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Concerning risk per trade sizing


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Concerning risk per trade sizing

  #131 (permalink)
 
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 Surly 
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liquidcci View Post
In regard to market being random. I think at any given moment their can be randomness about it. But overall it is not random. At one time I was convinced it was random until I started really using probabilities in my trading. My probabilities clearly say it is not random.

I agree. In response to theorists who profess the doctrine of random walk I quote Samuel Johnson...

"After we came out of the church, we stood talking for some time together of Bishop Berkeley's ingenious sophistry to prove the non-existence of matter, and that every thing in the universe is merely ideal. I observed, that though we are satisfied his doctrine is not true, it is impossible to refute it. I never shall forget the alacrity with which Johnson answered, striking his foot with mighty force against a large stone, till he rebounded from it, 'I refute it thus.'"

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  #132 (permalink)
 
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 trendisyourfriend 
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monpere View Post
...

3. I don't know how one 'sees' trapped traders, I'm not part of the borg collective, so I don't know who is trapped and who is not. Since you mention it, I guess you have a window onto every trader's entries, stops and exits which determines their level of entrapment.
...

Domage this concept is not discussed more often as i think it's at the heart of the trading game. Trapped traders is a concept that has to do with crowd psychology specially when stressful situations occur. You don't need to be a cyborg to predict how a large group of participants will react if stress enters into the equation. This is similar to what can be seen in a shopping mall when a smoke alarm sounds. You can almost predict with a high degree of certainty the crowd will move toward the many exits. Same concept is applicable to trading participants at S/R.

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  #133 (permalink)
r3algood
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All this debate is good and all but I think the thread needs to take a step back and refocus.

The only thing that matters in trading is whether YOU are consistently profitable, not your friend, or your buddy on the forums.

Trading is a probabilities game, who cares whether it is 0%-100% or anywhere in between?

You will either make money or lose money on a trade.

Again, the only thing that matters in trading is whether YOU are consistently profitable.

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  #134 (permalink)
r3algood
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Big Mike View Post
Bob drives to work every day for the last 10 years using the exact same route from his home to his work place. He also drives home every day the exact same route from his work place to his house.

He drives himself. He does not have a robot driving for him and he is not using cruise control, GPS, or some other mechanical system. He is a discretionary driver. If he wants to change lanes, he does so, he does not need to wait for his rule book to say it is ok to change lanes.

Over the last 10 years, Bob has found it takes him between 30 and 40 minutes to get to work.

How long do you think it will take Bob to get to work for the next few months, on average?
A) 30-40 minutes
B) 5 minutes
C) 2 hours

Mike

A) 30-40 Minutes.

Discretionary trading is almost exactly like your analogy here. Bob instinctively knows when to change lanes, he doesn't need to consult his drivers manual before doing so. He instinctively knows how to get to his workplace, he doesn't need to consult a map. The problem with beginners that attempt discretionary trading is that they simply do not know enough or practiced enough or had enough live trades to get this "instinctive rule book" in their heads. AND once people do have the "instinctive rule book" in their heads they sometimes find out that their rules aren't suited for making money in the markets and must change or go broke.

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  #135 (permalink)
r3algood
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Big Mike View Post
Strongly disagree.

Mechanical traders and automated traders base their probabilities on prior backtests or prior forward tests. Either way, it is on a set of sample trade data.

Discretionary traders do the same thing. As I explained before when you brought this up, if you take the prior 1,000 discretionary cash trades and analyze them, you can define threshold parameters for what the next few hundred trades may look like --- just like you would with a mechanical or automated system.

It is all apples. Not apples and oranges. Apples for my last 1,000 trades, and apples for my next 1,000. All apples and all consistent with the same approach.

Mike

Discretionary traders do the same thing. As I explained before when you brought this up, if you take the prior 1,000 discretionary cash trades and analyze them, you can define threshold parameters for what the next few hundred trades may look like --- just like you would with a mechanical or automated system.

It is all apples. Not apples and oranges. Apples for my last 1,000 trades, and apples for my next 1,000. All apples and all consistent with the same approach.


Best way of putting it in the entire thread.

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  #136 (permalink)
 
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 monpere 
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Big Mike View Post
Strongly disagree.

Mechanical traders and automated traders base their probabilities on prior backtests or prior forward tests. Either way, it is on a set of sample trade data.

Discretionary traders do the same thing. As I explained before when you brought this up, if you take the prior 1,000 discretionary cash trades and analyze them, you can define threshold parameters for what the next few hundred trades may look like --- just like you would with a mechanical or automated system.

It is all apples. Not apples and oranges. Apples for my last 1,000 trades, and apples for my next 1,000. All apples and all consistent with the same approach.

