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In this interview, Brent Penfold—veteran futures trader and author of Universal Principles of Successful Trading—sits down on the Desire To Trade podcast to break down what actually drives long-term success. Host Etienne Crete digs into Brent’s background from early bank-desk days to running mechanical portfolios across dozens of markets, and why his mantra “the best loser is the long-term winner” matters for every trader starting.
You’ll learn why trading is a numbers game first, psychology second; how to calculate and operate with a 0% risk of ruin; why simplicity and robust expectancy beat “holy grail” hunting; and how Brent executes like a business—small risk, repeatable rules, and zero screen-watching drama. If you want a clear, practical blueprint to stop blowing up and start compounding, this opening lays out the core ideas you’ll use throughout the full piece.
Brent Penfold Playbook & Strategy: How He Actually Trades
Core Operating Principles
Penfold treats trading like a numbers-driven business. The edge is built from risk control, repeatable rules, and the patience to let probabilities play out. Here’s how he frames the game before a single order is placed.
- Trade a method you can execute identically 100 times in a row.
- Risk a small, fixed fraction of equity per trade (e.g., 0.5%–1.0%).
- Prioritize survival: the “best loser” lives long enough for the math to work.
- Expectancy first, opinions last—no predictions, only process.
- Every rule must be written, testable, and binary (yes/no).
Markets & Instruments
He prefers liquid futures and major FX indices because they trend, diversify well, and accept mechanical execution. You can apply the same structure to CFDs or ETFs if futures aren’t your lane—just keep slippage and costs honest.
- Build a watchlist of 20–40 uncorrelated markets (equities, rates, FX, metals, energy, ags).
- Define a minimum liquidity/ATR threshold before a market is tradable.
- Cap exposure to any single sector group (e.g., max 20% of portfolio risk in energies).
- When two markets are highly correlated, take the first valid signal and skip the second.
Entry Triggers (Simple, Robust Breakouts)
Penfold favors clean, mechanical triggers that capture trending behavior. Breakouts are preferred because they’re objective, scalable, and require zero forecasting.
- Use a Donchian-style channel or highest/lowest close breakout (e.g., 50-day).
- Go long on a breakout above the channel high; go short on a breakdown below the channel low.
- Require a close outside the band to reduce intraday noise.
- Skip signals occur right before major roll events or contract switches.
- If today’s breakout range is abnormally small, let the next day confirm with a higher high/lower low.
Risk Sizing (Protect Equity, Eliminate Ruin)
Sizing is where most traders fail. Penfold keeps it mechanical, so no single trade can hurt the business.
- Risk per trade = %Risk × Account Equity (e.g., 0.75% risk).
- Position size = Risk $ / Stop Distance $.
- Round position size down to the nearest contract (or shares/units) to avoid overexposure.
- If account equity drops by 10%, cut %Risk in half until a new equity high is made.
- Hard rule: never increase %Risk after a drawdown; only after new highs.
Initial Stops (Volatility-Based, Not Feelings-Based)
Stops must live where normal noise won’t hit them. He uses volatility (e.g., ATR) so the stop adapts to market conditions.
- Compute 20-day ATR; initial stop = Entry − (N × ATR) for longs; Entry + (N × ATR) for shorts.
- Set N between 2.0 and 3,5, depending on instrument volatility tests.
- Place the stop with the broker immediately—no “mental” stops.
- If the entry bar is unusually wide, widen the stop by 0.5× ATR and reduce the size accordingly.
- If the stop would exceed your maximum dollar risk, skip the trade.
Exits & Trailing (Let Winners Breathe)
Penfold’s winners are given room. A trailing stop replaces prediction with structure—letting the market push you out when the move is over.
- Use a trailing stop based on the same ATR (e.g., 3× ATR from the highest close since entry).
- Alternative: a slower Donchian exit (e.g., 25-day low for longs / 25-day high for shorts).
- Never tighten a stop due to fear; only for rule-based volatility compression (e.g., 30% ATR drop).
- Partial exits are optional: take 1R at 2R only if tests show improved expectancy.
- Time stop: if price chops and neither stop nor profit exit is hit after 60 trading days, exit at market.
Portfolio Heat & Correlation Control
He caps the portfolio’s total risk so a cluster of trades can’t overwhelm equity. This avoids death-by-correlation during macro shocks.
- Maximum open risk (sum of per-trade $ risk) ≤ 5% of equity.
