Tip for Better Trading :

[MightyMouse 12]

"Low" or "high" relative to what? In your case, you're defining low and high in relation to where the market has been. But that doesn't matter--it only matters where the market is going. It's pretty simple (but not necessarily easy): don't fade a trend day because the price is "high" or vice versa. Buy high, sell higher, if that's where it's heading.

 

Buy High and Sell higher is also how you steal the lunch money from those who are trying to sell high and buy back lower. You'll get a full course meal and maybe even a car from some of the stubborn ones who can't accept that they are wrong.

[SunTrader 10]

Buy High and Sell higher ......

I'm with you and Josh.

 

The trend is the trend. No need to pick reversals for a new trend when you can get the majority of the current one. And then once there is confirmation a new trend has started jump aboard that one.

[Obsidian 10]

prices are just numbers, follow the trend..you will often see that yesterday's high is today's low (or yesterday's low is today's high)

[Roger Felton 10]

Hi Suntrader,

 

Thanks for the math class. I just realize i am not as good at math as you are.

Could you explain me and maybe all the other traders out here what happens if you risk 50 to make 20 and win 7 out of 10 times? even if you would take trades ONLY on High Probability entry.

 

I think the simple answer is, if you're consistently losing money on your trades, then they aren't high probability. Having traded both ways, trending and scalping for many years, I can see both sides of this discussion. There really is such a thing as a "high potential" trade. That does not mean that all the rest are necessarily low potential either.

 

An example would be a trade that, historically has shown a 90%+ chance of making 10 ticks in say the CL or GC. But, extensive back and forward testing has shown that it only has a 40% chance of making 30 ticks. The bigger the target, the lower the chance of success.

 

In many of today's markets, if you go for a high probability 10 tick target with a 3 or 4 tick stop, you just lost your edge. The high probability trade is only high probability if you get your stop out of the current market noise...and that can be an amount greater than 10 ticks. But what difference does it make if you are winning consistently and making your goal?

 

Now the trader who's rules confine them to a 3:1 R/R takes a trade with a 20 tick stop for a 60 tick target. Perhaps it's the ES where it hadn't had a 60 tick range in a week. Over and over again, they are stopped out while they wait for that big home run. In order to stay with a true 3:1 R/R, they know that they cannot move their stop in order to lock in some profit because that would increase their chance of their stop getting hit. They end up most often risking 20 ticks for what turned out to be a 15 tick gain, or 20 tick...and that's on the ones that actually made some profit. The 3:1 R/R goes out the window.

 

To make 60 with a risk of 20, you cannot move your stop or you skew the odds. Personally, I hate trading this way. You lose, lose, lose before you finally hit a payday. If I'm going to go for the big bucks, I have no profit target. I trail a stop until the market takes me out. My R/R is different for every trade. But a 3:1 R/R trader can only be that if they never touch their stop. It's a make it or break it proposition and, IMO, that's not a fun way to trade...nor, for me, is it profitable. That's not a criticizm, just personal experience.

 

No trading method should be shot down just because it doesn't fit a traders personal style. If it works for one other trader, it's a viable method or technique.

[SIUYA 11]

problem with all the R and R talk is that you cant set them randomly or with hope that its a 3:1 a 5:1 or a 500: 1......it should be based on the probabilities that have been shown to occur for that particular setup from a historical basis...otherwise its all just guesswork....and guess what - you probably have to keep changing it based on the current market as well.

 

IMHO as its too often misunderstood, glossed over or just thrown out there - all the constant talk about RR is probably the greatest load of bollocks ever dumped on the trading community.

[joshdance 10]

IMHO as its too often misunderstood, glossed over or just thrown out there - all the constant talk about RR is probably the greatest load of bollocks ever dumped on the trading community.

 

But you don't have an issue with defining risk for a trade though, right? Just with putting it with some arbitrary (3:1) profit target... yes?

 

I agree with you in general, if that's what you mean. However, I do think there's something to be said about what the usual pattern is for a trader. Is he always risking 10, and only taking 3? Seems like a problem with the methodology, if the risk needs to be so high, when the usual profit taking is so low. If the risk actually needs to be 10, then it would be better to invert his trades, and go for the 7-9 heat he's taking, instead of taking all that heat to begin with.

