Philosophy in the Preservation of Capital
November 7, 2006 by Trader Rich
As I've mentioned in the past, a very important goal for any trader should be the preservation of capital. In fact, making this a primary goal ahead of all others may be most beneficial to success. That is why I post anything that's related to this when I stumble on it.
I've been following Kathy Lien and Boris Schlossberg's blog since they started it back in September. If you've followed their trades since they started, you would have made a nice profit. I have not personally taken any of their trades but I follow some of their trades for learning purposes. Currently, they are providing this free service with the purpose of garnering your confidence in them to charge you later on. I have no problem with this. There is probably a lot of work involved in providing this and they have to get paid just like everyone else. According to their FAQ's, they will be moving to a subscription model in a month or two which will be in the range of $85 - $100 a month. I'm slowly getting to my point but what I like about them is that their philosophy is heavily geared towards the preservation of capital. If you've followed any of their trade calls, this is quite evident. They state their philosophy as the following:
"…we
practice defensive trading. This means that we try to bank profits as
often as possible regardless of the size and reduce our risk in the
market as early as possible. In order to achieve this, we usually trade
lot sizes in multiples of 2. There is always a first target (known as
T1) and a second target (known as T2). It is our rule of thumb that
whenever T1 is reached, we move our stop on the remaining position to
breakeven (the entry price) so that there is no longer any real risk
and we have banked a portion of the profits. This allows us to NEVER
TURN A WINNER INTO A LOSER."
If you have any interest in reading more, feel free at http://bktraderfx.com.
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Their stance is pretty much in-line with most professionals outlook when trading these instruments. Sure, there’s a fair selection of longer term positions taking place across the pairs, but given the fickle nature of FX, the “defensive” approach is more common than you think.
The majors are an excellent source for allowing this kind of strategy to prosper (keen entry, paring & running). It’s the bread & butter of most pro’s. The cake is the odd multi-cent shunt, which surfaces via the Big Round Figures, specially when they begin basing & breaking out thru the axis levels (1.70, 1.75, 1.80 etc).
But much of the daily drudge activity is conducted off the mid frame trend-short frame trigger basis.
Simplicity is KEY when operating this type of strategy - the less clutter & more simplified the execution, the higher the potential reward!!