Friday, May 1, 2009

RICHARD DENNIS (SUPER TRADER)

Here is an extract from the latest book I am reading on FUTURES COMMODITY TRADING.
Anybody who trades in futures, or is about to learn, I highly recommend this book.


RICHARD DENNIS (SUPER TRADER) or
How to turn $400 into $200,000,000, In 20 Years.
Plus
Managed Customers Funds of $120,000,000.

Extracts from Market Wizards by Jack D Schwager.


Dennis believes that one of the worst mistakes a trader can make is to miss a major profit opportunity. According to his own estimate 95% of his profits have come from only 5 % of his trades.
Missing only a few such profit opportunities could have a dramatic negative impact on performance. As a corollary, you need to guard against holding too rigid an opinion on a market, since such an opinion could easily lead to missing a major trend.
One particularly useful piece of advise is that the times when you least want to think about trading – the losing periods – are precisely the times when you need to focus most on trading.

It is important not to have a short position, with a loss on Friday if the market closes at a HIGH, or a long position if it closes at a LOW.

When Richie had built his bank up to $3000 in 1970 he had a bad day with a loss of $300, (10% of his bank). He then compounded the error by reversing his original position and losing again. To top things off he then reversed again and lost a third time with a loss totalling $1000.
Since then he learned that when you have a destabilizing loss, get out,go home,take a nap,do something,but put a little time between that and your next decision. When you are getting beat to death, get your head out of the mixer.
You must have a trading rule about losses and that is - do not risk more than 2% or 2N of your capital.

Avoid trying to catch up or double up to recoup losses.He also learned that a certain amount of loss will effect your judgement,
so you have to put some time between that loss and the next trade.

You have to preserve capital for those few instances when you can make a lot in a very short period of time. What you cant afford to do is throw away your capital on suboptimal trades.If you do, you will be too debilitated to trade when the right trade comes along.

You should expect the unexpected in trhis business; expect the extreme.Don’t think in terms of boundaries that limit what the market might do. If there is any lesson I have learned in 20 years of trading, it is that the unexpected and the impossible happen every now and then.
There are no highest highs and lows can go to near zero, in any trade.

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