[SIUYA 11]

But you don't have an issue with defining risk for a trade though, right? Just with putting it with some arbitrary (3:1) profit target... yes?

 

I agree with you in general, if that's what you mean. However, I do think there's something to be said about what the usual pattern is for a trader. Is he always risking 10, and only taking 3? Seems like a problem with the methodology, if the risk needs to be so high, when the usual profit taking is so low. If the risk actually needs to be 10, then it would be better to invert his trades, and go for the 7-9 heat he's taking, instead of taking all that heat to begin with.

 

we are talking the same thing......

Too many people throw out RR and numbers from thin air.

It is only a useful measure if you already have an idea what the expected loss and potential related profit shows up as a historical measure that you might be able to use going forward. ie; you have tested it, or have done the same setup and trigger enough times in the past to know what to expect....and hence its worth repeating.

 

Thinking "I will risk 10 and will not take a profit until 30 ticks" without the historical idea and testing showing this is a good measure is insanity:crap:.....but I am pretty sure thats what many traders do.

 

Personally I think capping the return part does not make sense for me...but every on is different, and i prefer to look for momentum trades that ideally have very small risk. 1:3 --- na ....go for 1 to 20.

[Roger Felton 10]

But you don't have an issue with defining risk for a trade though, right? Just with putting it with some arbitrary (3:1) profit target... yes?

 

I agree with you in general, if that's what you mean. However, I do think there's something to be said about what the usual pattern is for a trader. Is he always risking 10, and only taking 3? Seems like a problem with the methodology, if the risk needs to be so high, when the usual profit taking is so low. If the risk actually needs to be 10, then it would be better to invert his trades, and go for the 7-9 heat he's taking, instead of taking all that heat to begin with.

 

I personally would have a problem setting a profit target of just 3 ticks. That's "coffee money" even for a scalper like me. Keeping accurate stats on a trade signal's probability of success is difficult because they are all inter-related to what the current market dynamics are. How a particular setup worked yesterday...or even an hour ago...can have little bearing on it's chance of success now. It was just too much info to juggle.

 

I had to build a separate code that looked at each trade in relation to what the current market factors were and then spit out an accurate evaluation of success probability expressed as a percentage. I usually ignore anything less than 85%.

 

I took the code a step further and had it analyze many chart types and timeframes and tell me which woudl be the best to use...then constantly monitor the markets to let me know if it's selections changed. That's been one of the smartest things I've done in several years. The human mind can only do so much. The power of well written code is often overlooked by traders who try to do it all themselves and end up guessing. It's work, but well worth the effort.

[JMB 10]

"Low" or "high" relative to what? In your case, you're defining low and high in relation to where the market has been. But that doesn't matter--it only matters where the market is going. It's pretty simple (but not necessarily easy): don't fade a trend day because the price is "high" or vice versa. Buy high, sell higher, if that's where it's heading.

 

I do have a bit of a contrarian view on the market i confess. I define High or Low based on a higher timeframe and its trend.

 

I do work with R/R ratios because thats a way for me to define a target, this does not mean that i take my trades of the table once that target is hit, i move my stop to break even when it gets to target 1 , then move my stop to target 1 when price gets to target 2 and so on, i'm more of an All in All out trader. Stops/amount risk and targets are always different as in amount pips. I would never have a set amount of pips or points for my stop.

 

Joshdance, in your comment you say that it matters where the market is going, thats correct, but i'll be the first to take the opposite trade (fade that trend) where the market should be.

 

I guess everybody has its way of going about it.

[JMB 10]

 

IMHO as its too often misunderstood, glossed over or just thrown out there - all the constant talk about RR is probably the greatest load of bollocks ever dumped on the trading community.

 

I personally think we all trade with a R/R ratio wether we conciously trade with it or not.