- Maximum sector heat (e.g., energies, grains, FX) ≤ 2% of equity.
- If adding a trade pushes heat above limits, pass—even if the setup is perfect.
- If two open positions become highly correlated (>0.8 rolling 30-day), trail the weaker one tighter.
- Pause new entries if the drawdown exceeds 12% until equity regains half the drop.
Daily & Weekly Routine
Consistency beats intensity. Penfold’s routine is boring on purpose—scan, size, place, update.
- Pre-market: roll contracts, update ATRs, refresh channel values, recalc sizes.
- Place stop orders for breakouts; place initial stops simultaneously.
- After close: update trailing stops, equity curve, and heat; log rule compliance.
- Weekly: review sector exposures and correlations; re-balance watchlist for liquidity.
- Monthly: audit slippage/fees versus assumptions; adjust filters if costs drift.
Drawdown Protocol
Everybody draws down. What matters is how you protect the franchise while keeping the edge alive.
- At −8% equity drawdown: reduce per-trade risk by 33%.
- At −12%: pause new entries for 5 trading days; manage open trades per rules only.
- At −15%: switch to “half-size mode” until a new 30-day equity high is printed.
- No system changes during a drawdown; review only after recovery or after 100 further trades.
- Keep trading frequency steady—don’t revenge-trade to “win it back.”
Records, KPIs, and Review
Penfold treats metrics as the dashboard for the business. What gets measured gets kept.
- Track per-market and portfolio: win rate, avg win/avg loss, expectancy (R), MAR, max DD, heat.
- Tag every trade with the specific rule set (“B/O-50D + ATR3 trail”).
- Flag any discretionary deviation; a single deviation requires written justification.
- Quarterly: drop bottom-5% markets by MAR, add candidates that meet liquidity/ATR tests.
- Semiannual: re-test ATR multiples and breakout lengths; keep changes minimal unless expectancy improves.
Scaling & Capital Growth
You don’t scale because you feel good; you scale because equity and risk thresholds say so.
- Increase contract size only at new equity highs and only by the formula (same %Risk).
- When portfolio heat routinely hits the cap, either widen the watchlist or reduce per-trade risk slightly.
- Split fills across contracts to reduce slippage on thinner markets.
- Withdrawals follow a rule (e.g., skim 10% of equity above the previous peak each quarter).
- New instruments are added only after 90 days of paper-tracked rules with verified costs.
Psychology Made Practical
For Penfold, mindset is just “follow the plan when it’s hardest.” The rules below keep emotions from hijacking execution.
- No news-trading or macro takes—entries and exits are rules-only.
- During open P/L swings, view performance in R, not dollars.
- If you override a stop or skip a valid signal, you’re flat for the next 3 signals as a penalty.
- “Best loser wins”: celebrate perfect rule-following on losses the same as on wins.
- End every week with a one-line journal: “Did I trade my plan 100%? If not, why—and what rule fixes it?”
Size positions so losses feel boring; protect capital before chasing gains
Brent Penfold hammers this constantly: if a loss can rattle you, the size is wrong. He sizes so a single stop-out barely moves the needle, often around half to one percent of equity. That turns every trade into a small business bet with a known cost, not a drama. When losses are emotionally dull, you can execute the next signal without hesitation.
Penfold also thinks in R, not dollars, so each trade risks the same “unit” regardless of market. This keeps performance smooth across instruments and prevents a hot streak from bloating risk. If equity dips, he cuts risk further until a new high—never the other way around. Small, repeatable risk is the glue that keeps the whole strategy compounding.
Use ATR-based stops and trails to adapt risk to volatility.
Brent Penfold insists your stop should live where normal noise can’t touch it, and ATR is his go-to yardstick. He’ll set the initial stop a multiple of the 20-day ATR from entry, so fast markets get wider room and quiet markets get tighter risk. That instantly normalizes position risk across instruments with different personalities. It also prevents the classic mistake of placing stops at the chart’s “obvious” levels that everyone else hunts.
For trailing, Penfold continues using ATR so exits flex with changing volatility instead of your feelings. If volatility contracts, the trail naturally tightens; if it expands, the stop breathes so winners aren’t clipped. He never moves a stop farther a, way—only forward with the trail. The result is a rule that protects downside, respects trend strength, and keeps you honest when emotions try to interfere.
Diversify by market, sector, and timeframe to cap portfolio heat.
