top of page

High Probability Trades Defer Risk, Not Manage It

If we fail to plan…you know how the saying goes. I experienced my largest loss several years into my trading career. I had be doing decent and had over 4 years in the market.

The trade was a very wide short iron condor in RUT that was a very high probability trade. There it was, that was the plan.


As we can all see the series of glaring issues here, a couple stand out specifically:

-I relied on probabilities to manage my risk. This was pure ignorance.

-I didn’t size properly. I was too focused on what I was trying to make vs how the trade would behave during its lifecycle.


I made this mistake once and it was the largest % drawdown (I’ve lost far more on a raw $ basis) on my account over the past 15 trading years. Sure the trade “set me back” but that’s all relative anyways so that part didn’t bother me. The issue was I failed to understand these high POP trades simply defer the risk into the future where at some point, if we continue the same strategy long enough, will eventually be realized.


I now deploy (2) risk control measures.

1. Each trade has clearly defined risk protocols via sizing and mental stops.

2. The portfolio has max drawdown thresholds, diversification requirements, utilization scales, etc.

Recent Posts

See All

Don’t Trade

If you don’t have a written plan. The goal of this post is to share personal mistakes in my early trading to hopefully encourage others down a different path. People tend to hate those kind of stateme

Path to Options Proficiency

For the new traders, whatever you do, do NOT allow the disenfranchised internet trolls dissuade you from learning and asking questions. The goal of this post is to encourage new traders to stay the pa

You're ALONE

For the first 3 years of my trading, I kept no logs, had no written plan, and did what most do. I thought I was careful, consistent and wouldn't need to write things out because unlike the millions of

Commentaires


Post: Blog2_Post
bottom of page