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After multiple attempts by Big Mike, I've finally agreed to do a webinar which will be on the topic of risk management. With that being said, I thought I would look to collect potential talking points on this discussion. My goal is to tailor the presentation to what the majority on this forum is interested in. I could just do a high level presentation on risk management but I thought it would be more useful by gauging what everyone is most concerned with.
I would assume the context will be based around intra-day trading but I'm interested to see what are the main areas of interest in that regard. This thread will serve as a gauge and will allow for additional questions after the presentation so, please sound off your areas of interest/concern regarding risk management.
Cheers,
PB
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much a fan of your blog and analysis. not sure what a 'high end' presentation is, but for me, understanding what actually is at risk....physical, mental; and knowing that those things color my perception of the market.....so I guess learning how risk affects decision making and how to combat it and having a proper perspective of what exactly I'm risking (ie...if I risk 5%, 10%, 20% on each trade, how many losers would it take to bankrupt me)...
also, you may have insight into how the algo world adds potential risk to trading or holding leveraged instruments.
best.
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PB-
really looking forward to the webinar, thanks in advance! im interesting in scaling and stop management. how much do you take off at first scale, second etc and how do you manage the stop? do you leave it at the original placement the entire time or do you move it up after the second scale or??? is there a right answer as far as our own personal W/L ratios and expectancy? Also, I'm just interested in context in general, how do you prioritize it? I realize that itself is very contextual but maybe you could flesh it out. as a specific example, on tuesday oil opened at the very bottom of a maybe 5 day balance area (cant tell based on your chart) and below prior days low and you took a long on the open for a move back to balance. very interesting trade to me. i get the return to balance logic but was there something about the ON profile that gave extra confluence supporting a long? what was the best time to get long, right at the open with a stop below balance low or wait a bit to see if sellers would step in or wait until it was accepted into prior days range?
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Im very excited to see this!I will offer my 2 cents....Anyone who has followed PB knows, that his entries are very specific, from a tactical perspective.Always looking at the big picture, Ben looks at areas of confluence within the context of the big picture.
Ive actually pondered this....I asume PB targets levels based on the developing value area,and uses the footprint to dial in his entry..
-lets assume that price reaches the level of interest, but the footprint is not giving the entry...do we wait, and perhaps pass on the entry?Also, and i suppose this will vary...regarding risk, is it a hard stop?does the stop relate to the swing ranges of the developing day?
When determining stop losses, weve all had the experience of placing a stop, and being taken out, only to see the trade work...then we wonder, was the entry good.....
Also, is the footprint the determining factor for each trade?
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Going to be a webinar you have to watch a few times to dial in to @Private Bankers own language that he uses (IN BENS WORLD)........................not many of us simpletons will fully grasp what Bens has to say 1st time round
Cant wait
Ben has a habbit of chewing my brain apart
" I will follow my rules, I will take my stops, I will be disciplined and i will work with the market....NOT AGAINST IT! Professional mind control is the key"
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Thanks guys! Some great questions and I'll certainly put those into the presentation. We have some good time until the presentation date so, keep'em coming! BTW, you can call me Ben, you don't have to say PB .
@lsubeano, thanks! My reference to high level was in regards to just very general and not specific to anyone in particular. My thought is to really make this meaningful vs. just a bunch of cliché's about risk management and trading. Glad you asked though. I probably should have been a bit more specific.
@Profiler, great questions! I'll certainly answer those. As for the trade reference, that's a little unrelated to the topic so, I'll just answer that for you here.
The long in which you're referring to was based on the fact that Crude was in a balancing mode. We then opened at the lower extreme of that balance area and the clear thought is for price to move back to center which it did. Think of it as an auction between buyers and sellers. There was good acceptance in the middle of the profile. Buyers and sellers were happy to transact at that price. When price got to the upper end of the balance distribution, buyers began to lose interest and the same goes for the lower extreme. Sellers weren't interested in selling into those lower prices so they backed off. Eventually the context changes and we broke down out of that area with the big gap down on Friday.
Here's the chart I was referencing. I split out Wednesday's profile to see how price reacted to those levels. You can see how as price got higher, buyer interest faded. Then on Thursday, we opened up there and we saw the same reaction of lack of buyer interest at those higher levels. That's a heads up that context is changing which led to the break down on Friday.
@bobarian and @greenr, thanks guys! This will be a presentation solely based on risk not my trading method just to be clear but I can include examples as you mentioned here. Bob, great questions about the stops which I will certainly address.
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1. Do you use a daily loss limit? What does that look like for you?
