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Webinar: FuturesTrader71 (FT71) on Risk, Sizing, Scaling and Trade Management
did anyone get the book that Futurestrader91 recommended ( The Nature of Risk by Justin Mamis) I am about halfway through and it is a good read. It reminds me of Trading in the Zone as the author redefines how we look @ risk as traders/investors.
Morad Askar, better known as FuturesTrader71 or simply FT71, will be monitoring this thread so that he may answer any questions that you post here about trading in general.
Please keep in mind that some customer service/technical support issues are …
As part of our AMA series, FT71 will also be presenting two 30-minute live screen sharing sessions each month. This is in addition to any normally scheduled "full" webinar presentations.
I have started a new thread for this invaluable book and am in the process of posting a thorough review, and also plan on posting snippets that I wanted to highlight for the benefit of everyone: The Nature of Risk: Justin mamis - Discuss this book!
I'd really like to continue this conversation and get more specific. The video near the end at around 1:42:00 was about giving the trade room to work, keep the stop at an area that your no longer right. This confuses newer traders for sure.
I've had months of performance where my stops where just hit and day by day leads to death by a million cuts. I've also had trades where performance goes up with a negative risk/reward ratio.
The reason why I say this confuses newer traders is because when talking about the risk/reward ratios, the amount is in ticks. A few ticks in the emini SPX amounts to nearly $50 or one point. What happens is traders think they can get away with super tight stops and end up overtrading, not paying attention to trade location.
The sweet spot should be where risk/reward is positive, trade location has some logic, otherwise we would all be flipping coins with a black box. One also has to account for a daily loss limit as FT71 has mentioned elsewhere. It keeps guys from fighting trends all day long and not living to trade another day.
I'd like to know what others think about this and where their "sweet spot" is
One way to view the market is that there is competition among different leverage levels. For example, if you know the market will go up say 5 points at some probability then why not trade it for 1 point with larger size. This is basically arbitrage. The ability to arbitrage is based on your leverage capacity and edge. Markets are said to be efficient because professionals are arbitraging all the edges away in real time. So, if you don't trade with enough leverage even if you can predict or forecast the market, you won't be able to make a worthwhile return. However, leverage works both ways. The risk is that if you try to trade for a small target with a small stop then it becomes easy for a larger trader with more capital to game your stops-- or the market as a whole can do that too. For example, let's imagine a large group of traders attempt to arbitrage the same profit but act in unison. That entire group of traders is at break even and their stops now represent the largest profit potential in the market. So, you need the right leverage.
You can track both the realized risk and max risk for evaluating performance. If you are asking what your max loss limit can be, it depends on your probability of realizing it. I'd be willing to risk a larger amount if my probability of realizing it were relatively less and it increased my profit. In percentage terms, obviously larger accounts will want to risk less while smaller accounts will need risk more. A risk of 2% to 5% seems to be reasonable to me but smaller accounts may need to risk more and very large accounts might desire to risk less.
Right, with smaller stops you run the risk of serially correlated losers while larger stops expose you to tail risk. With more frequent trading, you need a higher confidence of statistical profitability while if you trade less frequently then any house edge becomes less relevant especially if you are trading a large reward to risk.
I think that's where the harmonic rotations come into play. What makes your probability valid, and why? In percentage terms, I believe it has to keep the trader from risk of ruin, so less is better. That's all assuming that not much leverage if any is used.
Stop sizing also shouldn't be so wide that if you are wrong, you have no trade left. For example if you were wrong on a direction, yet by the time you get stopped, you can't take the other side.
If the rotational study is based on 1 minute or 5 minute bars, yet the move to meet your reward parameters takes 30 minutes, you still have the issue of being stopped after decent MFE. Meeting the 5 minute rotation avg of say 5 points, but your risking 10 to make 20, so the next rotation could be down and continue down.
