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Concerning risk per trade sizing


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Concerning risk per trade sizing

  #51 (permalink)
 TheTrend 
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I see that everyone here has more or less the same kind of position sizing: fixed fractional 1 or 2%, increasing some trades or pyramiding winners.

Has anyone tried / tested / traded some other algorithms ?

- fixed ratio,
- depedancy of the previous trades,
- trading the equity curve,
- leverage space portfolio from Ralph Vince (this guy was claiming on a forum that he was at its 500th winner in a row !)

etc...

Just curious, interesting subject.

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  #52 (permalink)
 
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 monpere 
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Big Mike View Post

I find it really helps to take a step back. Stop trying to scalp the market for ticks and load up some bigger charts. Switch to micro sized instruments if you need to, but get away from all the noise and focus on the bigger moves from day to day or week to week. Until you do this, things will likely only be confusing.

Once you are proficient at trading bigger charts profitability, then you can trade around those positions on smaller time frames.

Mike

The good thing about bigger charts, is that they generally give you cleaner, clearer signals. The bad thing is the bigger the time frame you trade the bigger your stops will generally have to be, and therefore the larger monetary risk you have to take. If your average stop size is 10 ticks on a 4 range chart, it will be 30 ticks on a 12 range chart. If you are trading futures, that is a hard pill to swallow, and most trader's accounts will not allow them to swallow that pill.

The 2nd thing that comes into play with bigger charts is relative risk/reward. Since your stops will generally be bigger, you will now require the market to move further to maintain the same risk/reward. Supposing you are trading a 4 range chart and putting your stop 1 tick behind your entry bar (stop is 5 ticks), you only need the market to move 10 ticks to get a 2:1 risk/reward. Now, if you are trading a 12 range chart (stop is now 13 ticks), the market has to move 26 ticks to maintain the identical 2:1 risk/reward. A 26 ticks move on the 4 range chart is a 5:1 risk/reward trade.

Larger chart timeframes also make great sense when you do use R-Multiple share sizing, because whether you are trading the 4 Range chart mentioned or the 12 range chart, your monetary risk will be the same. This works optimally when you trade stocks or Forex where the share sizing granularity is much greater then futures. With the more popular futures contracts, when your minimum dollar amount per tick increment is $10, this limits how well you can fine tune your dollar risk.

So, if you only want to risk $100 on any stock trade, on the 4 range chart, with the 5 tick stop you buy 2000 shares, on the 12 range chart with a 13 tick stop, you buy 800 shares. You are risking $100 on both trades, no matter which chart you trade. Only difference is, using the 2:1 risk/reward for example, with the first chart, 10 ticks will get you $200, with the 2nd chart, you have to wait for 26 ticks to make your $200.

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  #53 (permalink)
 
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 Big Mike 
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monpere View Post
The good thing about bigger charts, is that they generally give you cleaner, clearer signals. The bad thing is the bigger the time frame you trade the bigger your stops will generally have to be, and therefore the larger monetary risk you have to take.

This is not true.

People seem to be hung up on this bigger chart = bigger $$ stop. Not true.

Switch instruments people! Change markets! Trade the market and instrument that is appropriate for you. So if you want to trade a D1 time frame with a 200 tick target or stop, and such a stop is more than 1% of your account size, then guess what --- trade a different instrument or market.

I do not mean switch from ES to CL.

I mean switch from full sized futures EURUSD 6E, to the M6E on CME FX (1/10th size), or to spot forex micro EURUSD at 1/100th the size of the full 6E contract.

Mike

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  #54 (permalink)
 
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 Big Mike 
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monpere View Post
The 2nd thing that comes into play with bigger charts is relative risk/reward. Since your stops will generally be bigger, you will now require the market to move further to maintain the same risk/reward. Supposing you are trading a 4 range chart and putting your stop 1 tick behind your entry bar (stop is 5 ticks), you only need the market to move 10 ticks to get a 2:1 risk/reward. Now, if you are trading a 12 range chart (stop is now 13 ticks), the market has to move 26 ticks to maintain the identical 2:1 risk/reward. A 26 ticks move on the 4 range chart is a 5:1 risk/reward trade.

In futures markets, 10 ticks = noise. Add to that the high cost of entry (commission, slippage, and not forgetting your time), and it makes no sense. I am glad you have made it work, but I cannot think of anyone else that is a retail trader that has succeeded at scalping for such tiny movements.