2. Do you use a "three strikes and you're out" (or something similar) to re-entering a specific trade idea?
3. How do you treat trade/risk management once an add has been placed on a position? I've heard you mention before you wouldn't allow a trade you added to turn into a loser. Is this a rule always followed or was that situation specific?
4. Have you ever gone through any time in your trading where you had struggles with risk management? Following your rules or anything along those lines? If so how did you deal with it and overcome your demons?
5. What does it typically take for a trade to become "invalidated" in your trading? Do you need to see immediate confirmation on the footprint/a level not get breached/a candle hold/etc?
6. I think it would help if you also spoke a bit about the balance of information vs price risk in your entries, as this is still along the lines of risk IMO. Where do you fall along the lines of this balance of confirming a valid entry vs getting in early/limiting in as price comes to you. I hope this question makes sense, ask if not.
If not too late, would be interested to know how much (if any) order flow reading goes into your trading.
I see you have TT on your profile - do you use this for order flow scalping, trade confirmation, or more?
Looking forward to your presentation very much indeed. Many thanks and much appreciate you taking up your valuable time for us futures.io (formerly BMT)ers.
Richard
Hong Kong
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Hi Richard,
If you're not familiar with what I do, I use the footprint (Numbers Bars - Sierra Chart equivalent) extensively in my trading. I do not scalp trade but trade around a position until may final target area is reached. I'll provide several examples of this. This presentation will not be a discussion on how I trade rather it will be a discussion regarding risk management in trading with some examples on how I manage risk. Hopefully it will be helpful for everyone.
Cheers,
Ben
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Not sure I can make the live webinar either but really looking forward to this! Thanks in advance for sharing your knowledge Ben - and thanks Mike for putting this together.
Seek freedom and become captive of your desires. Seek discipline and find your liberty. - Frank Herbert
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How did you come up with your risk parameters in CL in the first place?
Do you adjust your risk while in a trade? ( would you close out a trade if it doesn't not respond the way you anticipate?)
What are the major determining factors for the amount of financial risk you are willing to take? Under what circumstances would you be willing to accept more financial risk, or less? Do you have an example?
What are the biggest differences in the approach to risk of institutional compared to retail investors?
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I'm looking forward to this webinar as well, since risk and money management are always exciting topics which often are discussed pretty controversial.
Thanks for sharing your insights !
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Looking forward to the webinar. Since you mentioned you trade around a position, I would be interested to hear your thoughts on the concept of a theoretical average. I've heard FT71 talk about this in his webinars where he will trade around a position, while keeping his overall risk in line with a theoretical average.
By the sounds of it, this allows him to have bigger stops when scaling out of a position on the way to his ultimate target, because he is essentially keeping track of his risk for the entire position.
In my mind there are potential pro's and con's (as with everything in trading) with this approach. If it's not too late, I would be interested to hear your thoughts.
Thanks.
Diversification is the only free lunch
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this is totally what i am looking for....once position is started, initial or "core" position, then how to add/remove to the position from "entry zone" to "exit zone", especially if the position is more of trend-following position without neccessarily fixed target zone. the other one being mean-reversion type trade where there aren't that many zig-zags but still want to initiate and then grow/reduce position.
hopefully all of this ties to concept that risk is dynamic and r:r ratio changes once price starts moving away from entry zone to exit zone.
thanks,
tihfa
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Grate webinar Ben.
Do we need to treat re-entry (satellite) trade in the working core position direction as new trade with 2/3s of position? What will be stop for this?
Do we need to enter satellite trade based total risk on the trade (core + satellite) or just satellite?
thanks,
GSREDDY.
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I thought it was excellent, very clearly laying out the various kinds of risk and at least outlining ways of dealing with them, from the highest levels to the technicals of individual trade management. Highly recommended.
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Thanks for a great webinar, Ben ! Although I was a little late to the party, I really enjoyed this professional webinar as well as your well-prepared Q&A hour in which you answered all questions very objectively and patiently.
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Excellent question! The approach to this will vary based upon the day type. For example, on a trending day, once you've scaled out of your initial position, you'll want to find a location to add to your position. The way I approach this in an imbalanced market would be to add as price comes back and touches value. That would be the best price in an imbalanced scenario. You can then place a stop or just have a visual "line in the sand" that you do not want the market to trade through. In the example below, this would be this exact situation. The line in the sand for me was the developing POC/VWAP which was based upon RTH.
For rotational days, adding to a position should only be done at or near your original trade location unless something changes and the market breaks out. This is fairly straightforward.
