The community of traders is not known to Dave Landry. He is a commodity trading specialist (CTA), also chairman of many funds and fund management companies such as Sensitive Trading, Harvest Capital Management. He is well known for several trading systems like the 2/20 EMA Breakout System and the Volatility Explosion Method.


Dave Landry

Here are his 17 capital management tips for traders for long-term success:

1. The risk ratio per trade should only be 2% or lower. For example, there are 2 traders, both with 15 years of battle experience, and of course, they both accumulate a number of assets for themselves during the trading period. A brother rarely transacts over 1000 shares/time. And the other guy always only trades 2 or 3 futures contracts at a time. Both keep the stop loss very tight and the risk is never above 1%.

2. You should limit the risk of your entire trading portfolio to 20%. In other words, if all your orders lose at the same time, you still have 80% of your account to continue getting rich.

3. Should keep the ratio Reward: Risk = 2: 1, if 3: 1 or higher, the better. In other words, if you accept to lose 1 R, then you must get a profit of at least 2R.

4. Realistic expectation of the amount of transaction risk in a given market. For example, don't be stubborn and think that you only risk a small amount if you are trading Penny stocks. Likewise, the amount of risk for the USDJPY and gold pair is completely different. You must determine your risk according to the volatility of the market. ATR will help you do that.

5. Understanding market volatility helps you trade and set trading volume appropriately. For example, in a highly volatile market, a smaller volume should be placed than in a low volatile market.

AN APPROXIMATE DOWN PRICE IS NOT advised

6. Understand market correlation. If you are buying fuel oil, buying crude oil, and buying gas, you are not actually entering 3 orders, but only one order.

Because these 3 markets have a very high correlation of the same direction (either up, or down). So your risk "gets" multiplied by 3 times normal. If you lose 1 position, the other 2 orders will also lose. Similarly, the pair AUDUSD and NZDUSD, USDCAD too.

7. Lock at least 1 part of profits if possible. This is especially advantageous when you trade short-term. Profit security is always essential.

8. The more traders trade, the less risk a trader should place. Obviously, if you enter dozens of orders every day, you cannot risk more than 2% per trade. Because maybe a bad day, just one order you risk too high and lose money can wipe out all your results.

Traders with longer-term, trading 3 - 4 orders / year, can place from 3 - 5% / order.
But no matter what type of trader you are, the total risk for the entire trading portfolio is only 20%. (Rule number 2)

9. Money is still alive. There is no "holy grail" in trading. However, if there is, then there must be money to trade and very small risk. These principles help me survive for a long time. 

10. Never averaged the price down when an order is losing money unless you plan on scaling out first. If you entered the wrong order, acknowledge and exit the order. Two wrongs cannot be turned into one right.

11. Use smart scaling. Smart here means only adding new orders when the old one is profitable and enough to offset the risk of the new order. The old order must have the greatest mass, it's like the bottom of a pyramid.

For example, you plan to buy 1000 shares, initially, you only put 600 shares at the price 1.0, price up to 2.0 (at this time the initial 600 shares are profitable), you place 300 more shares, the price goes up. Next, you place 100 more shares. Assuming the price does return, then 600 shares profit will be enough to compensate the loss for 400 shares later.

But remember, the total risk per 1000 shares should still be no more than 2%.

12. There must always be a stop loss. Eye stop-loss does not exist bro.

13. Once the price moves in your right direction, the profit overcomes the initial risk, you should exit half of the order and move the stop loss to the breakeven point. You will benefit a lot, get rid of the midnight gap, believe it, black swan, ... Risk is completely lost.

14. Understand the market that you are trading. This is especially true of traders trading on derivative securities (options, futures, ...). Maturity date, market volatility, and spread are also factors that govern capital management and the transaction process.

15. Strive to keep the Maximum Drawdown at 20%.

16. Be ready to cut all orders and reassess the market when you find the method is problematic and you are in a series of losses. The market is still there, and so is the opportunity.

Gann said a very nice sentence in his book "How to Make Profits in Commodities" published more than 50 years ago that: "when you lose all three orders, no matter how big or small, you are wrong, Not the wrong market. My rule is to go out and wait. Research why you lose. Remember, you don't lose a penny when you sit out. "