For example: If you take a trade entry (lets say short) and lets say that for that trade your stop above your entry turns out to be 15 pips, when do you decide to move your stop to break even? I mean , there is an amount of pips where you already know beforehand where if price hits that level you would move your stop, after that there is an even lower level where if price hits that level you would move your stop again. Off course at this point you're now in a win/win situation but the moment you enter a trade and have a stop loss on i certainly may hope you are looking to gain more then you initial stop loss.

 

Here i would like to ask you a question. If you are not trading with a R/R ratio, how do you define a High probability/low risk trade? Not attacking you here by the way

[SunTrader 10]

........., but i'll be the first to take the opposite trade (fade that trend) where the market should be..

 

Don't take this the wrong way if it works for you continue doing it but .... what the market does and what it should do are two completely different things. Human emotions get in the way mostly.

 

It is so common to see posts saying but it should be going higher. "They" manipulate the markets. The news, the fundamentals, the weather, the the the ... say X should happen.

[MightyMouse 12]

You have to have a good idea of the conditions you are trading to determine if you are going to use a small stop and large target, a small target and large stop, or a stop with no target.

 

There are market conditions where it makes more sense to, say, risk a max of 50 to make a max of 25. The condition that comes to mind is a directionally biased market with very high short term volatility. Trying to trade these conditions using, say, an 8 tick stop with a target of 25, you can easily get crushed a few times trying to enter and have the market go in your intended direction anyway.

 

As an example if I enter short CL at 83, using a 25 tick target and 50 tick stop, if the market immediately moves to 82.95, I will adjust my stop down from 83.50 to 83.45 if it then moves back above 83, I will move my target up penny for penny always having 25 ticks between the high after I entered and my target( for a short ) even if the market moves against me more than 25 ticks and I keep 50 ticks distance between the low that it went and my stop until my target is hit. It isn't a trade for the weak hearted and I monitor other elements of time price and volume while I am in the trade to determine if I stay or bail. It is a very high probability trade and it allows me to trade horrible market conditions that I normally would or should stay out of.

 

I will not trade without a stop so taking a trade with no stop or no target or no stop and a small target are just not something that I do or recommend that anyone do in a short term trade.

 

MM

[Roger Felton 10]

I personally think we all trade with a R/R ratio wether we conciously trade with it or not.

For example: If you take a trade entry (lets say short) and lets say that for that trade your stop above your entry turns out to be 15 pips, when do you decide to move your stop to break even? I mean , there is an amount of pips where you already know beforehand where if price hits that level you would move your stop, after that there is an even lower level where if price hits that level you would move your stop again. Off course at this point you're now in a win/win situation but the moment you enter a trade and have a stop loss on i certainly may hope you are looking to gain more then you initial stop loss.

 

Here i would like to ask you a question. If you are not trading with a R/R ratio, how do you define a High probability/low risk trade? Not attacking you here by the way

 

No, JMB...that's simply questioning, not attacking and I'm glad to address that. I assume you were asking me, by the way, but might have been directed at someone else.

 

I would suggest using a smoothed stochastic and moving your stop only when it turned against you with an opposing bar. In your short, use each previous price high and place your stop two ticks above that. As long as price keeps trending...making lower highs and lower lows, your stop can't get hit. Price has to make a higher high to snag you...and the trend is over at that point anyway. At any point you get a strong signal against you, exit. The key word is, "strong". Basically, that's any trade that you definitely would take if you were hunting for a signal to enter. Ignore opposing signals you would not take.

 

I spent several years developing unique entries and then spent triple that time defining why one signal type would be high potential and another one that appeared nearly identical would have a lesser chance before I pulled the trigger. Keep in mind that nothing is foolproof or absolute but you can still be objective and reasonably accurate.

 

For dozens of reasons, I do not trade the Forex. Too many dead spots. When I enter a trade, I want to be making money after all the bills are paid (commissions, exchange fees, etc.) from the very first tick. I want to be able to get the exact fill I want. I don't want to be competing with my broker. I don't want market manipulation or corruption. In short, I want a level playing field and I never got that trading the Forex.

