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ing out emphasize trade entry, and to a limited extent, trade exit, but do not devote sufficient attention to risk management. I should not be unduly critical of beginning traders when it comes to risk management. The recent experience of Long Term Capital Management, in which a $4 billion hedge fund incurred a 90+% drawdown, suggests that even the most sophisticated traders may not utilize appropriate risk management techniques. |
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Neal: Why are you so big on risk management? |
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C.V.: The ability to control risk is critical to staying the course. As we've discussed, 1997 was a difficult year for me, with an extended drawdown. By controlling risk, my equity was preserved to capitalize on winning trades. I can't predict when a good trend trade will come along, but I do know from historical testing that I need to preserve my capital until it does. |
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Neal: Where do you come up with new trading ideas? |
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C.V.: When I first started trading, I read a great many books to gain an understanding of the markets. Now that I've been trading for a while, I find that I frequently generate ideas. Perhaps one in ten will offer a measurable improvement to my existing systems, and of these, only a fraction will wind up being incorporated into a system. The markets are not static. They evolve over time, and my trading systems have likewise evolved in an effort to keep pace. |
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Neal: Why not consider day-trading when you see simple trading opportunities? |
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C.V.: I believe day-trading is very difficult for the off-the-floor trader. I have tested some ideas but have found it difficult to achieve the same degree of profitability inherent in intermedi- |
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