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The Michael Martin Show

Michael Martin is a trader and instructor for MartinKronicle. His show deals with the emotional and psychological aspects of trading and managing risk. Martin's own book is called "The Inner Voice of Trading" and features interviews with Michael Marcus, Bill Dunn, and Ed Seykota - who also wrote the Foreword.
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Now displaying: Page 1
Oct 31, 2017

Group your positions for better risk management.

 

You can have stops on each position. Put them on the groups and sectors as a whole as well.

 

For example, you might have a stop on your open gold trade limiting a decrease in your equity by 1% from the current market level. You might have the same for Tesla or Apple Inc.

 

Consider putting stop on all the metals in your portfolio so that collectively the aggregate risk across all of them is set at 2% for example.

 

You can test for the best level for you. The question is “what is the probability that I’ll be down 5% for the period if I’m already down X% given the backtest?”

 

That means, if you have 4 metals trades on in gold, silver, HG, and platinum, you may stop out of all your metals although a particular stop on any one of them was not hit.

 

That’s one way you can improve your performance and lose less.

 

Another way is to put a stop on your overall equity for the day, week, or month.

 

I think there was one time in PTJ’s career that he didn’t want to be down more than 10% in any given month, so he put a stop on his overall equity of such.

 

It’s key that when you hit that spot and get stopped, you actually stop trading. In the case of PTJ, he’d be done for the rest of the month. That might be hard for you if you like the action. Most professionals or aspiring professionals want to be experts in managing risk, not making frequent transactions.

 

In order to deploy any of these strategies, you’d have to offset your positions manually and then go in and cancel your existing stop orders - and I would do it in that order. Stop losing money first. Cancel open orders second.

 

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