That's an excellent question actually. For myself, my daily stop loss (maximum daily ruin) exists because some days I am just not reading the market as well as others, or I'm overly reactive to losses or wins, or the market is behaving in such a way as to not reward my method of trading. All these (with the possible exception of the third) lie outside the statistical reasoning I used in my post. In instances like the markets we've had the last two weeks, I would plan to be very conscious of why I am losing as I approached my daily stop loss and adjust that daily stop loss upward if I could be confident that my losses were not due to any of these factors. This is a slippery slope though and touches on why discretionary trading will always have an element of "art" to it.
Seek freedom and become captive of your desires. Seek discipline and find your liberty. - Frank Herbert
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Bulls should still be in charge - would look for support 1171.00-1173.00, with an upside target of 1232.00 (50% retracement). Nevertheless, we should not ignore the fact the market pulled back to exactly the 38.20% retracement level and failed. My feeling is that this is still a dead cat bounce, but markets often under-shoot or over-shoot their objectives, so a failure from any level is possible.
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What turned out to be a relatively ugly range day saw the ES test the 1202.00 level and fail for the second day in a row As I mentioned earlier this level represents a 38.20% retracement of the July/August down move and is quickly becoming a line drawn in the sand. Liquidity appears to have returned back to normal (except when it was pulled during the Merkel/Sarkozy meeting) and volatility has subsided for now. With options expiration upon us, ant it’s attendant seasonality for reversing short term trends, we must be cognizant of the 2bar double top at 1202.00 and the possibility the market could sell off from this level.
Last edited by tigertrader; August 16th, 2011 at 09:14 PM.
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I agree. There definitely seems to be some resistance that match many trading approaches criteria for a potential reversal such as fib levels and double tops, etc. Hopefully tomorrow will be a bit more exciting even though the volatility did pick up a bit today.
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Im still considering to go short on a higher bounce, but 2 things i don't like. capitulary volume and very bearish setiment. Will wait and see how this turns out. Might go long if im wrong, but so far, short bias. No positions yet.
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The hard thing is to quantify your % win and also whether or not the favorable conditions will continue. Miscalculations will lead to a greatly increased "risk of ruin". But position sizing definitively has a place in trading...
I recommend reading the work of Edward Thorp and Dr. William Ziemba, a lot of the gambling theories translates well to trading.
Ok, interesting. The finance business is such a small "community" in this country, so you made me quite curious about where they work. I know a few traders, but I'm always interested in expanding my network...
Regulations are quite tight, yes. We did have our own bank crisis in the early 90s, and that tightened up regulations even more..
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Yes, there was capitulation selling, it was a swing bottom. However, sentiment is actually slightly bullish - ISE Sentiment Index was at 103 yesterday and is trending bullish longer term although "dumb money" does appear to be VERY short. If the ES does take out 1202.00, it will probably trade up to 1232.00/50% level, and who knows maybe they will even run it up and take out the July or even the May highs -anything is possible. But for now, the bears aren't allowing the market to get back over the 1202.00/38.20% level.
Last edited by tigertrader; August 17th, 2011 at 09:57 AM.