The underlying purpose of trading is to make money. To do this we have to take a risk every time. If we have studied enough, then we would have some statistical history that says we have a reliable performance rate to x amount of ticks before price moves against us and we face a possible loss. The ratio between risk and reward is very real, and no worse than 1 unit of loss and 2 units of win with a 60% win rate to x target won't make us much money, but we won't lose much either. It is wheel spinning. So, to answer your question directly, no. It is not ok if your win rate is too low, or your loss per trade is too high, or your risk reward is out of whack. If your win rate to full target or at least 1:1 of your trade is not high enough, then letting winners run can cause a lot of draw down. So, the bottom line is no worse than 1 unit of win to 2 units of loss, and at least 1:1 on running winners. These are minimums to preserve capital so you can take the next trade and try again.
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Could you talk a bit more about your opinion of automated strategies- surely, if I'm entering/exiting a trade for a number of reasons, modelling those conditions into a strategy should result in a program that trades pretty close to the way I trade. Factor in the appropriate stops, and tweak it as you go for outliers and I'd imagine it would keep your trading very disciplined.
But theres surely more to it- what's missing?
The market is a very dynamic and fluid place. Inventory is a very controlled mechanism to create win and loss scenarios. Win for the inventory controllers, loss for everyone else.
No programmed strategy can account for real time action or inventory manipulation. Most programmed systems publically available are 50/50 at best. Most private systems are very profitable, but being private I cannot say for sure. Maybe this is a lie?
If you did manage to program a good winning system... keep it to yourself. You can rent it out - as in world cup or other managed systems for rent - but do not divulge anything about it.
I have a few bot systems. No one else has them, or ever will. Period.
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Thank you for your insight Jaguar. I have done a considerable amount of reading on trading, psychology, etc.... and your wisdom here is very concise and thoughtful. It simplifies what a lot of other folks have tried to make very complicated. Cheers....
The presence of support or resistance is represented by the shift in the flow of orders being filled on the bid or the ask. When there is more inventory on the ask or the bid then price will move in the dominant direction. Support and resistance is that shift, but it can only be a matter of a few price ticks; so by itself it is not enough. The way price approaches these previously established levels is also important. So, once there is intention to maintain a level, it becomes significant because only larger traders can do this or more traders with a similar intention. We look for the larger traders or dominant traders, so we can follow their intention. Their knowing this about us retail traders is also their opportunity to disguise their intention, or miss-represent their intention to cause you to commit yourself.
You can call S&R significant lines if that makes more sense to you. The fact that price bounces off an algorithmic formula line is mostly coincidental, and more mass wish fulfillment (or mass agreement) than magic. Thus fib Fridays, pivot Wednesdays, etc etc.
Since we can never really know anything for sure, or the most precise opportune price tick for entry, we will almost always have heat in our trading. So, we have to also consider the risk/reward ratio to determine that, if even on a coin toss, we can sustain a reasonable loss, or have a reasonable reward expectation. If all your trading were 50/50 then a RR of 2:1 will make us money. But the reality is that we never know which trades will win or how many trades it will take to fulfill that statistic. So we can suffer long periods of draw down with consecutive losses.
At 40% winners to a 4:1 risk reward ratio, you will make money. Since the market rarely moves in one direction long enough, we can only trade what it does most of the time if draw down is not acceptable. For more than 75% of the time, the market moves in expanding and contracting price ranges.
If the instrument you are trading has a typical trading range of x price ticks before reversing to trace back and expand the range in the opposite direction, then we can trade this x range. If we can catch the edge of the range just as it begins the retrace, then we can trade that range. However, if that range is too small or too unreliable, then we can not trade it. Every instrument has its own characteristic movement patterns and ranges. Knowing this will also help determine the proper RR for trading it.
The more adverse the RR, the higher the win percentage has to be if you cannot weather draw down. You do not have to trade according to someones' method. In the beginning, you can use other peoples methods to give you a starting point to discover your own way to trade according to your sensibilities, risk levels, and skill levels.
The stats tell you about your pattern of trading, your skill level, and what you need to do more of and less of in order to become, and then remain, profitable.
A traders ability to see the chart clearly without too many additional layers of patterns over price will help you see more of the intention demonstrated by the price action as it approaches a previously established level, or is in the process of creating a new level of either support or resistance from which it will eventually move. Taking the time to just observe your instrument of choice will eventually yield a better understanding of how to trade it. Once you discover a method to define the significant events that repeat itself for your instrument, then you can put together a plan to trade it. By limiting the number of patterns of price movement that we need to identify to a manageable few, we can devise a trading risk reward level appropriate to trade it.
The right or wrong of your thinking does not really matter. What matters is the results from the actions you take as a result of your thinking. If you have exhausted all other avenues and still are unable to maintain a profitable outcome from your trading, then you will need to get help. This forum has a great supply of suggestions and ideas. Just take your time.
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Great thread a lot of good information shared form invaluable experience. I think that sometimes its necessary to go through those times to really learn. A senior trader I met once told me - if you want to learn how to trade first you need to be in a position. In that sense I don't really agree 100% that trading sim is good in the mid/long term, but I do agree its a necessary to learning.
I have saved all of your posts in this thread. I love the way you look at the markets and I guess very few of us can do this. Thank you for your posts and your thoughts! Keep up the good job!