Managing drawdown
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The document discusses managing drawdowns in trading. It advises that once a trade is placed within the predefined risk zone, price action will either reverse, go sideways, or break through support/resistance. If structure is broken, it is best to close for breakeven if possible or recognize the increased likelihood of further movement in that direction. Following the rules and not being perplexed by fear of loss is important to retain a flexible mindset. There are many patterns in markets each day, so do not worry about any single trade outcome. The document promotes a trading website to learn more trading strategies.
Managing drawdown
- 2. “There is something to be learned from a rainstorm. When meeting with a sudden shower, you try not to get wet and run quickly along the road. But doing such things as passing under the eaves of houses, you still get wet. When you are resolved from the beginning, you will not be perplexed, though you will still get the same soaking. This understanding extends to everything.” ― Yamamoto Tsunetomo, The Hagakure: A code to the way of samurai
- 9. Once you put on your trade(s) in the PRZ only three things can happen: - Price action will make an immediate reversal - Prce action will go side-ways - Price action will blow through the PRZ and/or structure support/resistance
- 15. If price action clearly shows you a break of structure support or resistance and the drawdown is still within the acceptable limits as stated in your trading plan, then close the trade for break-even if the market gives you this opportunity If price action has broken structure support, as in the trading example, it is more likely to continue downward.
- 30. The market will tempt you not to follow your rules as you clearly saw in the trade example. It will only take one moment of undisciplined trading to whipe out all you earned in trading or even more. The fear of loss is the reflection of greed.
- 31. If you are resolved from the beginning to follow your trading plan you will still get wet, but you will not be perplexed. If you are not perplexed by the fear of loss then you retain the flexible mindset to flow with the market.
- 32. There are more than 400 harmonic patterns on a daily basis across all financial markets world-wide. With a 70% probability of success do you really care about the outcome of 1?
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