 

When you get seriously involved in system development, you soon realize that the vast majority of technical analysis just doesn't work. And what does work needs more work to make it truly effective. The factors that determine the potential of a particular trade to reach it's potential profit level include (1) It's form. Weak form usually results in a weak result. Divergence is notorious for this. (2) Market condition. There are four market conditions that can exist at any given time. Two are strong contenders, one is weak and the final one is hopeless. (3) Historical market analysis. Looking at, say, the last 300 cyles of the market, analyze what happened on each cycle. How was the volatility? The level of noise (for stop placemant analysis). What happened in trends and what happened in sideways market? If trending, what was the slope angle and the channel width. How did the market react in gentle slops vs. steep ones? How about the various volume levels and their effect on price continuation? And what were your TA indicators telling you when a signal fired taking into account all of the variables above and more?

 

Get the idea? Today's market's are very complex and the days of making money with Fibonacci and crossover MA's are long gone. Few humans can keep up with it all. Good job for code, don't you think? That code, by the way, must be able to quickly self-adapt to the market's nasty habit of changing dynamics with little to no warning.

 

The idea is to let computer code do all the dog work...the measuring, figuring, data crunching and anticipating because that's what it does best. If coded well, it will spit out some amazingly accurate results. A good talented coder can probably do it in a couple of years...and worth every minute of the effort. But they first must be a trader. Coders who are not good traders to begin with will only create junk.

 

Humans on the other hand, if properly trained and experienced, can far outperform computers in trade managment. That's the area where computers get really stupid sometimes. Humans can easily spot trouble when computers remain clueless. All the code in the world can't cover all the contingencies. Not being able to think is an unsurmountable disadvantage.

 

Notice I said "trained" human. We're not talking about traders who white-knuckle the mouse and shake in their boots every time they enter a trade and allow their success to be sabotaged by negative human emotions. Most traders choose to be self-taught. Most professional traders I know had some form of mentor at some point in their career.

 

Recognizing strong high potential market entries takes time to master but it's a heck of a lot easier when you incorporate effective code. Of course, that's only half the battle. The next question is, "High potential to make what?" Now we're talking Trade Management ...and that's a whole 'nuther topic altogether.

[wrbtrader 10]

If you want any longevity as a trader...

 

1. Eat healthy (daily)

 

2. Exercise regularly (daily) for a minimum of 1 hour

 

3. Meditation regularly (daily)

 

4. Take small breaks away from the computer every trading day (e.g. stretching, meditation, reading a book not related to trading)...anything to move the body and not thinking about trading

 

5. Good night rest

 

Simply, if the mind/body/soul aren't healthy...it will eventually impact your trading results...more than your trade strategies.

[BearBullTrading 10]

Whilst addressed to SIUYA here's how I do it (or dont)...

 

I don't enter a trade using a R:R ratio...

 

.....when do you decide to move your stop to break even? ....

I don't . If I see no reason to get out, then I want to stay in..Being taken out at breakeven just so I don't lose, whilst my reason for initially taking & remaining in a trade is still valid doesn't work for me.

 

... how do you define a High probability/low risk trade?

I don't.... every trade has a risk and it will either win or lose...I do not label specific trades as having a "High/Low probability" or "high/low risk".

 

Cheers

[joshdance 10]

I do have a bit of a contrarian view on the market i confess. I define High or Low based on a higher timeframe and its trend.

 

Joshdance, in your comment you say that it matters where the market is going, thats correct, but i'll be the first to take the opposite trade (fade that trend) where the market should be.

 

You don't sound that contrarian... "buy low, sell high" is pretty much what everyone says. And it's correct. But "high" or "low" is relative.

 

What do you mean "where the market should be"? As determined by whom? The market IS where it should be, otherwise it wouldn't be there, it would be somewhere else. If the market is up, and you determine that it should be down, then it is you who should be long, instead of short. The market is always right.

[SIUYA 11]

I personally think we all trade with a R/R ratio wether we conciously trade with it or not.

