For 2017 – Be Less Stupid

Here is the trading record of my personal account in 2016. When you look at it the Twin Drawdowns of about 10% each in March and December respectively jump out at you right away.

10%ddown

Was this the result of faulty strategy?
Adverse market conditions?
Bad execution?
None of the above.
This was the result of nothing more than sheer pridefulness and stupidity. In both cases, I traded without a stop and even worse than that I traded at my normal trade size on the initial trade which in turn resulted in massive losses when I eventually closed out the trades.

monthly-nostops

Let’s once again examine exactly how this slow motion car wreck occurs.

Let’s say your normal trade size is 1X equity and you risk 0.25% per trade. But then you decide Nawww! This trade will come back so you lift the stop and let it float. Soon you are -0.5% underwater so you add another unit and now you are at 2X equity on the position. You keep doing that every 50 pips or so until you are at 6X or 7X equity into the position and in the meantime the currency is in a freefall of 150 pips or more with no retrace in sight. Now in a matter of hours you are down -5% to -7% on your account and essentially starting at the screen like a deer stares as headlights. You have one last fateful choice to make -- double down in size or cut losses now. Inevitably, you will opt out for choice number one, because -- there is no way that the currency can fall 200-250 pips without a retrace -- right?

Of course it does and now you are truly fearful for your account so you just cover at market usually at the low. That’s how you get 10% Drawdowns. They are almost always a function of stupidity rather than some unusual market action.

The only thing I can say for myself is that I was a little less stupid on the second drawdown. I didn’t double down and I exited the long EURUSD trade without trying to break even. Had I not done that my loss could have ballooned to 30% or more and I would have given back the whole year.

As a result of that nasty little loss, I put in a new rule that I only trade without stops for positions 1/10th my usual size. Anything that starts out at normal size or bigger gets a stop. Always.

So my resolution for 2017 is very simple -- be less stupid. That way I could target 30%-40% in 2017.

In the meantime, the overall data for the account was actually quite good. I did about 1600 trades or a run rate of 2000 trades per year and my average expectancy net of all costs was 1.1 pips which brought me to 20% for the year. I’ll take that.

yearendstats

Boris Schlossberg

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