Conclusion for the 10 percent solution

Whenever I teach new sales traders at my firm about proper trade management in the currency market, I often start out with the example of Richard Dennis and the method of pressing the trade. Before I even have a chance to finish, some overeager rookie will inevitably jump up and confidently proclaim, “Yes! That’s the only way to trade!” However, in trading there is no “only” way of doing anything, especially money management.

One of the great strengths of trading is that it is an art, not a science — and there is a highly flexible discipline that allows for numerous individual modifications.

Are you comfortable with the classic 1:2 risk-reward approach? If so, it can be quite profitable, especially if you modify it as most traders do by scaling out of half of the position at profit distance equal to risk and trail the rest with a break-even stop.

Do you have a killer instinct? Can you easily give up small to medium-sized gains in quest of one huge win? Then pressing the trade by constantly adding to a winning position may be the best strategy for you.

What if you like taking small, frequent gains and can accept an occasional large loss? Then arithmetic scaling may be just the right approach for you to succeed.

Finally, what if you are a true moderate, neither seeking remarkable gains nor afraid to absorb a series of small losses? Then the 10-percent solution may be just the “solution” for you.

As you can see, risk-management trading is truly contingent on the trader’s personal preferences. The currency market makes the task immeasurably easier by allowing retail traders to customize the size of their positions without incurring any marginal costs. Whether the trader wants to deal 1 million units of EUR/USD contract or only 100 units, the transaction cost among most of the reputable dealers will almost never exceed 0.03 percent. This allows even the smallest traders to implement any of these sophisticated risk-management techniques on the exact same terms as the biggest interbank FX traders.

However, the one inviolable truth that no trader, big or small, should ever forget is this: Everybody loses in trading at some time in their career. The difference between those who survive and those who do not is that winners honor their stops while losers make excuses.