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Concerning risk per trade sizing
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Concerning risk per trade sizing

  #61 (permalink)
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Knowledge, attitude, skill, and patience, mitigates risk, not tight stops.

Mike and wldman seem to be the only ones who really get it. Risk is in the eye of the beholder, or in this case, the eye of the trader. Two traders equally experienced, equally informed, even equally intelligent will make different judgments again and again, when it come to risk management, and repeatedly one will be more profitable than the other. These traders may be almost identical, yet inevitably there is something unquantifiable that plays an enormous role, and makes one trader more or less certain about the market.

A trader's knowledge of the past gives the trader a proxy for an expected distribution.The trader can then amend that distribution when it diverges from the past, based on his current or forward looking view of the market. That very distribution can now be used to determine how aggressive the trader might want to be within a given risk parameter.If the trader doesn't exceed that draw-down constraint, and his distribution is a reasonable assessment of the future, the profits will grow geometrically.

Therefore, we can be either well prepared or poorly prepared in dealing with uncertainty, decision making, and trading. In the end, it's up to the trader to determine if he is going to be a small loser, who makes a little money, or someone who makes a lot of money, and occasionally loses.


Last edited by tigertrader; February 21st, 2012 at 11:14 PM.
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  #62 (permalink)
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Right path...wrong mountain.

Guys if your method is robust it will work equally well over different time frames and across different products. Mike is exactly right...not kind of right.. in his statement here. Yes I understand the math but that is not the important distinction. Like he says reduce the "factor" then by going with a financially more scale able product. All this attention to losers and the how big they might be on a 240 minute or daily chart leads to the question not of risk, but rather is the method robust and worthy in the first place?

Wldman has been at this a long time. Over the years if you added up my losers it would make your head spin. I was an expert on that way way before becoming a consistent profit taker. I bet all the guys with deep experience will say the same thing...you are an expert at losing before you become an expert a winning. Fortunately for me I was able to do most of that while trading other peoples money.

I am certain that entering a trade with an amount of maximum acceptable loss already in your mind is JACKING with your psychology and limiting your outcome from the get go. Focusing on an affinity for the highest probability set ups and exiting when the reasons for entry have deteriorated are two separate skills. Simply using some preset calculation to end the misery is not a skill that can be developed.

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  #63 (permalink)
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wldman View Post
Guys if your method is robust it will work equally well over different time frames and across different products. Mike is exactly right...not kind of right.. in his statement here. Yes I understand the math but that is not the important distinction. Like he says reduce the "factor" then by going with a financially more scale able product. All this attention to losers and the how big they might be on a 240 minute or daily chart leads to the question not of risk, but rather is the method robust and worthy in the first place?

Wldman has been at this a long time. Over the years if you added up my losers it would make your head spin. I was an expert on that way way before becoming a consistent profit taker. I bet all the guys with deep experience will say the same thing...you are an expert at losing before you become an expert a winning. Fortunately for me I was able to do most of that while trading other peoples money.

I am certain that entering a trade with an amount of maximum acceptable loss already in your mind is JACKING with your psychology and limiting your outcome from the get go. Focusing on an affinity for the highest probability set ups and exiting when the reasons for entry have deteriorated are two separate skills. Simply using some preset calculation to end the misery is not a skill that can be developed.


Sorry buddy; I neglected to include you in the sphere of risk cognoscentis. I edited my last post and you are rightfully noted.

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  #64 (permalink)
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wldman View Post
Guys if your method is robust it will work equally well over different time frames and across different products. Mike is exactly right...not kind of right.. in his statement here. Yes I understand the math but that is not the important distinction. Like he says reduce the "factor" then by going with a financially more scale able product. All this attention to losers and the how big they might be on a 240 minute or daily chart leads to the question not of risk, but rather is the method robust and worthy in the first place?

Wldman has been at this a long time. Over the years if you added up my losers it would make your head spin. I was an expert on that way way before becoming a consistent profit taker. I bet all the guys with deep experience will say the same thing...you are an expert at losing before you become an expert a winning. Fortunately for me I was able to do most of that while trading other peoples money.

