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wshahan
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Posts posted by wshahan
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Quote:
Originally Posted by Obsidian »
mathematically 10pips:30pips and 30pips:90pip have the same ratio..how about in reality? big sharks can eat you before you reach your goal
isn't that where context comes into play.....
sometimes, the odds vary depending on where in the scheme of things your pattern is occurring.
Which is why a lot of this is only really able to be looked at from a historical perspective -ie; to say "when I use this pattern it gives me this sort of R:R", to then set this in stone does two things - it means you will not ever increase the R:R ratio in your favour, and if the past does not represent the future then its more likely than not to actually diminish with time (???)
Hence why have a fixed R:R as opposed to a guideline of what to expect?
I am not sure I understand the above comment in the context of my post on defing risk in a trade. The three to one risk reward objective is the minimum objective, Often a 3/1 trade turns into a 5 to 10 times return over risk. But, as long as your trades maintain at least a 3 to 1 risk reward ratio, you will stay in business and make money.
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This is a reprint of a post I made regarding risk reward parameters. The core issue is risk reward management. The number of contracts or trades is irrelevant in my view. There is not enough information given to comment on the set up, and 10 trades is too small a sample to have any meaning.
The question of stop management seems to be a recurring theme for Traders Lab participants. I believe there is a misconception of how to use stops, and I would like to offer some thoughts on the subject.
Particularly in trading the E-mini with a small account size, stop management is critical. Because of the “noise” and the frequent poor range development during the day session, it is often the case of many stop-outs versus few winning trades equaling overall losses.
1. The purpose of a stop is to define risk. The general practice is to set a stop with a certain dollar amount or a percentage of the account or of the asset value of the account. Risk must be assessed in terms of market structure to be meaningful.
2. Once risk is established, it must be evaluated in terms of potential for the trade. I would suggest using a minimum 3 to 1 risk reward ratio as this would mean you overall would show an acceptable profit if you were successful in one out of three trades. If you are not profitable in one out of three trades, then you probably need to look at your methodology or trading style.
3. If risk, as defined above, exceeds acceptable account parameters, then the trade must not be taken. Be patient, another opportunity will occur. But as long as you stick to trades with a potential of at least (and hopefully higher)three to one return, with risk safe parameters for your size account, you will stay in business and make good money. Keep in mind that the majority of successful traders that I know have around 50% or fewer winners over the long term, but their winners are much bigger than their losers. And losers are part of doing business.
Hope this is helpful,
Spookywill
Perhaps the biggest advantage of this approach is to encourage the development of more effective entry criteria and discourage “chasing” trades which are no longer attractive from a risk/reward prospective. This alone can turn unprofitable trading into making money.
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The question of stop management seems to be a recurring theme for Traders Lab participants. I believe there is a misconception of how to use stops, and I would like to offer some thoughts on the subject.
Particularly in trading the E-mini with a small account size, stop management is critical. Because of the “noise” and the frequent poor range development during the day session, it is often the case of many stop-outs versus few winning trades equaling overall losses.
1. The purpose of a stop is to define risk. The general practice is to set a stop with a certain dollar amount or a percentage of the account or of the asset value of the account. Risk must be assessed in terms of market structure to be meaningful.
2. Once risk is established, it must be evaluated in terms of potential for the trade. I would suggest using a minimum 3 to 1 risk reward ratio as this would mean you overall would an show an acceptable profit if you were successful in one out of three trades. If you are not profitable in one out of three trades, then you probably need to look at your methodology or trading style.
3. If risk, as defined above, exceeds acceptable account parameters, then the trade must not be taken. Be patient, another opportunity will occur. But as long as you stick to trades with a potential of at least (and hopefully higher) three to one return, with risk safe parameters for your size account, you will stay in business and make good money. Keep in mind that the majority of successful traders that I know have around 50% or fewer winners over the long term, but their winners are much bigger than their losers. And losers are part of doing business.
Hope this is helpful,
Spookywill
Perhaps the biggest advantage of this approach is to encourage the development of more effective entry criteria and discourage “chasing” trades which are no longer attractive from a risk/reward prospective. This alone can turn unprofitable trading into making money.
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sold short at 1394.75, stop 1396.75
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order in to sell at 1393.75
3;13..27, order executed 1393.75, +2.25 points
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reverse and go long at 1391.50
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this is a slow day, no movement, move stops to 1392, try and catch low of current pull back to exit short.
We likely will close at or near the high volume point of 1392.50.
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this is a day to avoid obviously, a new low in range development, and rotational trade within a two point range. my bias has been to the upside, we retested 1391 and it held so far, and we are retesting 1391 again.
If it breaks here, maybe we will get some down movement.
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there was a spike to 1392.75 and a reversal off that mini high. reverse and go short from 1392.
stop at1393.50, target 1388. if prices do hit 1388, I would be looking for lower prices from there.
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We have a two hour balance area in the es between 1393.50 and 1391. current price is 1392.50. True scalpers take profits here at 1392.75.
Raise stops to 1390.75,
Be prepared to go with a breakput from balance in either direction.
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My stop was too tight
Enter long at 1391.50, stop at 1388.50,
trade is to see if high volume area holds
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scrubb trade, go long at 1393.00
My bad, there was a longer term high volume area at 1391 which represented a good long entry.
Stop 1391, target 1397
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1393 is Friday's day session low, target 1389
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short at 1393, stop 1395
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stopped out at breakeven
Prices got to one tick of our tagrget and failed. In a trade like that, if you are adroit, take the profit. We were at risk for bad economic news which we got, and prices drifted down before the release, so why not take a small profit. I was getting ready o scrub the trade at 1396 when prices dropped.
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Scrubb trade at 1396
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raise stop to breakeven
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There is resistance at 1395.75 which we have just hit. If that price can be exceeded, higher prices are likely. Our target is 2 x risk or 97.25, raising stop to 1394.
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We have just tested the low of the daily composite profile high node at 1395. Go long at1394. 75, stop at 1393.50
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I am changing my target to two to one this week to look at scalping so limit in to sell at 1397.50.
Mis added, the stop was 1.75 higher than the entry, so the exit price for a two to one return should have been 1398.50 rather than 1397.70.
so we just got an execution at 1398.50 and a profit of 3.5 points.
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to strat the week, let us short the ES at 1402. Stop over the high of 1402.75 at 1403.50. This is a typical aucton market trade with a low probability of success, but a terrific risk/reward ratio if it is successful.
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actually, the play has to be: go long 1399, close shorts
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sold 1398.50, stop 1399.75
Friday lunch time fade. 1399 failure
low probability, high risk/reward, high boredom
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I am concerned with the way the market is acting. We continue to build volume around 1398 without prices being able to rise above the recent high of 1399.
therefore, I closed the position at 1398.25.
The Saboteur in the Mind
in Psychology
Posted
I am very much in agreement on the necessity or at least the desirability of left brain/right brain coordination as an ingredient in successful trading. there is a great deal of empirical evidence to support feasibility of training the two aspects of our "logical thinking" to work together. In my case, I found the mindless chatter to be independent of the logical aspects of my thought processes and directly related to insecurities and other characterlogical aspects of my person-hood. Understanding that these thoughts were not my basic person-hood opened the way to controlling their effect on my decision making process. Hence understanding the nature of "mind clutter" is crucial to having the clarity of thought process necessary for making good trading decisions. I think this is a great article and I am glad to see such quality of thought and writing in traders Lab.