Warrior Trading Blog

Redemption Day +$6,609.99 on 5 Trades

Redemption Day +$6,609.99 on 5 Trades

I’m BACK!  Today was a day of redemption.  After yesterdays big red day (-$2064 on 6 trades) it felt great to lock up a big winner.  When I first sat down at my computer today I was hoping we’d have some good setups that I could get aggressive on.  I think anytime I fall off the horse, so to speak, I want to get back on there and jump right back in where I left off.  I always want to redeem myself from the previous setback.  This can be a dangerous mentality because it can encourage traders to double down and get more aggressive after a loss.  Statistically this works, but only if you can always continue to double down!

 

 

Why Doubling Down Is Rarely A Good Idea

Lets say a trader losses 5 times in a row, losing $250 on first trade, then doubling down and losing $500 on the 2nd, $1000 on the third, $2000 on the forth, and $4000 on the fifth.   He’s down a total of $5,750.  If on the 6th trade he doubles down with 8k risk vs 16k profit potential and wins, he will recover all of his losses.  The problem is, you can be wrong 30 times in a row!  The market is not like cards where you know you’ll eventually get a face card or a good hand.   Cold streaks can last for weeks.   Doubling down increases losses, and gives no guarantee that you’ll have a winner anytime soon.  Most traders who try to use the double down approach will get lucky the first few times they do it, but eventually, they’ll hit a cold streak that lasts longer than they can afford to keep doubling down, and they blow up their account.

 

Doubling Down vs Balanced Risk on All Trades?

Instead of doubling down, I focus on taking high risk ONLY on A quality setups.  That means yesterday, I took high risk on A quality setups and it just so happened that they didn’t work out and I lost 2k.  Today I did the same thing, and on my first two trades I lost $950, but on the final trade, I made $7,752.57 based on an initial risk of just $500.  This is based on my Momentum Trading Strategy that we teach in our classes.  You can adjust your risk based on different types of market conditions, if you’re having a hot streak or a cold streak, but you never want to risk $100 on a trade then turn around and risk $5000 on a trade the next day.  Your risk needs to be balanced across all trades.  By balancing risk, you can rest assured that your statistics such as profit loss ratio and average percentage of success are meaningful.  When you mismanage risk, you allow 1 trade to blow out your account and that’s unacceptable.  We have traders in our community who are in their 80s.  This is a career that can last a lifetime, but only if you learn how to manage risk, how to mitigate losses during cold streaks, and if you learn how to maximize profits during how streaks.

 

Daily Profits

Redemption Day