I am certain that entering a trade with an amount of maximum acceptable loss already in your mind is JACKING with your psychology and limiting your outcome from the get go. Focusing on an affinity for the highest probability set ups and exiting when the reasons for entry have deteriorated are two separate skills. Simply using some preset calculation to end the misery is not a skill that can be developed.

Agreed on both counts. One, You cannot base your stop upon the amount of money you can afford to loose. Two, a sound methodology can work on any time frame. Look at the 'EuroUsd 6E' thread, In that thread, I have basically laid out my trading method, and showed entire days worth of trades on the EURUSD on daily, 60m, 610 tick time frames, on every time frame, same methodology, same entry, same stop placement, enter at the close of a bar, stop behind the entry bar, no mysticism, no zen. I trade the CL on 4 RenkoHybrid chart, and the SPY and GLD etf's on daily and weekly charts, all with the exact same methodology.

We must also make the distinction between the terms 'risk', and 'stop placement'. They are not the same thing. A trader may arbitrarily choose how much money they are willing to lose on a trade (risk), but should not choose his stop placement based on that dollar amount to be risked. What he should do first is determine his stop placement according to market structure. Then, size the trade appropriately based on the size of that stop loss in order to stay within the acceptable dollar amount he is willing to risk.


Last edited by monpere; February 22nd, 2012 at 12:07 AM.
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  #65 (permalink)
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monpere View Post
I understand you're a busy guy Mike, but read the entire post, we are partially saying the same thing. Read my paragraph on R-Multiples.

I've read it a few times

We have very different approaches I think. You like to scalp, where I advocate against it.

To each his own, there is no wrong or right way. My experience tells me scalping is much, much more difficult (nearly impossible), where your experience seems to be the opposite (I presume).

Mike

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  #66 (permalink)
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trendisyourfriend View Post
I hope perryg won't read that


monpere View Post
Don't you make me start posting my 4 Range charts up in here !!!

hehe, and again if perry uses this kind of method, more power to him. To be honest, I am not very familiar with his method.

We are all simply speaking from experience. And my experience is that I continually see traders try to minimize pain by trading smaller charts and smaller stops, and the trade such tiny charts that it is noise.

So my advice is to stop that. And I've not done a good job in trying to make it clear (apparently) that when I say trade a bigger chart but a different instrument, I don't mean trade ES instead of oil, or Russell instead of Euro. I mean you need to look at the micro equivalent of your instrument in terms of $$ monetary risk on the table.

That may be micro CME FX futures, it may be micro spot forex, or it may be 100 share lots of ETF's. But you can find a way to keep your risk at 1% while trading a nice big chart where you won't get chopped to death by random noise in the market.

For those trading small charts, I believe we can agree you don't think there is new significant support and resistance every few seconds or couple of minutes in the market (how fast a 4 range chart moves). So if we step back and look at bigger picture we can probably often agree on the key support/resistance areas of the market.

Let's say one area is 1.3200. So I wait for price to come to 1.3200, and if I am bullish I long, and bearish I short. If the next key s/r above 3200 is 3350, and I am short, then my stop is perhaps above 3350. And the next key s/r below 3200 is 3000, so that is my target.

As price goes on about its business, it may become clear through price action that bearish is the wrong call. A series of HH and HL, for example. Or a double bottom. Or any other number of things. I can always exit when I see these things, well ahead of or in front of my 3350+ stop.

Now, you can trade a 4 range chart and trade the same S/R levels, but they will be multiple "pages" (scrolling) left on your chart, because your time frame is so tiny. And since most traders have a tendency to over trade, and are impatient, I am simply recommending to eliminate those potential problem makers by trading a bigger chart so you aren't watching the every move of the market.

Once you get good at identifying these bigger S/R levels then you can define your own method for trading them, and find what you average stop (risk) size needs to be in ticks. It will be the same number of ticks whether you are trading 1 contract or 1,000, whether you are trading full sized EURUSD 6E on CME or trading 1/100th micro size spot forex. The ticks (pips) don't change. What changes is the $$ value associated per tick/pip.