As Big Mike mentioned, I'll be doing a follow up Webinar that will be centered around approaching a day type or as he explained, trading an imbalanced market vs. trading a market in balance.
Cheers,
Ben
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Great webinar Ben - thanks for sharing your time and perspective. One of the difficulties I have is fading the high or low of the day (usually in the morning) when I expect that the market is going to stay in balance and potentially test the other side of balance. Sometimes this is very clear, for instance when a market opens up inside the range and value of yesterday and has comparatively low volume. However, my difficulty lies in not quite trusting the range to hold - essentially being too afraid of a breakout move. Some of this I think comes from a conscious or subconscious desire to have the market breakout and start trending with me aboard - consequently I'm not always as attentive to the signs that we are going to stay in balance.
Of course at some point you have to make your best judgment and either take a trade expecting the market to stay in balance or not and then manage the position based on what happens next. That said, can you provide any rules of thumb or tips/advice on some of the things you need to see that convince you a market is more likely to stay in balance rather than breakout? (I realize you are now planning on doing a webinar on this late summer but perhaps you can provide some context for us in the meantime). Thanks in advance and thanks again for the webinar!
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It certainly did not disappoint. The preparation and thought process were excellent, thorough and detailed to include the wide level of experience and background one gets at the futures.io (formerly BMT) webinars. It's a rare treat to hear from Ben himself, and it really gave some perspective to his sometimes enigmatic posts and replies in threads here. Now that I have a grounding in his management methodology, his posts make much more sense. His explanations were clear, thoughtful and his presentation style is easy to warm to, and stay with for a long time period. That was a long webinar, went by in a flash! The generous offering of his time to include written replies to the posted questions was unique and I hope inspiring to everyone.
Measuring and Managing risk: For me this was the gem of the webinar, and beautifully presented! Clear and accurate examples, detailed results and a sound management technique, to give traders another terrific tool for their box. It might not be something to use everyday, but as an example I shorted ES near the end of today using this technique and took more out than the trade distance was worth, thanks Ben ! Kept a core position running and grabbed the drops and took the profits. I moved my core stop along with the trade, not wanting a reversal to lose more than 2-3 points in profit, with the clock running.
Thank you for including him in the stellar line-up for the anniversary edition, he more than deserves to be on it!
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Thank you! Some general rules of thumb and I'll definitely expand upon this in the coming webinar would be the following:
1. What type of day was the previous session? Profile Type?
2. Where are we opening in relation to the previous session's profile?
3. What has the overnight session done?
4. Are we opening in the ON session's value or is the market imbalanced? (trading outside of the globex/VWAP developing value)
5. What is the macro perspective telling you? This would include any sort of trend channels, moving averages or any other details that could offer a clue on directional bias.
As far as fading a move, the general rule there would be to typically never fade a market that has been trading in an imbalanced state or better said, trending outside of value. If the market is trading within value and all of a sudden the market spikes up and out of it, then it would make sense to fade that move. Reason being the market is balanced and any deviation from that should return to the mean.
For a balanced market scenario, just picture an auction. Let's say everyone is agreeing on price at 1650 and for some reason, price auctions up to 1655. The perceived value is around 1650 but price has moved up to 1655 which has buyers thinking that's too expensive and they back off. This creates an imbalance where sellers are now overpowering buyers because they are wanting to sell at those higher prices but buyers don't want them. Same goes for the other direction.
Now for an imbalanced market scenario, picture the same auction. Whatever the item is that's being bought and sold has some news that comes out that changes the perception of value. So in this example, we have buyers and sellers agreeing on 1650 but a news announcement comes across that makes 1650 sound really cheap. What do you think happens next? Buyers step in and buy everything. They absorb the sellers at those current levels which then leads to a major buy side imbalance and buyers become more aggressive and start jumping over each other and buying at the market. This is not a scenario where you would want to try and fade the higher prices.
This is obviously very general and I'll definitely go in to more detail later. But I hope that makes sense.
Cheers,
Ben
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I'm not sure I discussed this but good question. If I have a scale in to my position and it doesn't continue in my favor I make a judgement call on whether the total position is still valid and whether or not the intended target still appears to be attainable. Let's say we have a trending day and I add to my position when the move is mature and that add goes against me without getting a scale out, I would need to make a decision on whether or not to stay with the trade.
Take a look at an earlier post (#40) where I reference this. The key is to not add to a position when the move is mature. But that's another conversation in of itself. The earlier post provides a good visual of what I'm referring to in this regard.
