Why you Want to Trade Small
I always say anything can happen. Actually last night it did. I was long a fairly nice position of Euro dollar interest rates. Well some issues in Iraq came about and they spiked. I was filled in the middle of the night. In between the middle of the nights fill and when I woke around 5am they had already blown thrown my stop by several ticks.
Instead of being a deer in the lights of an oncoming car, took my loss quickly and slightly aggravating. In principle if there is such a word ( there really isn’t as anything can and will happen) Eurodollars do not move that dramatically. Last time I remember them moving was in 1987 during the October crash.
So what transpired, I was risking .5 of 1% or 50 basis points and do the quick move this trade experienced a slightly bigger loss. If I had been trading a larger size or percentage…the effect would have been much greater. This is trading. This is why it is so hard. This is why I try to risk less than .75 or 1% or 75 basis points regardless of the trade. Risk management helps you stay in the game of trading…
Past performance is not indicative of future performance