Long & Wrong

Note the question mark in the title above. I’m not promoting the skeleton of a trading strategy here, I’m just recording a few thoughts on this topic.

I’m obsessed with how easy it is to lose money trading, I know I did for long enough, but I’ve never been convinced that it should be that easy.  So I’ve been thinking about what a trading strategy would look like if our aim was not to make a fortune but  rather was just  not  to lose money.  Here’s what the back of my envelope looked like after 10 minutes,

1. If we don’t want to lose money then our cost of doing business should be minimised.  The profit target for each trade should be very much greater than the spread.
2. The  distances between our entries and exits should also be sufficient to minimise our exposure to ‘noise’ (we could use ATR for this but we aren’t that clever yet, anyway the human eye is an excellent judge). Noise is just a 50/50 gamble and we want (slightly) better than that.
3. We will only trade with the trend.  ’The trend‘ is the slope of the price on the chart (time-frame) that we plan to execute our trades on.  Once again we’ll just rely on our eyes.
4. In order to further nudge our system towards an edge, any edge, we will place our stop the far side of support/resistance (s/r) and our target will be at s/r.  Once again we are not trying to be clever here, s/r is a horizontal line from where price has deflected significantly in the past; no fibs, no wedges etc.
5. We will aim for a modest risk:reward of between 1.0 and 1.5:1, rejecting trades if this isn’t possible given the 4 points above.
6. Once the trade is open we will leave it well alone.  More information does become available with time but a little information is a dangerous thing if you don’t know how to interpret it, e.g. it becomes an excuse to get out too early, so we’ll ignore it.

Now there are two things I don’t know, actually there are lots but I am trying to be specific,

1. Will this simple approach lose money? I don’t think it will, but I wouldn’t bet my house on it.
2. Is there any point to aim this low, to not lose money?

Is it possible to start like this, and maintain capital ,whilst you learn about the market and increase the expectancy of the method by gradual refinement? Are new traders blowing accounts partly because they try to trade like highly profitable traders from Day 1 (which is like learning to  drive in a Formula 1 car and crashing it on the first lap).

Like I said, this is just a topic for thought/discussion.  I’m on holiday this week but I am so committed to my meagre readership that I took time out to post this.

Oh OK then, I wrote this last week and scheduled the post for today.