My Trading Bible by Mark Ritchie

Author:Mark Ritchie [Ritchie, Mark]
Language: eng
Format: epub
Tags: stock market, investing, stocks, commodities, Trading, finance
ISBN: 9780964695207
Publisher: Island Lake Press
Published: 2019-07-21T22:00:00+00:00

It is a rough estimate that 75 to 95 percent of all the woulda-coulda-shoulda stories in our business can be traced to a fundamental misunderstanding of this principle.

Just in case you need a review with simpler numbers. First you lose 50 percent. Then you make 75 percent. That feels like success. But when your accountant does the real numbers you end up a losing trader with 87.5 percent of what you started with.[53] You can, and you will, blame your entry and exit points. But the fact is that while you are doing all that work, tweaking your entry and exit points, talking about how much you would have made if you had continued, and on and on, you are overlooking this principle: You traded too large. And I do not mean that you were undercapitalized. There’s another big mistake. It was not a lack of capital. If you had more capital, you would have traded larger. If you don’t trade at the right size with little capital, you won’t trade at the right size with more capital.[54]

The biggest disagreement that any trader will have with any of this material is the use of the phrase “holy grail.” Pro traders will heap on the scorn. We all know that the search for the holy grail is the first sign of a novice, the beginner, the smartest-guy-in-the-room, the setup for failure. Nevertheless, I use the phrase because I know that without the concept you’ve encountered here, you cannot succeed in this business. Legendary system developer, Welles Wilder, found the holy grail a few decades back.[55] If there were a holy grail, it should be no surprise to find it hiding where no one is looking. This is where I found it.

Call it whatever you want—so long as you know that without a thorough understanding of this chapter and the next, you will fail in this business. You can take that to the bank too.

Surely this is all clear enough. There will be some of you who still suppose this is some sort of mathematical stunt. If you think that, back up and review. If, after that, you have not changed you mind, find another line of work.

For you who see the light, here’s where the real problem comes–this conundrum is camouflaged by a market that never delivers our profits and losses in the neat package that we have seen with these numbers. Thus our focus remains on our entry and exit points. It keeps us analyzing the market, tweaking our thinking, maybe even analyzing ourselves, our inability to pull the trigger. We have so much opportunity for second-guessing with our “brilliant” hindsight that we can far overanalyze every turn in the market. “We didn’t let that profit run long enough.” “We needed a bigger stop.” “We needed to cut that loss shorter.” These speculations could fill another chapter. There is so much on which to focus that it never occurs to us to imagine that all our trading might be perfect; we just traded too large.

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