23. The 3 Levels of decisions in trading

Comparing trading with a financial organization we may classify the decisions in 3 layers or levels or tiers:
a) Front Office (direct interaction with the market and its changes and in trading mainly the entry decision based on indicators etc))
b) Middle Office (operational risk management decisions, and in trading decisions relative to the growth dynamics of a composite position , like pyramiding, martingale-like adjustments, reinvestment etc)
c) Back Office (clearance and accounting, and in trading mainly the exit decision , like take profit, global take profit , trail out, stop loss etc).


It may sound strange but maybe 80% of the ability to have a smooth equity line (with small DrawDawns) is based mainly on the middle and back office decisions rather than front office decisions.


In Back Office decisions the next parameters must be controlled by the trading system
1) The % risked per trade (in the worse scenario of the trade losing)
2) The % risked on all open positions or Floating Draw-Down.
3) The starting Draw-Down
4) The maximum Draw-Down
5) The maximum percentage of the margins of all open positions over the balance minus the % risked on all open positions (The active free margin from the point of view of the trader).
6) The profits reinvestment rule.
7) The percentage of the pool  funds of the account that do not participate in trading, and are used to withdraw for consumption, and optimal adjustments of the ups and downs of the funds that are used for trading.