Mike

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Last edited by Big Mike; February 22nd, 2012 at 12:38 AM.
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monpere View Post
Agreed on both counts. One, You cannot base your stop upon the amount of money you can afford to loose. Two, a sound methodology can work on any time frame. Look at the 'EuroUsd 6E' thread, In that thread, I have basically laid out my trading method, and showed entire days worth of trades on the EURUSD on daily, 60m, 610 tick time frames, on every time frame, same methodology, same entry, same stop placement, enter at the close of a bar, stop behind the entry bar, no mysticism, no zen. I trade the CL on 4 RenkoHybrid chart, and the SPY and GLD etf's on daily and weekly charts, all with the exact same methodology.

We must also make the distinction between the terms 'risk', and 'stop placement'. They are not the same thing. A trader may arbitrarily choose how much money they are willing to lose on a trade (risk), but should not choose his stop placement based on that dollar amount to be risked. What he should do first is determine his stop placement according to market structure. Then, size the trade appropriately based on the size of that stop loss in order to stay within the acceptable dollar amount he is willing to risk.

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We agree!!!!

hehe



Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
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2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
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  #68 (permalink)
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I believe we need some different opinions, just to keep it interesting.

there're methods that just won't work on bigger time frames. I'm a bid/ask study fanatic. and for my approach I won't consider anything bigger than 4 range on es and 5 range on tf. it's truly amazing how many times you can catch swing highs and swing lows. I normally leave the target open, but the stops don't need to be bigger than a couple of bars.

I do like to go for bigger swings too, and here I'm using hourly and daily charts to find a reasonable target. this approach includes a lot of fundamental stuff. timing is a bit more difficult, so I usually allow a bigger stop.

and please don't forget, not everyone is a swinger

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  #69 (permalink)
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Does not mean that ...


Big Mike View Post
I've read it a few times

We have very different approaches I think. You like to scalp, where I advocate against it.

To each his own, there is no wrong or right way. My experience tells me scalping is much, much more difficult (nearly impossible), where your experience seems to be the opposite (I presume).

Mike

from time to time I don't gravitate toward the "scalp" but when I do it is because I'm bored and looking to force some action. The problem is that now from the retail side of the equation there is very limited edge in that game.

I do recognize that a robust method, well applied, might make consistent winning trades. My experience in that was usually that I'd have 3-6 nice days in a row then on a non trend or a blow off trend day I'd give back the prior run and then some. What I believe to have been at work was a psychological issue where I was not able to be wrong following the streak of wins...I'd get sporty because of course I was right and the market would come around to my position. In defense of my opinion I'd grow my position into a monster. This was a black/gray box system that finally blew up when I was camping with the family. (another story)

I think guys hold onto opinion motivated positions too long...I know I did. So I do not take opinion anymore only profits to objective...and yes that does limit running winners. I am getting better at that because of some of what I see here in futures.io (formerly BMT). BUT having a hellish day because you took profits too soon does not suck compared to printing a loss.

We are all here to share and learn. One of the hard adjustments for me here was to gauge tone in the typed word and sift the volumes to find the gold nuggets. Trade well guys.

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  #70 (permalink)
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Silvester..



Silvester17 View Post
I believe we need some different opinions, just to keep it interesting.

there're methods that just won't work on bigger time frames. I'm a bid/ask study fanatic. and for my approach I won't consider anything bigger than 4 range on es and 5 range on tf. it's truly amazing how many times you can catch swing highs and swing lows. I normally leave the target open, but the stops don't need to be bigger than a couple of bars.

I do like to go for bigger swings too, and here I'm using hourly and daily charts to find a reasonable target. this approach includes a lot of fundamental stuff. timing is a bit more difficult, so I usually allow a bigger stop.

and please don't forget, not everyone is a swinger

I have a modified balance of market power indie originally by Igor Livshin. Sometimes I was certain I was feinding edge for the st scalp. If there is a thread somewhere on that idea I'd like to read it.

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