Position Trading Strategy System
As position traders we participate in the legs up and legs down in the commodity and financial markets, hopefully in favor of the trend.
So that we always have a trading exit strategy when we make trade recommendations our main philosophy is:
- Let profits run
- Cut our losses short
Position trading strategies are important because with long pull trading our objective is not to have more winners than losers. Instead, we look for opportunities where the potential reward is at least three times the risk or higher.
Even though we may incur more losses than profits our position trading strategies allow us to handle the losses and still make money. As we let profits run, the profits should show a greater risk/reward than the losses.
By letting profits run, the multiples that we make in profits tend to be greater than our losses when we cut our losses short. We place stop losses to cut our losses which allow us to keep our losses to no more than 1%.
In essence, in one trade we can make up for all the losses that may have happened before.
Understanding Risk Reward Ratio
Risk is a part of speculation trading…and so risk management must be as well. To move the probabilities of trading in our favor we look for a risk reward ratio of 3-to1 or higher.
Risk reward ratio can be defined as the amount of profit you can expect to make compared to the amount of money you are willing to lose.
For instance a 3-to1 risk reward ratio means that for every $1 you are willing to risk your expected return would be $3. In a 5-to-1 ratio, you would risk $1 with an expected return of $5.
Probabilities in Position Trading Strategies
As position traders, sometimes trades work out, and sometimes they do not. There are ebbs and flows in the markets, and position traders can experience a series of winners or losers. The healthy attitude toward this reality is that this is simply part of speculation or trading.
An integral part of our position trading strategies is knowing the amount of risk we are willing to assume on any given trade in order to limit our risk and protect the capital in our trading account.
In our position trading strategies, the mathematics have to be that the probabilities of being right and also the percentage on a return for profits must be greater than our losses or we simply won’t do it.
Based on the fact we are attempting to participate in the major moves in bull and bear markets, many times we forego opportunities in which the potential reward is 1-to-1 (double your money) or 2-to-1 (200% return on risk).
What we really look for are 3-to-1 risk/reward (300% return on risk) or higher. When we have a situation where our forecast is strong, and the timing of our entry is ideal, we can achieve 6-to-1 return on risk or more. Sometimes we hit a grand slam as high as a 20-to-1 risk reward.
By letting profits run on multiples of 3-to-1 risk reward or higher (and cutting our losses) our goal is to be able to sustain a series of losses and still keep our capital intact.
For instance, from July of 2008 to August 2009 we made 26 trade recommendations, averaging 1.5 trades per month, with some months more active than others. Only 40% of our trades were winners. However, because we follow trading rules and have a strict criteria for the potential risk-reward ratio our return was still a pretty decent 17.5% when risking a maximum of only 1.5% of trading capital on any one trade.
Maintaining A Trading Track Record
It is important to keep an accurate trading track record as part of your position trading strategy. It will help you to improve your performance and can alert you to things that need to be addressed.
The amount of risk that position traders may take can vary anywhere from 1.5% up to 5% on any one trade. It is our opinion that a maximum risk of 1.5%-2.5% of trading capital is a conservative, yet realistic strategy for building wealth.
As part of our position trading strategies we include with our specific recommendations how much you should risk in terms of percentage of the maximum you will risk for one trade.
For instance if your maximum risk level is 2.5% of your account and we recommend only risking 50% of what you would normally risk on a trade, you would then risk 1.25% of your account size.
Keeping an accurate track record then is essential to understanding where your account stands.
Remember, it’s not necessary to be in the market all the time. Set your maximum risk level and stick to it. If you exercise disciplined money management skills you won’t ruin your account by risking more than you can afford to lose.
Contact Gann Global About Position Trading Strategies
Gann Global Financial is a Financial and Commodity Market Forecasting Service. Become a subscriber and get advice on when to cut your losses and when to let your profits run.
For more information about position trading strategies or investing in the commodity or financial markets please Contact Gann Global Financial or
Call Toll Free 1 (800) 545-9331 (International 310-915-7500).
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