After 2-1/2 days spent at Peter Brandt's "How to Trade for a Living" traders' "boot camp," I have a whole new respect for risk management.
Peter is obsessed with risk control. I'm sure that's why his trading track record is so astonishing. If you have the opportunity to attend the next "boot camp," please do. But until then, let's apply some of Peter Brandt's lessons to forex trading.
You cannot fit all the components of an effective risk management strategy into one brief article. (Brandt spends at least half-a-day on it, and returns to it again and again.) Yet we can consider one important element, namely trading frequency.
New forex traders tend to overtrade -- i.e., take too many trades. Forex markets move 24 hours a day, sometimes even on weekends. So the temptation "to be in" is very strong. But overtrading can expose you to excessive risk and demolish your trading capital -- fast.
Let me use an analogy. One of my best friends is a total pro in the use of firearms. He can also tell you the most obscure details about the most obscure of guns. We were recently talking about the advantages of semi-automatic vs. bolt-action rifles, and he told me this very interesting fact:
"Your accuracy will probably be better with a bolt-action rifle. It has nothing to do with the rifle itself. It's just that with a semi-auto, you may tend to take the next shot a little too quickly because it loads the next round for you. With bolt action, you have to load the new round yourself, by physically moving the bolt with your hand. As a result, you take more time between each shot -- and also more time acquiring the target. You don't just go 'pow, pow, pow' through the whole magazine, you understand? You take your time. And your average accuracy goes up."
That's what flashed through my mind as I listened to Peter Brandt explain the dangers of overtrading. When you go "pow, pow, pow" through a dozen trades in a day (or an hour), you're moving too fast to "acquire the target" -- and end up exposing yourself to too much risk.
When you slow down and find those four key Elliott wave trade set-ups, you might just see your "average accuracy" improve over time.
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