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You can improve your entries and risk less by entering on a pullback within a reasonable amount of market noise.
Let's say you get a signal to get long CL at 93.00. The ATR(5) on a higher time frame is 27 ticks. If you wanted a 1:1 reward/risk ratio you could enter long at 93.00 and target 27 ticks and place your stop 27 ticks below your entry. Or, compute 1/3 of the ATR (27/3 = 9 ticks) then remove 9 ticks from your stop size by entering with a limit order 9 ticks below the signal bar's closing price (at 92.91) with a smaller, 18 (27-9) tick stop, and adding 9 ticks to your target, now 36 (27+9) ticks. By moving the risk/reward ratio by 1/3 in your favor with a better entry, you've converted a 1;1 trade into a 2:1 trade (risk 18 to make 36) by expecting some noise after your signal. Now you'll have fewer winners as some trades will run away without filling you, and you'll still catch each loser, but doubling your risk profile by expecting some noise after your signal is mighty powerful.
The following user says Thank You to shodson for this post:
after carefully calculating our reward/risk ration, will the market cooperate?
my esteemed shodson:
when a r/r is set, how often would the market oblige and reward our guesstimation and r/r setting, pls?
particularly, those r/r exceeding 1/1?
in terms of reality in trading, more than 95% of traders fail to even capture 1:1 r/r ratio, isn't that correct, statistically and otherwise, pls?
if more than 95% could not even successfully and consistently produce the 1:1 ratio....
as an on board educator also, how would you recommend traders to successfully and consistently attain the 1:1 first.... before aiming for the home run of 2:1, or 3:1 or even 4:1....
any viable suggestion for those eager to attain the status of consistently profitable, be it just $10 per trade after comm, or much more in 3-digit profit.... pls?
in my limited experiences, when a trader can be guided to profit even at $10 profit consistently, he would eventually be able to recognize and hang on to subsequent trade a little longer, to perhaps capture a slightly larger profit amount;
the given is, traders must be placing the trade with the market or placing the trade with the trend, the trader needs a previously proven trading setups and trading strategies to accomplish this feat....
and that would need to be resolved much much before the r/r ratio guesstimation, imho.
even if and when the r/r has been properly and correctly figured out to the n th degree of accuracy.... and all this is only on traders' best effort, correct?
the market still may or may not cooperate.... isn't that so....?
imho, one of the most important questions any trader would need to answer for oneself is....
how much do i trust my own proven setups and strategies....? would i entrust them with $100, $200, $300.... $1,000 per lot, per trigger....?
have a wonderfully restful weekend. shalom everyone.
Last edited by nakachalet; November 5th, 2011 at 03:03 PM.
I have started winning by not using stops and instead using correlated markets to place an opposing order. TF and NQ frequently are my choice markets, as they move similarly. Idea is to put on a TF while I place an opposite direction order in NQ, at a point where I would have placed a TF stop. Some never get hit and I make money immediately on TF. OTher times NQ gets hit and I get to trade both ways.
The following user says Thank You to rwhitt for this post:
statement such as the following contains immense danger and misleading suggestion for those learning to trade profitably:
I have started winning by not using stops and instead using correlated markets
Some never get hit and I make money immediately on TF
OTher times NQ gets hit and I get to trade both ways
exactly what does 'some' mean, and
exactly how often does 'other times' mean pls, in terms of statistics and reliability?
if you could back up what you stated with some of your screen captures that would be very helpful to traders who are anxious to check out new attempt at profitability. would you be willing and able to, rwhitt, pls? and thx much.
The eternal question..when am I wrong..how much to risk, etc... BAsed on market behavior if looking to go long and the market hits a key area/number the lowest risk is to try to step in front of the train (not probability) using a price area and reading the DOM.. The next approach is to look for a bounce off a key area and then a retest and then go with - however the risk is higher and the opportunity for a first scale reduced...
It is very difficult to "micro manage" stops. I trade ES and try to keep my risk to 1.25pts max and prefer less than a point... Needless to say I get stopped a bunch and often re-enter the same trade when popped by a tick or two. When I enter in a zone I typically run my stop max 2 tics over trigger bar..
If I trade a retracement I want to see it take out stops on the rotation and that is where I like to enter.. that is where there is slippage when the paper gets hit and I like to position there.. assuming it is in my area of interest.
I trade MP so I like to trade the outside edges...
Stops are a necessary part of the business..I try to see losses as cost of production, overhead. I said "try"
... We all want to be right..but being right is executing the trade and following the plan... IF the plan is valid..the result will come..IMHO..
As far as pressing or adding to a position this can take a good trade & ruin it... I have done it both ways... IF there is heavy volume on a directional move after I've scaled and there is a retracement to a logical location based on the MP volume I will add back one position and scalp it out for a few points... but I try not to reduce my free trade and put the risk back in.. MAny times you can do this several times in a directional trend but everytime you are putting the risk back in unless your initial size is larger and then you are scaling out and adding less back.. position sizing is the variable on that I suspect..
I trade with targets - where the paper is... BAsed on volume nodes and logical extremes.. When I think of stops I also think of targets... the market will typically rotate to do business... Stops or volume or potential volume is like a magnet.. "often" the market will go there to do business.. This IMHO is why so many swing trader get whacked..unless they truly get an extreme of a move/swing the market will inevitably return or potentially return to a recent swing point for the paper/stops..
I hope this doesn't sound like I'm drooling... Auction Theory..
The following 2 users say Thank You to roztom for this post:
My thoughts also.. If you are using a synthetic hedge/stop and the correlation breaks down - which would happen under market stress than your risk management could go out the windw... Possibly if you used that with catostrophic stops at either extreme it might work but statistically your extreme stop would get hit..
I used to trade currency spreads back in the Stoneage at CME before pairs and all would be fine until it would flip around - you really couldn't manage the risk well when it got ugly..
Synthetic stops mightt have some merit for swing trading but I can't see it for Daytrading - but what do I know.. hopefully I'll get clued in..
The following user says Thank You to roztom for this post: