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Concerning risk per trade sizing
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Concerning risk per trade sizing

  #71 (permalink)
Market Wizard
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wldman View Post
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.

I didn't start one yet. the ones I know that go in this direction are "tape is my shape" and of course some of the "gomi" threads.

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  #72 (permalink)
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Gomi...

has got some real weight behind him with his understanding and his programming skills. Don't want to get off topic too far...sorry.

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  #73 (permalink)
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Big Mike View Post
It's exactly as hard as you make it.

Or do you embrace risk? Traders are risk takers. Your goal is not to be risk averse. Your goal is to manage the risk, expect the risk, embrace the risk. Sometimes this means what you want to do is take the trades that many others would not take because it is outside of their comfort zone. It does not mean that trade risks 10% of your capital! It means that you need to know that "fat tails" and "black swan" events happen. News happens. You don't know what tomorrow will bring, so in essence it all boils down to "expect the unexpected".

If you can literally come to expect the unexpected, then you will not be caught off guard or severely damage your account when such an event happens. And it will.

Mike

Thanks for this piece of wisdom. As I pointed out in another thread my big issue is having the emotional drawdowns. I don't like to lose (who does?) and I feel heat just as much in simulated trades as in live trades. So beyond just the actual $ risk there is the mental risk.

Before entering a trade I've started the practice of telling myself, o.k. I've lost this $ (that is my stop amount) so that I've fully accepted the risk before entering the trade.

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  #74 (permalink)
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eudamonia View Post
Thanks for this piece of wisdom. As I pointed out in another thread my big issue is having the emotional drawdowns. I don't like to lose (who does?) and I feel heat just as much in simulated trades as in live trades. So beyond just the actual $ risk there is the mental risk.

Before entering a trade I've started the practice of telling myself, o.k. I've lost this $ (that is my stop amount) so that I've fully accepted the risk before entering the trade.

Interesting thought. I think I do the same thing mentally. It's strange, but looking at it that way, it would seem that I think about losing more then about winning, given that I am of the risk averse persuasion. I think it stems from my profession before trading. I was an engineer, where being wrong can literally be death. Trading is probably one of the few professions where it is acceptable, and you are actually expected to be wrong at least certain percentage of the time, sometimes even the majority of the time.


Last edited by monpere; February 22nd, 2012 at 02:49 PM.
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  #75 (permalink)
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eudamonia View Post
Thanks for this piece of wisdom. As I pointed out in another thread my big issue is having the emotional drawdowns. I don't like to lose (who does?) and I So beyond just the actual $ risk there is the mental risk.

Before entering a trade I've started the practice of telling myself, o.k. I've lost this $ (that is my stop amount) so that I've fully accepted the risk before entering the trade.


If you "feel heat just as much in simulated trades as in live trades" then it's not about the money, it's about being right or wrong. Once again, it’s the desire to maximize the number of winning trades, and minimize the number of losing trades.“If you’re trading for emotional satisfaction, you’re bound to lose, because what feels good is usually the wrong thing to do. Getting stopped out is not a bad thing. In fact, it is a good thing because it probably saved you from losing even more money. Successful traders think in terms a risk-adjusted returns. What you should be asking yourself is, how much do I want to gain and how much do I want to put at risk in each trade, and have I placed my stop in the best spot possible.

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  #76 (permalink)
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tigertrader View Post
If you "feel heat just as much in simulated trades as in live trades" then it's not about the money, it's about being right or wrong. Once again, itís the desire to maximize the number of winning trades, and minimize the number of losing trades.ďIf youíre trading for emotional satisfaction, youíre bound to lose, because what feels good is usually the wrong thing to do. Getting stopped out is not a bad thing. In fact, it is a good thing because it probably saved you from losing even more money. Successful traders think in terms a risk-adjusted returns. What you should be asking yourself is, how much do I want to gain and how much do I want to put at risk in each trade, and have I placed my stop in the best spot possible.

Intellectually I agree with you completely. Obviously stops have their purpose and I'm aware of that. However, that doesn't obviate how I feel when I enter or exit a trade. Being right more than you are wrong (in terms of overall expectancy over a period of time) defines successful vs. failed trading. Lose too many times no matter what your risk percentage or stated expectancy and you are done. My point is that simulated or not you either have a lasting edge or you don't. People who don't take the sim seriously don't really care (and perhaps that's a good thing). This would not be as difficult to handle emotionally if returns were somewhat linear but they aren't. You are given huge windfalls followed by long dry spells. Both of these states challenge you emotionally.

The more you care the more these cycles will affect you. Which is not really too different than saying that successful traders think in terms of risk-adjusted returns . Basically try to forget the outcome (or in my case I like thinking in worst case outcomes because then I cannot be disappointed) and just trade well.

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  #77 (permalink)
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eudamonia View Post

Being right more than you are wrong (in terms of overall expectancy over a period of time) defines successful vs. failed trading.

The more you care the more these cycles will affect you. .

The first statement is not only wrong, but in fact, may be inversely related to profitability.


