Understanding Trade Outcomes and Risk Management Strategies

A trading strategy typically results in a bell curve distribution, where around 60% of trades may yield winners, while the remaining 40% can lead to losses, including serious ones. Most trades tend to be mediocre, with very few being exceptional 'home runs' or disastrous failures. It is crucial to accept that underperforming trades cannot be completely avoided. Implementing a 2x Average True Range (ATR) trailing stop strategy offers a systematic approach to manage risk based on the volatility of the underlying asset. By risking 1% on each trade and adjusting the stop loss dynamically—tightening it as profits increase to 1.5x ATR after a 2x ATR profit and to 1x ATR after achieving 4x ATR—traders can protect gains while allowing for potential upside. This methodology was tested over a year with 100 trades, highlighting the importance of risk management and adaptability to volatility in trading success.