Mike

Ok, I'll bite. And as always, I believe in putting some teeth behind the rhetoric. I trade a 4 range chart mechanically, so the method can easily and accurately be backtested, because every trade is identical. I can manually backtest 1000 trades in about 4 hours easily and gather the stats.

Big Mike, you now trade very big charts. The smallest chart you mention trading is 60m, and use S/R based stops and targets on even larger charts, and you scale in, and scale out at various discretionary points. That is what I gather from your most recent posts. Based on those parameters, I think we can agree that backtesting this methodology would be less then accurate, and that is the reason you mentioned forward testing actual trades.

Based on all the above, let's conservatively assume you are taking an average of 1 trade every 2 or 3 days. Let's also conservatively assume that there may several days sometimes when you are not in any trade at all. How many days will it take you to forward test 1000 actual cash trades? I know you trade live, but for the sake of this argument lets say, given you are trading 'probability', we'll assume you will not trade live until you get the numbers from the 1000 trades. How many days will it take you to forward test?

Not judging your style of trading, or methodology, or any nonsense like that. Just binging the rhetoric down to reality for the people who are reading these posts, trying to get real world ideas how to become profitable.

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  #137 (permalink)
 
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 trendisyourfriend 
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monpere View Post
... How many days will it take you to forward test 1000 actual cash trades? I know you trade live, but for the sake of this argument lets say, given you are trading 'probability', we'll assume you will not trade live until you get the numbers from the 1000 trades. How many days will it take you to forward test?
...

Although it is adressed to Mike my answer to this is that a discretionary trader (the way i conceive it) does not feel the need to backtest in the same way as a mechanical trader would do. If you have a good understanding of what moves markets, what causes price to move and crowd psychology you would focus your attention on the process of trading not on triggers/signals or probabilities. You know the game is not about probabilities but about traders taking decisions and the impact it has on potential future order flow and future trend direction. The forward test is part of the process of trading, it is not an end in itself. A mechanical trader underestimates the value of skills in trading, he would look at markets as a big video game with red and green lights.

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  #138 (permalink)
 
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ddnut View Post
Doesn't this illustrate the apples vs. oranges argument in a way? You entered the trade with a fixed target and stop and an expected success rate based on prior experience. Then based on how the trade progressed you added a contract. This could also be considered to be a separate, independent trade. In any case, the expected sucess rate going in has changed, no?

The point is that each discretionary decision changes the end results. Hopefully for the better or otherwise you would not be a discretionary trader.

I view it as one trade. Just like all my previous trades, I did not enter "all in". I entered knowing full well that I would add at a later opportunity, should one arise --- and that I would not add later should the opportunity not arise.

I pick one direction and trade that direction the entire day. If you are trading long/short (switching directions) a lot during the day then my approach is not going to work for you, and if you can make such an approach work then almost certainly AIAO would be better in this situation than scaling. But I haven't traded that way in a long time, and I find my slower way to be far better (for me personally).

Mike

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  #139 (permalink)
 
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liquidcci View Post
There are so many counteracting forces in the market I have never considered I was competing with anyone.

I always think of trading as a competition against other traders. I think trading is every bit as much knowing what the other traders around you are doing as much as it is knowing what you want to do, and then of course recognizing when a bunch of traders are trapped -- and naturally, when you are (and to get out).

Mike

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  #140 (permalink)
 
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 Big Mike 
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monpere View Post
Ok, I'll bite. And as always, I believe in putting some teeth behind the rhetoric. I trade a 4 range chart mechanically, so the method can easily and accurately be backtested, because every trade is identical. I can manually backtest 1000 trades in about 4 hours easily and gather the stats.

Big Mike, you now trade very big charts. The smallest chart you mention trading is 60m, and use S/R based stops and targets on even larger charts, and you scale in, and scale out at various discretionary points. That is what I gather from your most recent posts. Based on those parameters, I think we can agree that backtesting this methodology would be less then accurate, and that is the reason you mentioned forward testing actual trades.

Based on all the above, let's conservatively assume you are taking an average of 1 trade every 2 or 3 days. Let's also conservatively assume that there may several days sometimes when you are not in any trade at all. How many days will it take you to forward test 1000 actual cash trades? I know you trade live, but for the sake of this argument lets say, given you are trading 'probability', we'll assume you will not trade live until you get the numbers from the 1000 trades. How many days will it take you to forward test?

Not judging your style of trading, or methodology, or any nonsense like that. Just binging the rhetoric down to reality for the people who are reading these posts, trying to get real world ideas how to become profitable.

I am not interested in fighting you, since it is clear what you think of me and my approach based on the content of your posts when you refer to me.

If you want more info from me on forward testing, sim vs cash, analyzing sample set data, chart sizing, instrument selection, and etc read this thread:


Mike

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