bringing his risk way down.
Today, risk control is the essence of Jones' trading style and success. He never thinks about what he might
make on a given trade, but only on what he could lose. He mentally marks each of his positions to the market. No
matter how large a profit he may have in a position, in Jones' mind his entry price was the previous night's close.
Since this approach assures that there is never a cushion in his trades, Jones never gets complacent about any of his
positions. He not only watches
the risk of each position, but he closely monitors the
performance of his entire
portfolio in real-time. If his total equity drops 1 to 2 percent during a single trading session, he might well liquidate all
of his positions instantaneously to cut his risk. "It is always easier to get back in than to get out," he says.
If Jones' trading starts going poorly, he will continually reduce his position size until he is on track again. That
way, when he is trading his worst, he is also trading his smallest. In any month with net trading losses, Jones will
automatically reduce his risk exposure to make sure he never registers a double-digit loss in a single month. After big
winning streaks, he is particularly cautious about getting overconfident.
In short, Jones maintains risk control in a dozen different ways. As he puts it, "The most important rule in
trading is: Play great defense, not great offense."
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