Brent Penfold doesn’t let one idea or one sector dominate the equity curve. He spreads risk across uncorrelated markets—equities, rates, FX, metals, energies, and ags—so no single macro theme can sink the ship. He also diversifies by timeframe, blending slower trend captures with medium breakout signals to smooth return paths. The goal is simple: reduce correlation spikes so a bad week in one corner doesn’t become a portfolio crisis.
Penfold caps “portfolio heat” by limiting total open risk and per-sector exposure, then refusing duplicate signals in highly correlated markets. If Crude breaks out, he’ll skip Brent if it only adds correlation, not edge. He monitors rolling correlations and tightens or exits the weaker twin when relationships converge toward one. Diversification, for him, is not checkbox variety—it’s a rule-driven throttle that keeps risk controlled while letting winners run.
Trade mechanical breakouts, not opinions; let rules and expectancy lead
Brent Penfold treats entries like an assembly line: same trigger, same checklist, no forecasting. He prefers Donchian-style breakouts—buy the highest close of X days or sell the lowest close—because they’re binary and repeatable. Signals are taken on a close beyond the band, not intraday pokes, to avoid noise. There’s no anticipation; if the bar doesn’t close through, there’s no trade. He ignores news and narratives because they don’t improve expectancy or execution.
Penfold also standardizes the “plumbing” around the signal so it’s fully mechanical. He places stop orders for the next session, sets the ATR-based protective stop immediately, and sizes by a fixed risk percent. Correlated duplicates are filtered so the first valid market gets the slo,t, and the rest are skipped. If costs or slippage would crush the edge, the trade is passed without debate. Every fill is logged against the rule name to verify that performance comes from the process, not a lucky opinion.
Define drawdown protocols and scaling rules to enforce discipline under stress.
Brent Penfold treats drawdowns as a certainty, not a surprise, and plans the response. He sets hard thresholds where risk per trade is cut automatically—first trim at a modest equity dip, deeper cuts if the slide continues. New entries pause when pain crosses a line, while open trades are managed strictly by stops, not hope. This removes bargaining with the market and protects the “trading business” from emotional decisions.
When equity makes new highs, Penfold scales up only by formula—never because he “feels confident.” Position size increases are tied to the same fixed risk percentage, so the process scales, not the ego. If correlations spike or portfolio heat reaches limits, he holds size constant until conditions cool. By pre-writing these rules and following them without exception, Penfold turns stressful periods into routine operations—and keeps the edge intact for the next streak of winners.
In the end, Brent Penfold’s edge isn’t a secret indicator—it’s a business plan you can execute under pressure. He sizes small so losses are routine, not traumatic; enters with clean, mechanical breakouts; anchors all stops and trails to ATR so volatility sets the distance, not emotions; and diversifies across uncorrelated markets and timeframes to keep portfolio heat in check. When the environment bites back, he doesn’t negotiate—drawdown protocols cut risk and pause new risk until the equity curve earns the right to scale again.
What makes this powerful is how the pieces lock together: fixed risk makes outcomes comparable, ATR-based stops normalize noise, diversification prevents cluster risk, and strict routines remove the wiggle room where most traders self-sabotage. Penfold’s mantra—be the best loser—becomes practical when you measure in R, automate decisions with rules, and judge yourself on process compliance, not today’s P/L. If you adopt those habits, you don’t just install a strategy—you build a durable trading business that survives long enough to let expectancy do its compounding.
Related posts:
- Brent Penfold Trader Strategy: How a Risk-First Mindset Builds Durable Edges
- Brent Penfold Trader Strategy: Evidence-Based Rules, Risk Control, and The Mechanical Edge
- Andrew Menaker’s Trader Strategy: Mastering Mindset and Risk Management
- Rande Howell Trader Strategy: Mastering Mindset for Probabilistic Performance
- Brent Penfold’s Playbook & Strategy: How He Actually Trades
- Mastering Murrey Math Lines: A Powerful Guide to Precision Trading – MML
- Trader Strategy Spotlight: Dr. Andrew Aziz on Discipline, Losses, and Everest
- Pat Bailouni Trader Strategy: Mastering Process Over Outcome
- Ali Crooks’ Trader Strategy: Mastering Patience and Discipline for Big Wins
- Walter Peters Trader Strategy: Mastering Dynamic Risk with Price Action
- Steve Patterson’s Trader Strategy: Mastering Market Cycles for Consistent Profits
- Latoya Smith-Dean Trader Strategy: Mastering Gaps, Crude Oil, and Rule-Based Discipline