Hope that helps, I can always expand upon this.
Cheers,
Ben
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Many thanks for taking your time for the webinar. Most valuable and much appreciated. Look forward to future offerings.
Ref your website setup, note that your non-www domain does not work. ie, https://leprivatebanker.com does not work (and it should). Most people these days do not bother typing in the www (or should not bother) so you need to fix your site htaccess file to open up this domain.
PS. Mike - thanks for fixing the video replay. Assume you have done something as webinar played from start to finish with no skipping back. Wonderful.
Richard
Hong Kong
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identifying the day type early is the key. based on the pre market analyses, market open with respect to previous days value, we will have day type expectation.
example: open out of range, expect trend day in the direction of gap or open test drive
based on my observation, if the market trades in the direction of gap for more than 3 points in ES with out filling the gap, then we have very very less chances of filling the gap in that day.
it will be great, if you can explain or give some base point to start analyses to identify day type early in the day based on that days trading session (developing day). at what point of time you will change your initial perception on the market (from trend day to any other type of day or any other day to trend day)
example: based on pre market analyses, expectation is trend day, at that point of time you will start feeling that yes it is trend day.
sorry for lengthy question, looking for some kind of base point to start analyses to identify probable day type as early as possible in the developing day with respect to pre market day type expectation.
thanks,
GSREDDY.
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I don't think it is quite that easy. If you look at the webinars from Scott at Master The Gap on futures.io (formerly BMT) and the Master Homework thread, I believe the conclusion shows gap plays as you described are not so straightforward.
In my trading journey I slowly understand how much we tend to under evaluate very important aspects of trading like risk, money management/position sizing, psychology, under capitalization and often the combination of all of them. Our focus on entries because we want to be right and because it is the easiest thing to sell/buy in this industry make us blind and very often leads to loss.
I liked this webinar because in the trading examples there is much more information than what you may think. If you are a beginner (like me) you should give real attention to how simple the trading system briefly shown looks (which does not mean it is easy to invent, nor to execute). Try to understand how solid the risk management is (3 lot multiples for simplicity, probably sized in relation to the stop distance, 1 and 2 scales for quick reduction of risk BUT with an 1xRisk expectancy, 3rd scale for having positive expectancy, reentries for pushing your edge when premise is valid, etc...).
I liked this webinar because it talked about risk as a way to build a better business, as a way to increase your confidence, as a way to increase your performance, as a way to have a better life. Think about it, most us beginners are probably out of business for 2+weeks if our computer crashes tomorrow. Shouldn’t this risk be addressed? Don’t you think a daily backup will give you the feeling you are more professional, more confidence and better “peace” when you are trading?
I think this webinar should be seen more than once and probably again in few months for most of us beginners.
W.
-- The rest is silence
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Thanks for reminding me of this. I had it set up initially and it appears to not be taking correctly. I'll look into this further for a resolve. Just so you know, you're talking to a very non-savvy guy here when it comes to this technical stuff, lol! I've always had an IT guy handle this stuff for me.
Using just the original entry / Core position, does the reward risk ratio have any impact on your stop/target settings?
I see you scale out at 1 and 2 pts everytime. The 3rd target is selected from structure. Let me work through your Trade Example 2 (video time 1:14:00) This is because it seems like the simplest example without any adds. I have no idea if my thinking is correct or not.
Your Initial Average Trade Location is 1609.50 with 3 contracts risking 1.75 pts.
Currently your risk is a total of 3*1.75=5.25
1st Scale is hit at 1610.50 = +1pt (on 1 lot / 2 remaining)
1st scale #2 is hit at 1611.50 = +2 (on 1 lot / 1 remaining)
Final Target 1613.25 = +3.75 ( on 1 lot / 0 remaining)
So as a total sum your earning 6.75 pts (each scale out on 1 lots totalled) while risking 5.25 pts ( 1.75 for each contract) this is a reward risk ratio of 1.28:1
Does that matter at all? I mean is that something that should even be considered? I know you mentioned looking at MAE and MFE is not really something people should focus on. Is there a minimum Reward:Risk ratio you have that you won't take trades, say 1:1? I know that having a successful satellite/addons will help you earn more points, but they may or may not increase your reward:risk ratio depending on how they are structured on an individual basis.
