This article provides an analysis of Monroe Trout’s trading approach and his market insights. Trout is a successful hedge fund manager with an impressive track record. He emphasizes the importance of having an edge, employing good money management, and being prepared for large price changes. He also discusses the importance of avoiding blow-ups and shares his risk management rules. These include exiting a trade if a loss exceeds 1.5% of total equity, closing all positions if losses reach 4% in a single day, and setting a maximum loss point of 10% per month.
- Understand your edge: Knowing your unique advantage in the market is crucial for success.
- Good money management: This is essential for long-term success in trading, even if you have a profitable system.
- Prepare for large price changes: Markets are not normally distributed, and large price changes can occur. A good risk control methodology should be prepared for these situations.
- Avoid blow-ups: It’s important to have strategies in place to prevent catastrophic losses. This includes having an exit strategy and not letting emotions take over during periods of significant loss.
- Follow strict risk management rules: Trout’s rules include exiting a trade if a loss exceeds 1.5% of total equity, closing all positions if losses reach 4% in a single day, and setting a maximum loss point of 10% per month.