For example: If you take a trade entry (lets say short) and lets say that for that trade your stop above your entry turns out to be 15 pips, when do you decide to move your stop to break even? I mean , there is an amount of pips where you already know beforehand where if price hits that level you would move your stop, after that there is an even lower level where if price hits that level you would move your stop again. Off course at this point you're now in a win/win situation but the moment you enter a trade and have a stop loss on i certainly may hope you are looking to gain more then you initial stop loss.

 

Here i would like to ask you a question. If you are not trading with a R/R ratio, how do you define a High probability/low risk trade? Not attacking you here by the way

 

You misunderstood me. A RR ratio is merely a historical measure of what you might expect. To me its often talked about as a pre-trade tool, whereby a trader just sets and forgets - and this is where I think for many new traders they just do this with out thinking about what it is they are doing.

 

I have often talked about marginal trades....and these are ones that basically risk little to make a lot. They are not trades whereby you buy as something that is in a downtrend and is approaching resistance as its retracing a little - purely because you think you are only risking 10 and resistance is 30 ticks away. --- that to me is a marginal and poor value trade. (much as other posters mention - every trade is different - thats why for me context is king )

Unless you have done statistical analysis to say that this is >60% chance of occurring then maybe its a different thing......but a better trade for me (in this instance) is to wait, sell at the resistance and try and capture a lot more. History will likely show then your RR will AVERAGE better than 1:3

I think we are talking similar things here - my bug bear is that RR is seen as the holy grail as something that is set in stone and must be adhered to. A lot of new traders dont get explained to them the importance of using this as an idea of expectation only. (much the same as you describe), that it only comes from testing or trading experience (ie; do you move your stops efficiently, do you enter too early, exit too late, f..k up the trade management) in comparison to what the "ideal" might have been

Whenever you invest in a fund you are constantly told "past performance is no guarantee of future performance" - its exactly the same here.

 

To many people think that every trade is the same so long as you have the RR set up.....to me this is like driving a car a fog.

 

Which leads to this thread getting off topic from "tips to better trading", better start another RR one (to add to the many already about) thanks wrb for re- tracking it

 

So with that in mind - for better trading a tip, understand the tools people promote, why they are used, how best they use them, and understand their correct use.....as they apply to you

If you only rattle off a pre-defined answer as to what something is - then you have problems

[samuel23 10]

Wow guys, i can see that you are very interested in your Forex Trading. Anyway that really good as i can see that you share really good information and nice comments about forex. Based on your comments i can see that you gave great tips and this will be really helpful to all of us. however, let stay cool and progress wonderfully in our trades guys. Thanks a lot :haha:

[Roger Felton 10]

Thought I'd add this tip to this thread since I found it so rewarding over the years...

 

Personally, I believe that how you visualize the markets you trade is every bit as important as your method of trading them. Most traders are aware of the various common bar types such as the time-based, tick, volume, range, etc. For some time now I have been using bar types that give me a much clearer look at what Price is doing and where it headed.

 

As an example, let's look at Gold (GC) in NinjaTrader:

 

Chart A is a typical looking 5 minute (time-based) chart. The time spans late afternoon on 6/12/12 to the early morning of 6/13/12. As hard as you try, it's unlikely to get a good idea of what Price wants to do if you're a short-term intraday trader. If you're a trend follower, this market will give the ole buns a workout. It zigs and zags in herky jerky fashion and doesn't seem to want to hold a direction worth a hoot. No wonder so many traders get murdered trading time-based charts.

 

Some improvement might be seen by moving to a Tick or Range chart. A lineBreak chart would not be a bad choice if set up and used correctly. Certainly, nothing could possibly be worse than this.

 

But you're not likely to find a bar type that shows clearer Price movement than the Renkos, IMHO. There are a lot to choose from, however. To solve this, I built one I call the Renko Supreme that can instantly be made into any other type of Renko just by changing a few inputs. Any coder can do the same quite easily.

 

Chart B shows the advantages of this chart type. This is a 22,1 Renko showing approximately the same period of time. Each bar body is 22 ticks and the step increments are one tick each bar. That is, each Renko bar closes one tick higher than the previous bar until it just can't go any further and reverses. This results in an incredibly smooth look at what price is actually doing without getting distracted by market noise. Traders wanting to use very small stops will choose a smaller number. Larger stair-steps can also be chosen but the bigger the steps, the jerkier Price will become.

