Big Mike 

If you are entering trades without knowing the potential reward, ie -- you have no targets based on your market experience -- then you can't make sound decisions for measuring the risk/reward of the trade itself. How do you know if you should even be in the trade at all if you don't know if the risk/reward is good? Mike

I understand the concept of risk/reward and what you mean by "knowing the potential reward" but i never contemplate the reward aspect as a reason to take a trade. As you wrote the reward is just a potentiality or a projection in the future. Price action follows a structure, that's why we can win at this game. It's not completely random all of the time. I try to enter when price becomes less random so to speak and i never think about the reward aspect until i get there. When i am in a trade i just think about managing it. That's subtil but it can make a big difference in the approach.

trendisyourfriend 

I understand the concept of risk/reward and what you mean by "knowing the potential reward" but i never contemplate the reward aspect as a reason to take a trade. As you wrote the reward is just a potentiality or a projection in the future. Price action follows a structure, that's why we can win at this game. It's not completely random all of the time. I try to enter when price becomes less random so to speak and i never think about the reward aspect until i get there. When i am in a trade i just think about managing it. That's subtil but it can make a big difference in the approach.

I agree it is not always random.

Are you saying then that you don't care about risk and reward on each individual trade? That doesn't factor in to knowing if you should take or pass on the setup?

Mike

My trades are always based on O&P Odds & Probability and thus determines my stop loss and my targets.

Cheers
itrade2win

itrade2win 

My trades are always based on O&P Odds & Probability and thus determines my stop loss and my targets. Cheers itrade2win

Hi itrade2win, I'd be curious to know how you proceed to determine the odds & probability of a trade as basically having the edge means the odds are on your side.

trendisyourfriend 

Hi itrade2win, I'd be curious to know how you proceed to determine the odds & probability of a trade as basically having the edge means the odds are on your side.

Sure, I look at several time frame charts in the morning for key levels.

405 min I go back to the most recent hi/lo and look for HVN's and LVN's
135 min same as the 405 chart it just breaks it down into three sessions
10 min, 30 min and 60min charts for gaps, POC's and NPOC's
All sessions charts squeezed together looking for patterns
1 min and 5 min with key levels and vol.

I plot constant lines on a 1 min chart from the levels on the other time frame charts and try to make a case for confluence where several levels match up. The more the merrier, the more confluence the higher the O&P.

I hope this makes sense. You may get more from my journal

itrade2win's Trade Journal To Success I hope this journal will benefit my trading as well as help others in this forum. Just a quick background of my experience and how I got into the trading biz. I was a self-employed business owner of a marketing company selling LG Electronics commercial …

cheers
itrade2win

itrade2win,

That's interesting and i'll check your journal to further understand your thought process meanwhile you did not really give any details about what makes you believe the odds are on your side when you take a given trade.

As a small retail trader we are not like a Casino owner where the odds are fixed and always on his side. A Casino owner knows the house edge is fixed and no matter his patronage, he always has the advantage over the trades given to his commercial establishment by his customers.

So i repeat my question, how do you know when you take a trade that the odds are biased in your favor ? In other words, you have more than at least 55% chance to succeed on the trade you plan to execute ?

Experience.......seems to be is the key common ingredient, without which there is no cake.

I boil down my edge into "Belief in my system, Courage to enter, the Conviction to stay the trade....and accept that I am still learning and not blame anyone else or the market for losses"

ps. I don't trade with an anticipated risk/reward either; I happily to accept what the market gives but I do review the RR at the end of the week.

vincetc 

...I boil down my edge into "Belief in my system, Courage to enter, the Conviction to stay the trade....and accept that I am still learning and not blame anyone else or the market for losses"

If that's all we needed, trading would be somewhat easier. Belief in your system will help but it won't give you an edge. I am sure many gamblers have faith in their system but that does not change anything to the house edge. The house edge will still prevail independently of your belief.

trendisyourfriend 

Theoretically , having an edge should translate in winning more than losing. We often hear that trading is 95% psychological and 5% technical. What do you think ? If that would be the case then how come is it so difficult to develop a *winning* mechanical system? After all, a computer is not influenced by emotions. If a computer can psychologically feel 100% up to snuff all of the time then why a cross over of two moving averages is not enough to win over the long term ? Certainly, to win the game there is more than psychology, there must be other component we need to consider ? I have the feeling that these other components are more physical and technical than anything else. And we often hear that trading is mostly phychological... What a paradoxical theme!

An edge is only a set of variables . Spending a lot of time concerned about your variables you need to see is damaging to your psyche in regards to trading because no "perfect" or even "best" edge exists . Searching for the best edge is a futile endeavour . The psychological end of this applies to how well you can control yourself in regards to trading .

The sucess comes when you can balance self control , intuition ( the when and where on the chart to trade part , which IS critical ) and probabilities . Like a master poker player you just have to play out your hand thats dealt to you , thats it . If you dont get dealt the hand you like , you wait until you do .

trendisyourfriend 

itrade2win, That's interesting and i'll check your journal to further understand your thought process meanwhile you did not really give any details about what makes you believe the odds are on your side when you take a given trade. As a small retail trader we are not like a Casino owner where the odds are fixed and always on his side. A Casino owner knows the house edge is fixed and no matter his patronage, he always has the advantage over the trades given to his commercial establishment by his customers. So i repeat my question, how do you know when you take a trade that the odds are biased in your favor ? In other words, you have more than at least 55% chance to succeed on the trade you plan to execute ?

I think I did explain myself very clearly. The more the confluence the higher the O&P. If you're asking for me to give you the winning percentage, I don't have that nor do I really care. In the uncertainty principle anything can happen. I also look at the context of the market.

As a suggestion if you haven't done so already you may want to read "Trading in the Zone" by Mark Douglas. What it sounds like to me is that you're searching for someone to say I have a 90% winning percentage with this setup. Every moment in the market is unique.

An edge is nothing more than an indication of a higher probability of one thing happening over another.

I hope this clears things up for you.

Cheers
itrade2win