more about risk management than why the markets move the way they do. Perhaps today I am able to develop a bigger concept of risk management and trading than before, but that does not mean that I have found more certainty in the markets. Trading is still a path without certainties. That’s why it’s trading, that’s why it’s speculation. But what’s for sure these days: It’s not even a civil servant position anymore.

I have the feeling that there is always something to learn. Every day we are surprised by new discoveries that need new and creative thoughts and ideas to be able to implement them in the right way. Even after 10 years I still read trading books; I learn from other traders and discover more and more new things.

In trading there is always something to improve.

And that’s probably how it always will be for traders. This is one reason why you need to enjoy trading, why you need to be passionate 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. In fact, I am amazed at what I have learned about myself and life from trading.

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

Happy trading!