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First, I'm trading more than 3 contracts but I break them into 3 "units". These units can consist of whatever amount of contracts I feel is reasonable given the risk on the trade. The scales in this example as I said in the presentation are one point and two points out of simplicity in explaining the scenario. Its up to each individual on where they want their scale outs to be. In this example, we had a very tight range move. I took the scales at 1 point and 2 points to lock in profit in the event the market did not trade up to the final target. Would the trade be more profitable if I held on to the full position all the way to the target? Yes but that's a flawed way of thinking in that you're only focusing on the potential outcome vs. the process of active risk management. What if the market didn't trade up to the target and came right back at you while you're holding a full position?
Anyway, hopefully that makes sense. Larger opportunities may require larger risk which then would require larger scale outs to ensure your position is protected. The exact levels in which one decides to place their scales is up to them. The goal with this is to simply protect your core position in the event the market does not reach your target area and comes back against you and stops you out of your core.
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That concept was something I always struggled with intellectually, but recently is making sense. I believe @greenr called it "banked risk" when we were chatting sometime in the past month or two (which may have come from you as I know he has great respect for you), and that terminology shifted something in my perspective.
On paper, given normal human logic (which is not always relevant to trading), taking a small profit on a majority of a position does not seem like a good strategy. And to a trader who has not yet secured an understanding of precise trade location and/or precise reading of market conditions, order flow, whatever the edge of the moment is, mathematically that approach does not work.
But as understanding of what is likely to happen and why, and more importantly, where, even though I could not explain the benefit as well as you could, it is making sense to me and it is something I have started to become comfortable with.
I used to have such internal debates about small moves versus long moves, what is "noise", is it better to win 80% of the time or 30%?
But for me, I settled into a belief that there is no right answer, because that would suggest that the future is more predictable than it is. What we CAN control, is risk, and that is it. And in futures, conditions change rapidly, timing is a very critical piece to refining trade skills.
Your comments initially seem to contradict the well known saying "let your winners run, cut your losers short", but that saying, as I am finding nearly everything in trading, needs to be viewed in context. As a swing trader, absolutely, but as a day trader it gets a little muddled.
Great webinar you rattled through a lot of important stuff and I think that 90% of it was really put to bed Clear and clean no need to rehash it in any way. It is one of the top webinars I have seen.
Whether it is a webinar or a book, a thread or a post we all look at it differently. Our trading experience, emotional state and where we are on the road to consistency is what forms our individual lens or viewpoint. I think about this webinar differently today than I would have done a year ago for sure.
From my point of view the Core/Satellite concept is certainly something that I think you can build around. It is hard for a beginning trader to listen to a (very generous and open and much appreciated) 15 year vet and really take in things like:
"Don't focus on your W/L ratio" or "Don't worry about your P/L on a daily basis"
However this webinar very much delivered. You explicitly showed us why the process is valuable and why the immediate P/L is a bit of a distraction. It is the challenge of every trader to get to the stage where they can look at your trade examples and abstract them to their own markets and positions.
If I could suggest content for a 2nd Webinar or even just a 15 minute video it would be to
a. redo the 3 examples of the successful trades but dwell a little on
i. how the top down analysis was done
ii. the thought process when taking the initial position and the scale outs
iii. the end game where you said ... OK .. this is it I'm out ...
b. do a couple of examples of where you got it wrong and had to reconsider your long or short bias
i. where you can successfully say .. I was wrong so I looked to get short instead of long
ii. I was wrong .. wrong .. wrong ... so I went for a run with my dog ..
In any case , I recommend this webinar to everyone but especially people who:
i. chicken out of good trades at the beginning because they are unsure of their top down analysis (or don't have any).
ii. who sees their trades go into profit but then have the trades come back to their entry point or hit their stops.
This webinar shows you the tactical structure of what you need to do to make sure you make consistent profits and don't give it all back. It has the potential to strengthen your weak hands.
Thanks again PB,
p
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I was re-watching your video recently. It is still a great piece of educational material. But I was curious about mean reversion strategies using the value area high/low and VWAP bands. I know you use the satellite core theory for risk management but most of the examples are trend following. So any retracements to those areas may provide a place to add.
Is there a way to implement Satellite Core for mean reversion type trades? How / what areas would you look to add on and take off positions? Thanks.
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Thanks. If the market is trending that means its in an imbalanced state. Those are the situations where one would want to push as much as possible while cycling through profits. Price is in an imbalanced state (price discovery) and the expectation for the move is unlimited until balance returns. Contrary to that, when price is balanced, we would expect rotational price action. In this scenario, taking a mean reversion trade is a targeted trade. We would have a limited expectation for price which skews the risk-reward profile. So, to answer your question, I do not utilize a core-satellite approach in this type of scenario. I believe its not the right context to do so.
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