Trade of the week: How did we do in 2023?
Having closed out our last hypothetical trade of the year, we are up over 22% for the year. Let’s have a look at our monthly profit distribution, reward/risk ratio and how we manage risk.
(AI Video Summary)
S&P 500 trade outcome
For the final "Trade of the week" episode for 2023, Axel Rudolph starts by informing viewers about a trade he made last week. He believed that the S&P 500 would retrace lower, having seen six straight weeks of gains. So, he decided to sell ("short") above 4,600 with a "stop loss" at 4,607, which means he would automatically exit the trade if the price went above that level. Unfortunately, the trade didn’t go as planned, and he ended up losing money on this trade. Losing trades are part of trading but as long as the average loss is smaller than the average gain and a similar number of winning and losing trades are seen, profits can be genereated.
2023 tracking spreadsheet and risk management
Then, Axel Rudolph introduces a spreadsheet made by his colleague, which keeps track of all his trades for the year. It includes important information like the dates of the trades, the prices he entered at, the distances to set stop losses and take profit levels, and the profit or loss made on each trade. He also accounts for fees in the spreadsheet.
The most important thing Mr Rudolph emphasises is that he only risks 2% of his total capital on each trade. This means that if he has $10,000, for example, he would only risk $200 on a single trade. At the beginning of the year, the IG market analyst team's trades didn't perform well, but slowly they started to do better.
What's interesting is that IG market analysts always aim to achieve a higher profit than the risk they take in each trade. Axel gives examples where he could potentially make 2.3 times, 4 times, or 6 times more money than he risks. Even though he had some losing trades throughout the year, his overall return on investment was 22.67%. Some months had losses, but he had more months with profits. This shows how important it is to ensure that your profits exceed your losses when trading.
Finally, IG wishes to thank everyone for watching its "Trade of the week" series for the whole year of 2023 and looks forward to sharing more interesting trades in the upcoming year.
The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.
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