Utility Theory and my Trading

People generally are unaware of the amount of time involved in a long secular trend, and usually are unwilling to hold winning positions long enough to profit to the degree possible. It would be worthwhile to reproduce an article in "Trader's World" on Trading for Infinite Yield: Utility Theory and You.

That is what makes the markets so challenging, enticing, and yes -so profitable. Because of the learning curve of the participants. Most people coming to financial trading want their profits daily or hourly. They're mistaking trading for a job.

I treat profits coming to me as an award from the market forces that I can't see and can't figure out how it is delivered. Never the less, trading is a business where it really pays to pay attention and learn from the market every day. You will know just that bit more than the others who think they can just enter some magic numbers in a computer.

At the end of the day, the key is you. You ultimately decide everything about your trading experience. The way you think is what defines how profitable you will be. You need to let the market pay you. You shouldn't limit what it will give you.

Trading for Infinite Yield: Utility Theory and You

Written by Joel Rensink, who has been a professional futures, floor and forex trader for more than 25 years.

I trade for infinite yield. This doesn't mean that I always achieve it, but it is my goal.

I am not alone. Other private traders do the same. CTA's and normal money managers are different in that they typically trade to get incentive fees and interest on their customer's accounts. Private traders trade for alpha – direct return from directional moves and the volatility of the markets they follow. They don't shoot for 15% returns per year. Try 40% – 60% average per year. The cost is drawdowns in account size and the emotional costs of time spent not making money trying to get back to an equity high.

Not that I expect every trade to make a million dollars. But as a composite, my trades in many markets simultaneously are structured to maximize return versus the risk I take. I have experienced serious drawdowns that I did not enjoy one bit, but I traded through them to get to new equity highs hundreds of times. There is a direct correlation between risk and reward, so when you have a definable, provable edge, you can apply money management that rewards you appropriately for diligently taking your trades with the correct position size.

There is an interesting secret that makes extreme trading possible and hugely rewarding if you have the fortitude to do it, and thoroughly understand the risks involved. Later in the article.

I appreciate the incredible response I received following my article here in the previous issue of Trader's World– Dangerous Secrets that Guarantee Automatic Forex Profits. Apparently there are many readers who have the desire and will to learn how to manage their own money for above average returns in the forex markets. Fortunately, concepts that work in Forex also apply to all other tradable markets, especially futures.