Posted By: Jim Wyckoff
New Orleans-Nov. 18-FWN–THE FORMULA FOR TRADING success, according to Robert Deel, is: Self-Discipline + Knowledge + Experience + Skill = Success. Success = Profits.
Risk management and money management are key to achieving any success in a market, said Robert Deel, a registered investment adviser and portfolio manager for Strategic Management Decisions, based in Duarte, Calif. He was speaking at the Dow Jones Telerate Technical Analysis Group (TAG XVIII) meeting in New Orleans, held late last week.
A main precept of Deel’s presentation is that traders must maintain the proper psychological mindset to be successful.
Traders should never “over-trade,” and should establish “risk tolerance,” said Deel. A successful trader quantifies, analyzes, and truly understands and accepts risk. “Emotional and psychological acceptance of risk is what determines your mental state in each trade,” he said, adding that 90% of traders don’t have an idea of their risk tolerance.
As a trader, you “must select a trading methodology that reflects your timeframe and risk tolerance,” he said.
“Risk management seems like a contradiction in terms. The mere mention of the word conjures up demons of fear and panic. Risk properly defined is the measurable probability of loss. The key words, of course, being ‘measurable probability.” Most people think of risk as uncertain and not quantifiable. This is not the case,” said Deel.
Deel said futures traders should select trades with a 4.0 or higher risk-to-reward ratio. For example, a trade that creates a maximum loss of $1,000 (via placement of stop), should be able to yield at least $4,000 in profit.
“Your ego and money can make you broke,” Deel told the trading audience. “Winning can create powerful emotions which distort reality. The more you win, the better you feel, and your ego takes over. The joy of winning is the drug that gamblers live for,” he said. “A gambler will lose money as many times as necessary just for the thrill of winning once.”
“Never place a trade without perspective,” stressed Deel. Like other speakers at the trading conference, he said physical stops (not metal) must be used.
“Money management addresses the preservation of existing and accumulated capital. Without the implementation of strict adherence to money-management principles, even the best trading strategy will not succeed. Risk management and money management are, in my opinion, critical elements of a successful trading and investing plan,” said Deel.
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