Markets aren't fractal at all. Sorry they just arent.
To help anyone understand why this is, you may want to research why commodity markets are more volatile to the upside, where as equities are more volatile to the down side.
It may be worth taking the idea further and understanding the whole concept of chart patterns is badly, badly broken: Everything seems to make sense in hindsight - especially a price chart. Many find it hard to suppress the power of intuition that what makes sense in hindsight today was predictable yesterday. The illusion we understand the past means we overconfidence in our ability to predict the future. Taleb wrote about this in depth.
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I think you missed the point of that particular comment and are going off on a tangent.
Feel free to post 3 different charts of the same instrument. One intraday minute chart. One daily chart. One weekly chart. Remove the time and price scales. See how many people can tell you which is which.
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Consider the possibility (just a possibility, not a fact) that you are cutting losses too quickly and that you may indeed not be using stops effectively. A loss is not a loss until you get flat. So if you take an ES trade that goes against you 4 ticks, can you really call this a "loss"?
Remember also, that when you "stop" a loss, you also "stop" any potential for profit. "Always use a stop, keep a tight stop, etc." is the mantra of most trading educators. I saw an article one time advocating the use of hard stops all the time, and the twitter crash and mini flash crash were used as examples. The problem is, during such an event, only those with stops or who are margined too heavily will get screwed (see this article for an example). If you are long 1 ES, and a mini crash happens and you are down 40 points, that's $2K. $2K is not fun to lose, but if it hurts too bad, it means that the size is too large. You either get out, or not, but a stop will guarantee that you will lose, probably near the low tick if you use a "catastrophic stop." ES notional value is $90 grand per contract. That's the equivalent of 500 shares of SPY. You would need a $90K account to buy that much SPY ($45K if using Reg T margin), yet people will control that much ($90K) with 1 ES contract in a $2K account. Quite unreal, and I'm not pointing fingers because I've done it too.
My point #1 is that $2K (or $10K even) is just too damn small to trade futures (and you mentioned CL - just say no, you will find yourself out of $200 in about 3 seconds flat). It sucks, but that's the game we're in. If you wouldn't feel comfortable buying an ES contract and going to bed, then you shouldn't be trading it--IMHO.
Point #2 is that there are other ways to trade than the binary right or wrong so touted by most traders. If it goes against you, can you take an opposite position in another product, giving you a chance to win? Or for a trade which might span longer than a day or two, you could buy an ATM put. Today, for example, you could have bought 1800 ES and paid about 8.00 ($387.50) for the 1800 weekly put which expires next Friday. You get an 8 point stop that lasts a week, for a product with a weekly range of 30-40. And if the market goes in your favor enough, you may be able to sell your put back and recover a small portion of what you paid for it. So let ES drop 200 points if it wants--you are covered, for an effective stop loss of 1792. You are paying a premium for time, and for volatility, but it's one option vs the "if it crosses this line I'm out" approach. Of course, this is not a silver bullet since indeed you are paying the time premium so games can be played with time just as they are with price, but it's one option you have (pun intended). (also note that the weeklys are European style so you cannot exercise early) You could also gamble (trading is gambling after all) and let your position get into profit, and then buy the put for a smaller premium, reducing your cost for protection. I'm not advocating this as a general approach to risk management but it is one way to do it.
Last edited by josh; November 22nd, 2013 at 06:47 PM.
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