Trader Shares Approach To The Volatile Markets: 'Define Your Risk'

Benzinga, a leading news and data solution for institutions and retail investors, has built an incredible brand and following, attracting professionals and novice traders across the globe in its broad effort to democratize the financial markets.

To help inspire investors, Benzinga recently spoke with software engineer and technologist-turned-trader Donald Webster to talk about the strategies he’s employing in volatile markets.

Benzinga: How did you learn and what tools help you in making good decisions?

Webster: I’m completely self-taught; no classes and no professional help. I have read many books and I have been in and out of a few Discord rooms, learned a bit, but mainly trial and error building my own system to trade with.

As far as good decisions, that’s really tough. I look at trading decisions the same way I look at golf. Ben Hogan was happy if he hit two shots per round the way he wanted. Imagine, the best ball-striker in the history of the game happy with two shots out of say 68-70 on a given day.

Golf is about “good misses” because you rarely hit it perfect, and trading is absolutely the same to me.

You nail a few, but not the majority, so the guy that misses the best that week wins.

Also, in reinforcing good decisions, the best thing that I have done is taking a few notes about a trade then jotting down what did or didn’t work and reviewing it later. I have also found the data in the Stock Trader’s Almanac to be very insightful. I will be buying that book every year for sure.

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Where do you expect your trading career to go? Any goals or aspirations?

That’s a great question. I’ve decided I’m not going back to work “for the man.” If I ever do take another job, it will be in this sector. I don’t want to work outside of anything having to do with the market ever again. I have some monetary goals I would like to achieve to make this as consistent as possible and I also have some ideas to build software around trading.

I plan to teach this stuff to others at some point in the future as well, that’s a big goal for me. Giving back my time as much as possible to others, whether it’s donating time at a food bank, teaching my kids to trade, or helping others learn this craft.

Any key takeaways for aspiring full-time traders?

The most important thing a full-time trader can do is manage their risk. This requires a few things.

• Define Your Risk Tolerance: We are all very different here and it’s a very important distinction. I threw $1,200 at Netflix Inc NFLX short via puts this week. When I do weeklies I hold them to the grave. I am willing to risk 100% loss because I’ve seen it flip around and make good gains with an hour to go on Friday.
• Define Your Risk Management: This is not the same as risk tolerance. You need a system, and I use the Kelly Criterion for mine. I never put more than 20% of funds into the market and I never put more than 3% on a trade.
• Understand Your Tools: You can’t be figuring out the inner working of Benzinga or thinkorswim while you are trying to trade, it’s lunacy. If you are starting out, you need to paper trade for a while just so you know how to use all the toys. You are going to lose money learning, but it should never be because you don’t know how to use the tools of your craft.

Photo by Kaique Rocha from Pexels.