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  #12 (permalink)

Elite Member
Futures Experience: Advanced
Platform: NinjaTrader 8
Favorite Futures: YM, ES, NQ, CL, ZB
trendwaves's Avatar
Posts: 743 since Dec 2012
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Several years ago I had a discussion, really more of a debate, with Ms. Jouflas, as she and I have a friend in common. This mutual friend had come to me for advice and help with their trading performance. As it turns out this individual was a customer / member of the trading room Ms. Jouflas was leading at that time.

So here was the problem as presented to me: The trading method being followed for trading the ES called for using a hard 5 point ( 20 ticks ) stop loss on each new open trade position. The profit target was 2 ES points ( 8 ticks ). The problem was, using this approach with 2 ES contracts was causing a significant and steady drawdown of funds out of the trading account. This experience was especially painful when a series of losing trades in a row occurred. The dilemma for this trader arose because they sincerely believed in the harmonic method being taught, followed the trading method precisely, and so could not understand why the account balance was steadily declining. There was a significant and growing disconnect between what the trader believed should happen and what was actually happening.

My instinctive reaction to that trading plan was less than enthusiastic. I then asked the trader to go back through their monthly P&L statements and tally up the number of winning trades, number of losing trades and total number of trades, as well as the net $ won and lost. Well it turns out the winning percentage for this individual was in the mid 40's, thus over 60% of the trades taken ended up hitting the stop loss. My response to this was to point out this is mathematically a losing approach. I then went on to demonstrate, using the expectancy formula why this was in fact the case. As it turns out if you do the math, risking 20 ticks to make 8 ticks, in the ES, with a $5 RT commission, a trader would need to achieve a minimum win% of 73% in order to simply reach the break even threshold.

The trader then took this information to Leslie, and she then contacted me, and the discussion turned debate ensued. It was not a pleasant exchange to say the least, with neither side giving an inch. She insisted, demanded, her method is consistently profitable because her win% is typically well above 80%. I had to respectfully yet firmly refuse to accept her claims. We left it there and went our separate ways.

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