The Dennis Rule how to stop chasing your equity curve
The best risk management is not to take a risk at all
One of the first things you hear about winning at investing and trading is to let your profits run and cut your losses short. Everyone accepts this as normal. However, they are missing the point.
Richard Dennis sees it this way: “You have to minimize your losses and try to preserve capital for those very few instances where you can make a lot in a very short period of time. What you can’t afford to do is throw away your capital on suboptimal trades.”
Too many traders pay lip service to what the great ones say, they know it’s the truth but fail to act in the same way. To do what Dennis suggest you need a method, a model that tells you when you have a great trade on the horizon.
Poker Analogy Improves Understanding
In the game of poker, the rules force each player to make a bet. These bets are called blind antes. They are made by each player when he is to the left of the dealer in draw or flop-style poker games.
Here is the key and the exact rule Richard Dennis made about trading.