Bendigo, Mower, GK, well everybody, I agree with you all. That is, don’t take excessive risks, its not worth it if you lose the farm. Hence, just in case you are worried about my trading strategies, please note that from a quick spreadsheet that I just knocked up, I have calculated that the balance of my CFD account is presently 1.1% of my total worth, and my equities account is 0.8%. Therefore even if I lost the whole balance of my CFD account in one mad all or nothing trade, it would not bother me.
I am in a fortunate position in that I am healthy, debt fee, my wife works full time in a secure job, I work part time in a secure job (I am Mr Mum the rest of the time), and our two girls are healthy and happy. In addition, we are both self-employed contractors, which means that we are master of our own destiny, which has several benefits. Hence, I can afford to have a little fun with CFD trading. However, I hope I am not setting a bad example that may get others into trouble financially if they used similar strategies to myself.
Despite the fact that my CFD account balance is not that significant in the big picture, I believe that I have reasonably solid capital management strategies in place. For example, I never commit more than 5% of my margin to a single trade (usually somewhat less), never utilise more that 50% of my margin capacity in the total of all open trades at one slice of time, always set a realistic stop loss when I first open a trade and stick to the stop point, protect profit at essentially all times, open trades with a risk vs reward plan, and review my upper and lower stops daily, sometimes intra-daily.
I have read that a generally accepted safe strategy is to limit trades to 1% of capital, but this ultra conservative approach is just too boring for me. It takes the same amount of research and trade plan development effort for a 1% trade as for a 5% trade.
I find my CFD trading strategies to be interesting, challenging, and rewarding. But what is perhaps more rewarding is expanding my trading knowledge by researching and trying new strategies. I am a firm believer of learning by experience. That is, imo it is necessary to actively trade, rather than paper trading, to learn.
Pre-GFC I had approximately 27% of my net worth in my equities account, and 1.5% in my CFD account. However, now, depending on how successful my trading continues to be, I expect that I will build my CFD account up to 5% of my total worth by further capital injection and profit retention. Hopefully more of the latter than the former.
So in your considered opinion, what am I … an excessive risk taker, far too conservative (need to put a bigger % into my CFD account), somewhere in between, or just plain mad.
What is your appetite for risk, and do you have any risk management anecdotes to throw out to the CFD forum?
