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This site was created on October 6th, 2009 to keep the notes of my trading strategy and actual track records.

Three elements for the victory

There are a few professionals in the world of investing, trading, or gambling, who keep wining for their life time. They are not betting at a whim or mere intuitions. They have clear and logical rules behind their hands. But average players think that those professionals have super natural senses or they have inside information. Some of them may have inside information, but I do not believe in super natural powers.

I titled this web page “the Rational Move” so to remind me that I should always take control of my emotion, and make a move based on a cold logic by the numbers. There are, in my view, three critical elements in order to keep on winning in the money game. They are

  • Strategy
  • Risk control
  • Discipline

By strategy, I mean the decision making process of when to buy and sell in the market. I am an individual investor. I don’t think individual investors are less informed than the most of the institutional investors, but I do think we could make use of more study and training before moving our own money.

For example, some people save money or even trade margin in Australian dollar just because the country’s interest rate is high. Sure the currency appreciates rapidly with the boom and their net just grows each and every day. They would start to feel they are smart and investment is nothing difficult. Then the fall of the year 2008 came and market’s crash was brutal. They lost everything. Such unfortunate people are not few. They were in blind love with the high interest rate, and ended up paying too much for the lesson of not having an exit strategy. Do you have a clear strategy?

Risk control is equally important to strategy. The market does not always move as one wishes, and even professionals must anticipate investment failures time to time. To sustain the growth, we need to win big and lose small. Even if we lose 10 times straight, it is OK as long as we win at 11th bigger than the loss from 10 trades. But if we use up all the money in 10 trades, there is no seed money for the 11th that may have led us to a big win. So, before starting to calculate how much we win at a time, we need to measure the maximum potential loss on a trade so that we maintain the full control over the risk. This cannot be emphasized enough.

(If you want to skip some difficult theories of risk control, the rule of thumb is to make sure you won’t lose more than 2% of the capital in a single trade. That way, you could lose more than 50 times before bankruptcy, and hope you are not so dumb and would realize the flaw of your strategy before 50 losing trades! In fact, Rational Move usually won’t take more than 2% of the risk and never risk 5% of the capital in a trade.)

Even if we are armed with an excellent strategy and risk control, we will most likely go bankrupt by playing without a discipline. The strongest enemies of great traders are “fear”, “hope”, and “impatience” within himself or herself. One can easily let the net loss grow much bigger, by exiting the market too early because of the fear of market reversal, and by clinging the losing position with a hope of the market to reverse in his or her favor. Even worse, so many people get impatient and desperately attempt to get the lost money back by betting double or triple in the next only to find themselves going completely bankrupt in the next moment. If we are not disciplined, we will forever be losers. It’s the gamblers ruin.

The three elements are complementary to each other: Knowing when to buy and sell through a good strategy would clearly define the potential loss and profit on every trade which would be great information for risk control. If we take a good control of the risk and manage to keep the loss small, we won’t be hindered by the difficult situations. Then we will be able to  suppress the emotions of fear, hope and impatience, and we will be more and more disciplined.

Rational Move adopts Elliott wave principle as the strategy, Kelly criterion as risk control, and nurture the discipline through learning from the great traders and speculators. On the right most column of this web page, I itemized the materials to learn these topics. So please make use of them.

* Trading and investing carries a high level of risk and may not be suitable for everybody. Before deciding to trade or invest, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, software, tools, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that RationalMove.com is not rendering investment advice.

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Real time trading tweets

The plan in the article may get rejected any time, so please check out my tweets on Twitter.

Current risk exposure:

"","","","","$29,058.30","","","","","","","","","","","","","","","","","","","","41.95%","","","2.00%","","","","","","","","","","","","","","","","","","","","","","","","","","","",""
Rational Move always use stop loss orders, and this is the worse case potential loss over the capital for the currently open positions. This is unrealized loss is less or equal to the risk exposure.

Capital growth

From recent 100 trades (%) The growth right before the 1st trade is set to 0%.
About this graph

Drawdowns

From recent 100 trades (%)
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Total returns

Since inception
(Aug 10, 2009)
Year-to-date Quarter-to-date
0% 0% 0%
This is a normalized value: the return on each trade is normalized against the capital just before the trade execution. This way, it is eliminating the effect by the capital change from deposits and withdrawals. The calculation thus reflects the trading performance of each trade. The value does not contain unrealized profits and losses. RM's trading strategy never risks more than 5% of the present capital. Not including subtraction by tax.

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