Risk Control Method №3: Proper Account Sizing
This topic was discussed in great detail in previous chapter. Nevertheless, because it is such an important topic it warrants another mention here. Drawdowns are the bane of futures traders. When you are making money everything is fine. It is when losses start to mount that doubt creeps in. The longer a drawdown lasts and the deeper it cuts into your equity the more painful it becomes. A trader starts to think "I wonder when I'll get back to a new equity high, or even if I'll get back up to a new equity high." It's like inadvertently getting on the down elevator in a skyrise; you don't know how long it will be before you get back to the floor you were just on.
Drawdowns are never easy to deal with. However, if you experience a drawdown that is within the realm of what you had expected going in, it is a far different situation to deal with emotionally than if you figured you would never experience anything worse than a 15% drawdown and now you are 30% in the hole. Or even worse, if you really had no idea what to expect in terms of drawdowns when you started out, and you suddenly find yourself deep in the hole. Under such circumstances it can become almost impossible to maintain confidence in your approach.
Following the steps can give you some idea as to what you can realistically expect from your trading approach, both in terms of profitability and drawdown as a percentage of your trading capital. By properly sizing your trading account you take an important step toward minimizing your risk even before you make the first trade.
Categories in Trading Mistakes
Lack of Trading Plan
Planning plays a key role in the success or failure of any endeavor
Using too much Leverage
Determining the proper capital requirements for trading is a difficult task
Failure to control Risk
Refusing to employ effective risk control measures can ensure your long-term failure
Lack of Discipline
A lack of discipline can destroy even the most talented and best prepared trader
Useful Advices to Beginning Trader
You can control your success or failure
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