 

The Renkos sure made my job as a scalper a lot easier. Because I am a vendor, I'm not allowed in TL to teach how to best use them. There are some things you need to be aware of. But this post is only intended to get some traders to take a look at a wonderful bar type, overall, that I find has tremendous merit. Various types of Renko Bars can be found on the Internet. Give 'em a try.

[SunTrader 10]

Most traders I know just ignore the overnight chop.

[Roger Felton 10]

Most traders I know just ignore the overnight chop.

 

You might be missing the point. If the rotten trading time looks this good, think how great the good times are.

[gosu 10]

Thought I'd add this tip to this thread since I found it so rewarding over the years...

 

Personally, I believe that how you visualize the markets you trade is every bit as important as your method of trading them. Most traders are aware of the various common bar types such as the time-based, tick, volume, range, etc. For some time now I have been using bar types that give me a much clearer look at what Price is doing and where it headed.

 

As an example, let's look at Gold (GC) in NinjaTrader:

 

Chart A is a typical looking 5 minute (time-based) chart. The time spans late afternoon on 6/12/12 to the early morning of 6/13/12. As hard as you try, it's unlikely to get a good idea of what Price wants to do if you're a short-term intraday trader. If you're a trend follower, this market will give the ole buns a workout. It zigs and zags in herky jerky fashion and doesn't seem to want to hold a direction worth a hoot. No wonder so many traders get murdered trading time-based charts.

 

Some improvement might be seen by moving to a Tick or Range chart. A lineBreak chart would not be a bad choice if set up and used correctly. Certainly, nothing could possibly be worse than this.

 

But you're not likely to find a bar type that shows clearer Price movement than the Renkos, IMHO. There are a lot to choose from, however. To solve this, I built one I call the Renko Supreme that can instantly be made into any other type of Renko just by changing a few inputs. Any coder can do the same quite easily.

 

Chart B shows the advantages of this chart type. This is a 22,1 Renko showing approximately the same period of time. Each bar body is 22 ticks and the step increments are one tick each bar. That is, each Renko bar closes one tick higher than the previous bar until it just can't go any further and reverses. This results in an incredibly smooth look at what price is actually doing without getting distracted by market noise. Traders wanting to use very small stops will choose a smaller number. Larger stair-steps can also be chosen but the bigger the steps, the jerkier Price will become.

 

The Renkos sure made my job as a scalper a lot easier. Because I am a vendor, I'm not allowed in TL to teach how to best use them. There are some things you need to be aware of. But this post is only intended to get some traders to take a look at a wonderful bar type, overall, that I find has tremendous merit. Various types of Renko Bars can be found on the Internet. Give 'em a try.

 

You must be proud of this post of yours; you have it in two threads. Maybe your intended audience missed it the first time you put it out there. It happens.

 

I think it would get the most reception in the Trading Room 101 thread. Why don't you post another copy of it there? The thread starter there says he has a special place in his heart for multiple broadcasts of trading articles.

[khamore1 10]

Copy and print this photo place it on top of your computer screen… all you have to do from now on follow this kid footsteps , follow the sharks (follow the trend) and you set for life…

[SunTrader 10]

You might be missing the point. If the rotten trading time looks this good, think how great the good times are.

I look for cycles. Can't do that, accurately, without a time axis.

 

I prefer to keep it real.

[joshdance 10]

The Renkos sure made my job as a scalper a lot easier.

 

I respect the choice of those who choose to use Renko. I have tried many times, but they are absolutely the worst bar type for me personally. I use time-based bars for certain things, and my main daily structure is plotted with hilo volume bars. Renko conceals the very things I like to see... it smooths out, but at a huge cost, a cost too high for me. All the range-based bar types such as kase, renko, range, and others like kagi and PnF, all attempt to "hide noise," but they wind up hiding a lot more than that. In hindsight on a static chart they look magical, but in real time it's a different story.