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FT71's Price Risk vs. Information Risk argument
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FT71's Price Risk vs. Information Risk argument

  #21 (permalink)
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@Big Mike: No I have not read this book.

Worth a shot, to get you to condense the 200 page book into one masterful post

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  #22 (permalink)
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drw112 View Post
I used to trade with a high price risk and have since switched to low price risk/high information risk trades and have seen my success increase greatly.

With a high price risk I was waiting for confirmation off of S/R and trend lines before entering the trade. But by the time I felt it had been confirmed it created a poor stop situation. I was either forced to place my stop in the middle of no man's land and risk being taken out by a minor pull-back. Or, I was forced to enter a much bigger stop than I would like, leading to huge losses. This leads to frustration as often I would get stopped out by my small stop or the support/resistance line would fail and I would end up taking a much bigger loss than I would have liked.

Now, with informational risk I will place a limit order (or just watch and place a market order) right at S/R lines. This gets me in at a better price with a lower monetary risk because I know quickly if I am wrong. I can enter a much smaller stop and only risk a portion of what I was risking before.

Apologies for bumping an older thread but what drw112 says in his post sums up exactly the issues I have encountered but could never quite understand. Watching FT71 video really helped me to understand the difference between information and price risk. Personally I find that my levels and forward planning are usually pretty accurate but the problem has been waiting for confirmation which normally kills the edge for me. Looking back through my written diary and I have numerous notes on this subject but the message was hidden from me because I didn't grasp the concept until I had watched the video.

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Thanks for bringing up this thread. This is at the core of my current struggle.

I trade Al Brook's way. The whole premise of any trade is based on a context AND a signal bar. This works for me and is part of the problem. By being consistent with the approach, I have progressed in course of time from being a consistent loser to be cover commissions and make some more.

I also feel I could do better by trading price levels. To be able to accomplish that, I feel I need to sacrifice the signal bar confirmation (price risk) with something else. This could be market internals (TICK, TRIN etc) or being able to read Volume or something else. Part of me wants to pursue this. The other part is asking me not change something that is working reasonably, but rather dig deeper into the current methodology without adding more variables.

My realization is that anything you do in trading has pros and cons. When you make any modification, it is important that you understand the math behind it, be flexible with the results and consistent with its application. I see trading journals across the forum where I see folks trading price levels being successful as well as those who constantly fade strength and lose. To each his own. The path to consistency involves much more than the type of risk one takes.

That's my take. I appreciate input from traders who have already crossed this bridge.


Last edited by patrader65; April 1st, 2017 at 12:11 PM. Reason: typo
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patrader65 View Post

I also feel I could do better by trading price levels. To be able to accomplish that, I feel I need to sacrifice the signal bar confirmation (price risk) with something else. This could be market internals (TICK, TRIN etc) or being able to read Volume or something else. Part of me wants to pursue this. The other part is asking me not change something that is working reasonably, but rather dig deeper into the current methodology without adding more variables.

You should at least explore the possibilities otherwise you will have that nagging voice in the back of your mind. The easy part is that if you don’t like the concept then bin it. I came to futures knowing only price action. So far I have explored orderflow and volume profiling, both of which are useful and contribute to the story, but my core remains price action. I heard about NYSE TICK this week and I will be exploring the possibilities of that over the next few weeks.

My message, take it or leave it, is that it is essential for you to continuously develop and discover all the little ‘unknowns’ of your profession. You must ask yourself: "How will I ever improve if I don’t push past my self imposed boundaries?". If you are confident with your current methodology then you are in no danger of changing it.

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