Handling the ups and downs

I love the videos that Adam Todd, from Racing Traders, puts together! That said, I only just watched the October vid called, "Betfair Trading Using Advanced Coin Flipping and Guesswork Techniques". Essentially, Adam goes through a number of races and randomly guesses which way the price is going. He then either scratches out or takes a small loss if the price is heading in the wrong direction, but lets winning trades run, taking, for example, a 10 tick profit. The essential point of the video was that it is not so important how you determine the direction you think the market is going to move, but the important bit is limiting any losses and riding any profits. This is pretty much the same point given by financial trading gurus like George Soros. Its good to see this demonstrated and commentated on in Adam's usual amusing style.

Soros wisdom

George Soros, who is a well known, wealthy and highly successful trader and speculator, apparently had a philosphy for being a successful trader and I think it is worth mentioning here. He said, "The way to build long term returns is through preservation of capital and home runs".

So, he basically advises the opposite of what I have been doing (and a lot of others too, I reckon). That is, most people I know would snatch up any profit quickly but let a potential loss ride in the hope that it gets better. Chances are it will get worse, which means with the opposite approach, the Soros approach, the chances are that capital is preserved (as losses are cut early) and as profits are let run until momentum starts to fold, returns are maximised. Of course, when the market does a mad swing the wrong way, that nicely growing number of potential profit ticks may get lost but looking longer term, there should be some big home runs.

Another saying I have found that is attributed to George Soros is, "it's not whether you are right or wrong that's important but how much money you make when you are right and how much you lose when you are wrong"

I like that. It helps me make sense of my past trading mistakes, where I'd scalp a few points and be very happy only to mis-interpret the market direction and then sit there hoping it would swing back again, as my loss was creeping up.