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Accuracy Versus Returns in Commodity Trading & Forex Trading

InvestorEducation / Learn to Trade Jul 27, 2009 - 02:03 AM GMT

By: Andrew_Abraham

InvestorEducation

There are many novice traders in commodity trading & forex trading that feel they need to have accuracy higher than 70% or even 80%. This is absolutely inaccurate. These are the same inexperienced traders that believe that they can have an automated forex holy grail system.


The fact is,firstly traders in both commodity trading and forex trading need an exact plan built around risk management and money management. In both cases again, in forex trading especially due to the immense leverage risk per trade should not be risking more than 1% max of your account size. Yes..that is it.. not more..if it use more risk…you stand the chance of blowing up. Taking 1% risks some say will never get me to my goals.. Wrong.. position sizing and simply the odds of making yourself available will get you to your goals. What I mean is, when you have a trade coming out a quiet period for the same risk..you might be able to put on a bigger position without increasing your risk. Continuing on that thought..if the trade works… you have the same risk…but more muscle behind the trade and more potential for profit.

In forex trading as well as commodity trading…there are only 4 options. Big profits.. small profits..Big Losses..and small losses… If you negate the big losses with immediate stops in the markets.. small profits and small losses will cancel out each other. You will be left with one option, Big profits ( as rare as they are). Due to this reality and the fact that I have seen in the real world for more than 15 years accuracy means nothing. The only thing accuracy means is $$$$$$ to snake oil system sellers or forex signal sellers.

In our trading in our commodity pool our accuracy might be in the low 40% range. I never really even stopped and thought about it. What all I am concerned about is the risks inherent in trading. I know that I do not know the future. I know that we must take every trade. I know that my opinion means nothing. All of this I have learned over 15 years of trading and having experienced colleagues that have been in the field even longer, since 1983. We have seen every mistake possible. The idea that accuracy increases returns does not hold up in the real world of trend following and especially in commodity trading and forex trading.

Andrew Abraham
www.myinvestorsplace.com

Andrew Abraham has been in the financial arena since 1990. He is a commodity trading ddvisor and co manager of a Commodity Pool. Since 1993 Andrew has been a proponent of quantitative mechanical trading programs. Andrew's major concern is not only total return on investment but rather the amount of risk that one would have to tolerate in order to achieve returns He focuses on developing quant models that encompass strict risk adherence and correlation. He has been a speaker at conferences as well as an author of numerous articles. Andrew has spent years researching ideas that have the potential to outperform indices as well as maintain fewer draw downs.

Visit Angus Jackson Partners (http://www.angusjacksonpartners.com) Contact: A.Abraham@AngusJackson.com (mailto:A.Abraham@AngusJackson.com)

© 2009 Copyright Andrew Abraham - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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