Making Money - Its all about Risk Management

As we come up to the end 2011 I always like to reflect on how I have done in terms of my trading. One thing for sure the markets have been a tough challenge in 2011 due to their volatility but lack of direction. So as I analyze my performance ,which thankfully is +20% for the year, I like to identify what has and has not worked. Surprisingly to some I am not that happy with personal performance. I have spent time this year being out of step with the markets rhythm and other times dancing like late and great Michael Jackson to the music of the markets. The main factor why I have produced a positive number is due to to my risk management. Its all about my average payout ratio, i.e. my average win amount compared to loss amount. it averages just below 3:1. This means on average I have made 3 times more on my winning trades than my losing trades. This style of trading means you have to at times take a number of small losses. Most portfolio managers are not able to do this as psychologically they can not handle being incorrect over 50% of the time. However this form of risk management allows me to have a year like 2011 where I have been wrong numerous times, on occasion dancing like a hippopotamus to sound of the markets, and still produce a double digit percentage return. You see its all about risk management. You must respect the markets. Setting the right stop levels with the right size positions is the key. That is why I can be critical of myself but still outperform for my clients.