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A Time Traveler and a Trade

  #20 (permalink)

North Carolina
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
Posts: 644 since Nov 2011

@lax99 If you read my previous answer, you will see the relevant factors involved. The answer to the question is not as important as the understanding.

This is a "false choice problem". How much action/information are you able to infer from 1 tick? And what certainty can you scratch a trade for only 1 tick of risk? That's what matters. And by scratch, I only call a scratch a true scratch if it never ticks more then that against you. I suspect a lot of traders are calling "scratch" trades where they take it off at break even but it already went underwater. That's not a scratch. It can be a useful technique but please do not call that a scratch because there is no guarantee it ever comes back! That's just closing a a trade off at break even. There might be times when you can scratch a trade for 1 tick or less risk but at what certainty? Is it 50% of the time? 30%? 15%? And what happens when you miss it? It is very relevant because if you don't know this then you can fall into trap of "illusion of risk free trade". Also what happens when you scratch at trade that eventually works? Let's just say, I think discretionary traders in today's markets unlikely to be able to scratch many trades effectively.

Your ability to improve results as action develops is based on the efficiency of the markets and ability to integrate Bayesian probability theory. If every trade is a unique event then you cannot improve your results from knowledge of prior trades. You can only do that if the trades have dependency.

I mean the way this question is posed is would you rather lose $12.50 on a trade or $100? If all things are equal, I will prefer the small loss because the standard deviation of returns will be lower. However, all things are not equal. And you cannot control the bet size in futures. This was one of the things I pointed out that because futures have a low granularity (poor divisibility) then it makes risk control dependent on the account size.

lax99 View Post
It's like you're writing a dissertation on trading, probability, position sizing, and expectancy. I really can't make sense of this.

Each trade is unique and each moment is unique. You won't know whether a trade "has a higher probability of being a loser" until you put it on and see the action develop afterwards. Expectancy also evolves with the more trades that a trader takes. He/she sees more action, gets better at reading the action, and ideally gets better at making profitable calls.

Would you take 1 loser for -8 or 8 losers for -1?

Last edited by tpredictor; May 20th, 2018 at 12:09 PM.
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