Haven't had a lot of time the past couple weeks. In the process of moving. Took a larger loss on a long term play, got stopped out and too much going on economically right now for me to pay attention to. I did have a good run for a couple of weeks but made the mistake of increase my position sizes after some good profits.
Interesting enough, I am in the process of reading a book right now by Bo Yoder. Optimizing your trading Edge. He talk about profits and losses as a cycle. When markets are giving money, they always try and take back. It is a traders job to test the waters appropriately to determine whether or not it is one or the other. In my situation, I had a good couple of weeks and took profits. It would have been responsible of me to slow down and even decrease my position size after my run of profits, just to test the waters of the market. I realize that I may be right about the the longer term outlook of the market, but short term can stop you out of a position constantly even if YOU ARE RIGHT. I've only been trading a couple of years and mostly on paper. The book talks about traders who test a strategy on paper and it works out great, only to jump into the live market and get destroyed. This is because of the payout/payback cycle he talks about which I believe related to and is similar to the cyclical business cycle modern economies encounter. As soon as the trader goes live.. the market has switched on him. He then turns around after taking losses and tests his strategy again on paper and is profitable again.
Point being. After a run of profits. Do not increase your position size assuming that your market strategy is the holy grail. The holy grail is your psychology and the way you approach the market. Test the waters of the market out with smaller positions to figure out if the run is still valid.
Anyways, the book is good reading. Check it out.
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I love this post OJ. time the cycles and become an expert at understanding yourself and your favorite type of trade. trade bigger positions when you are in 'your comfort zone' and trade very very lightly when the market isn't in sync with 'your system'.
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