Majority of traders I know of try to use smaller and smaller charts, smaller stops, because they want to lessen the risk and $$ blow to their account. Then they end up with this ridiculously tiny stops and trade nothing but noise, ending up needing huge "trend" moves in order to make any money.

These guys would be far, far better served to increase their chart size 5x over, and trade a micro position (futures or forex) to maintain the $$ risk while trading above all the noise.

That said, there is middle ground. You don't have to go from a 4 range chart to a D1 chart, naturally. But 133 tick charts, 4 range charts, etc (I'm guilty of this in the past as well) are just crazy, and it is all tied to the perception of lowering risk, which is completely wrong.

Mike

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  #55 (permalink)
 
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 monpere 
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Big Mike View Post
This is not true.

People seem to be hung up on this bigger chart = bigger $$ stop. Not true.

Switch instruments people! Change markets! Trade the market and instrument that is appropriate for you. So if you want to trade a D1 time frame with a 200 tick target or stop, and such a stop is more than 1% of your account size, then guess what --- trade a different instrument or market.

I do not mean switch from ES to CL.

I mean switch from full sized futures EURUSD 6E, to the M6E on CME FX (1/10th size), or to spot forex micro EURUSD at 1/100th the size of the full 6E contract.

Mike

Did you read my entire post? Given the example that I wrote (which is how I trade, and I assume that I'm probably not the only trader in the world that trades like that) how is that reasoning not true? And also further in my post, I also mention how different markets come into play, ie. trading stocks and Forex as opposed to futures.

I would agree if you said this 'is not always true', and if so, how about an example or so to illustrate that.
Also, I'm not sure where the standard 1%, 2% of trading account size came from. I trade full time and risk much less then 1% of my trading account on every trade. As an example, If you have a $50k trading account and you are trading the TF with a 5 tick stop, how much of your trading account are you risking per trade?

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  #56 (permalink)
 
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 Big Mike 
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monpere View Post
Did you read my entire post? Given the example that I wrote (which is how I trade, and I assume that I'm probably not the only trader in the world that trades like that) how is that reasoning not true? And also further in my post, I also mention how different markets come into play, ie. trading stocks and Forex as opposed to futures.

I would agree if you said this 'is not always true', and if so, how about an example or so to illustrate that.
Also, I'm not sure where the standard 1%, 2% of trading account size came from. I trade full time and risk less then 0.1 % of my trading account on every trade.

You said "Bigger stops = bigger monetary risk". I am saying no, that is not at all what I am recommending. Bigger charts, bigger stops and SAME monetary (or less) risk by using a properly sized instrument or position.

I provided multiple examples in my last webinar "Where to start as a trader", part 1.

Mike

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  #57 (permalink)
 
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 monpere 
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Big Mike View Post
You said "Bigger stops = bigger monetary risk". I am saying no, that is not at all what I am recommending. Bigger charts, bigger stops and SAME monetary (or less) risk by using a properly sized instrument or position.

I provided multiple examples in my last webinar "Where to start as a trader", part 1.

Mike

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.

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  #58 (permalink)
 
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 trendisyourfriend 
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I hope perryg won't read that


Big Mike View Post
In futures markets, 10 ticks = noise. ...
That said, there is middle ground. You don't have to go from a 4 range chart to a D1 chart, naturally. But 133 tick charts, 4 range charts, etc (I'm guilty of this in the past as well) are just crazy, and it is all tied to the perception of lowering risk, which is completely wrong.

Mike


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  #59 (permalink)
 
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 monpere 
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Big Mike View Post
In futures markets, 10 ticks = noise. ...
That said, there is middle ground. You don't have to go from a 4 range chart to a D1 chart, naturally. But 133 tick charts, 4 range charts, etc (I'm guilty of this in the past as well) are just crazy, and it is all tied to the perception of lowering risk, which is completely wrong.

Mike.


trendisyourfriend View Post
I hope perryg won't read that


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

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  #60 (permalink)
 rani 
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Big Mike View Post
This is not true.

People seem to be hung up on this bigger chart = bigger $$ stop. Not true.

Switch instruments people! Change markets! Trade the market and instrument that is appropriate for you. So if you want to trade a D1 time frame with a 200 tick target or stop, and such a stop is more than 1% of your account size, then guess what --- trade a different instrument or market.

Mike

Exactly, I've wrote the same couple of posts above. Mike is right on this one.

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