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Losers Add to Losers
“I got a horse right here, his name is Paul Revere and here’s a guy who says if the weather’s clear, can do, can do. This guy says the horse can do. If he says the horse can do, can do.” -- Guys and Dolls.
I’ve been killing it in Flow lately and my real account is up very nicely over the past few months as markets have been very kind to momentum trading. But I am not foolish enough to believe that the streak will last indefintely. Drawdowns are part of the game and they will come. There is however one aspect of my trading that I am especially proud of -- my experimental account is back above its funding mark.
Those of you who follow my writings know that I am an ardent believer in trading two accounts. One for your real money, where you follow all your trading rules assiduously, the other for your play money where you can go hog wild with your trades with the only caveat being that you try to stay even on your equity.
My experimental account has been decimated more times than I can count, almost always because I’ve added to losing positions as I fought the tape, only to suffer massive losses when markets continued to move against me. However, an interesting thing happened over the past several months. I simply refused to pull my stops, add to any losing position and just accepted every stop without argument.
My experimental account went through weeks of doing absolutely nothing as losses offset wins in a financial equivalent of running in place. To an untrained eye I was just spinning my wheels, but actually without even realizing it, I learned how to stabilize the account. After a few months, my trade selection became sharper and slowly but surely I was able to bring the account back above its starting equity and beyond.
In short, I stopped making wild bets and started to make targeted trades, but most importantly I stopped adding to losers. This one single modification in my trading behavior made the difference between winning and losing. Think about that next time you are tempted to fight your stop.