It's not that you "care" (whatever that means- nobody likes to lose money), it's that, 1) you are more focused on the outcome, than the process, of your decision making, and 2) you are intellectualizing a negative outcome. It's a natural defense mechanism where reasoning is used to block confrontation with an unconscious conflict and it's associated emotional stress

The problem with allowing yourself to deal with stress in this way, is is that you are rationalizing your stress away, rather than confronting it. Stress increases your short term focus and co-opts your longer term thinking, i.e., you get out of your winners early, and in turn, you then intellectualize "that you can't go broke taking profits" These biases have a way of projecting themselves into other areas of your trading, i.e., confirmation bias, etc.

A guy playing blackjack in Vegas is dealt 17 and asks the dealer to "hit" him, and gets dealt a 4. Bad process, good outcome. Stick with this strategy and you are sure to lose over time. So focus on process and learn how to deal with negative emotions in a positive way.


Last edited by tigertrader; February 22nd, 2012 at 10:24 PM.
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  #78 (permalink)
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About risk size...

My "theory" my opinion about risk size is this:

If you have a winning strategy, a winning system; And if you do not have much capital you want to be more aggressive and risk 5% per trade. If you have the capital you want to be more conservative and risk 0.5% per trade.

But the ideal risk size would be 1% or 2%.


Last edited by mrphr; February 23rd, 2012 at 07:17 AM.
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  #79 (permalink)
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Reward in Trading Requires Risk

For me, I had to deal with accepting that on every trade there was going to be the initial risk, the initial reward expectation; the developing risk and eventual reward. All I could do was control the initial risk and set in place my expectation of the reward. This allowed me to take the trade.
After that, I only had control over the developing risk. The eventual reward was more of a desire until the point I let go of the trade. The reasons I closed out my trade had more to do with my primary desire to preserve capital, and then once it was possible, my continuing desire to make a profit. My ultimate desire was to make at least a 1:1 with my initial risk, and then my wishful desire was to have the market supply me with a 4 to 1 profit reward on every trade.
At some point in my trading what I desired and what I was able to achieve were miles apart. As these got closer and closer, I began to realize that I could make a profit if I accepted what I was able to do most of the time. Sometimes I can make a profit on 10 trades in a row. Bam, bam, bam...
I said a profit. How much profit is the next question. For me, that is 4 ticks. My desire is 40 ticks per trade, but the reality of my ability is 4 ticks per trade 8 out of 10 trades.
Once I understood this, I reduced my risk per trade to as low as possible so that once I had accumulated some profits for the day, I could accept more risk in the trade. The way I accepted more risk was allowing it to go against me a bit longer. I said a time thing, not a price thing. For me, if price remains ticking back and forth within a tight spread, and slowly inches its way in the wrong direction, then time is against me, and I view it as an effort to keep as many contracts on the table in the wrong direction as possible and entice more orders being placed in the wrong direction. So, I can remain only if I am willing to accept a bit more risk. I increase my risk because I will stand my ground and challenge the market to comply with my desire since it costs me nothing additional except for time. The money I make is mine only when I leave the table.
In my experience, managing the risk and the reward in the trade is what separates most winners and losers. Most trades entered, at some point, have reward. Also, most trades entered at some point have loss. They also have a point where the trader can elect, (yes, you can chose) to make a profit, or allow it to not make a profit; or let it turn into a loss. So, for this and a few other reasons having more to do with steady withdrawals for income, I trade with a risk of one quarter percent per contract traded. The lower this number, the better I feel.
I do not know what most traders tolerance is. But if I were to describe myself, I would say I am a very defensive trader. I look for serious interest at key areas, and my tolerance for increased risk is very low. I will just surrender my contract at the first BE opportunity and wait for the next trade. This means that when I enter a trade I enter because I see a solid commitment of the price bracket to expand in my direction at least 1 more bar or 6 more ticks, or whatever size my first target is +2 ticks (one to get in, one to get out). If price starts to play games, I do not challenge it. I get out and wait for the next opportunity. Since my charts are price, not time, based, when I add time to it, I am increasing my risk.
So, once I accepted my risk profile, I was able to understand my reward profile, and actually make a profit many more times than not. I still desire the risk reward ratio of 4:1, but I trade to make money on a daily basis, one trade at a time. On every trade I take the risk I can accept. I get out when it falls beyond my tolerance level or I hit my reward level. Sometimes, I get the full reward I desire.
For every trader there is the theory and there is the reality of what that trader can do on a consistent basis. There is no correct answer. I do not have the answer for anyone except myself. I cannot say your thinking is wrong or right. All I can do is tell you to keep a detailed record of your observations about your trading with particular emphasis on your thoughts and reactions to loss and gain, and come to understand your risk and reward levels. There are many suggestions and recommendations available all over the place. Pick a point and go with it. IF anything, do not expect to change the nature of the market. At its core, the market is a risky place where reward can only be achieved if we come to an understanding of our risk tolerance and find a way to overcome its inherent negative conotation.


Last edited by Jaguar52; February 25th, 2012 at 05:04 PM. Reason: another thought
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  #80 (permalink)
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Quoting 
it's possible to devise trading schemes based on very short-term price swings that will on average be profitable. However, the average profits on individual trades from such methodologies are miniscule,

I read in my education that that is exactly what the Sm,Hedge funds, and Banks do. Albeit with black box algo. a 2 tick move seems miniscule to some but when the trade has 100 million dollars behind it it's not I don't think.

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