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There is another strategy that I use after I succeed with 1-contract trade at the beginning of each day. I use 2 contracts to enter a trade, then I exit at a set TP at 50% and let the other 50% to run its course. That way I am still making a little profit and yet exploring a bigger profit.
Can you help answer these questions from other members on NexusFi?
Dude: I want to try this new strategy on this instrument what do ya-all think?
Trader: Whats your statistical back tested edge?
Dude: .............
How do you reduce something so complex down to a single question like that and expect an answer? …
Probabilistic thinking is understanding that the outcome of one event (trade) is random, irrelevant and inconsequential. Therefore our behaviour (trading behaviour) is not influeced by one event ( trade) regardless of its outcome. Rather we behave on the basis of a sample of events (trades) and understand that that our 'edge' will play out over a large number of trades over a period of time. If indeed we have an edge ( positive expectancy). Just some ideas to research and get a handle on.
I can't comment on brooks set-ups because I don't use them. i would suggest picking one that is a "with the trend/direction" that occurs on a frequent basis. You don't want to pick one that occurs infrequently. Also, I would avoid set-ups that are counter directional where your taking short trade after a new daily high or a long trade after a new daily low. As a new trader its tough to be profitable taking counter trend trades.
Regarding support/resistance...there is nothing more important than continuation. You need to ask yourself before taking any trade "Does my trade have room to my target?", "Am I trading into a price that other traders are watching regardless of the timeframe they trade that is likely to reject when tested?" There are a lot of these levels you need to watch and they will serve as filters to not take trades. These filters will dramatically increase your win rate. First time tests of previous daily highs/lows, first time tests of overnight session high/lows, first time tests of points of control, etc..are just some. Whether the prices continue to remain relevant after the first test will be determined by the price action that occurs during the test. Did the market react to these levels or did it ignore these levels ?
Obviously as a new trader all this info is overwhelming but it is something to keep in mind. I maintain that trading is a business that is more art than science.
Now maybe this is just me but I don't use s/r to enter trades. I use them as points of reference. That doesn't mean I'll never enter on s/r. Like you said there's s/r all over the place and on many timeframes. An active level may happen to line up with my 6 reasons for entry but it's not the basis of my entry.
Let me approach this topic from another angle. On one hand, I heard:
On the other:
What is the proper place of expectancy in a life of a trader? Also, traders who do not yet have 90 days of experience. Where do they start? Build up their expectancy gradually?
You need to know that what you're doing is actually worth doing. It gets you thinking in terms of probability. I didn't really see this until I started coding what I was doing and running backtests. That's how you see how well your systems' done in the past. I would never trade live without first knowing how well this system performed in the past. It doesn't mean it will perform the same, but it gives you an idea of what to expect (hence expectancy).
As to what's important, the answer actually is that any and all could be important. When price gets to a possible S/R level, you need do observe what it does, which will tell you what you need to know. Somewhere (perhaps it is in his trading course) Brooks says that support and resistance levels usually fail, but that when price turns, it usually does so at an S/R level.
This may not always be true, but it's a good way to look at S/R: it's where a change is more likely to happen, so you give it more attention.
I would emphasize not to assume an S/R is going to be a good entry or exit. If you end up putting them into your list of trade criteria, they aren't enough to stand alone. People go broke very quickly thinking price "has to" turn up or down at a support level. Price doesn't have to do anything.
I'm still pretty new at this but I've thought a lot about it. Here's how I (currently) think about it. Imagine you have a setup where you can risk say 1.25 pts and try to make 2 pts, and you hold the trade til one or the other is taken out. You have no way of knowing how many of your next 10 trades off this setup will be successful. However you do know your success rate will be between 0% and 100%. If all success rates in this range are equally likely, then your expectancy is positive. This is because you can have a success rate that is below the median success rate and still turn a profit. Therefore, by definition, you have a positive expectancy (you "expect" to make a profit if all the above is true). So my current approach is to make sure I'm trying to make substantially more than I risk, while anticipating the success rate to "float" over successive trade samples.
I'm still collecting data to attempt to empirically verify this approach, but it seems like it has some merit. I suspect that if it proves to be invalid, then it'll be because not all success rates are equally likely.
So what does this mean? You take your actual win percentage over a period of time ("Probability of Win"), multiply it by the average amount of your winning trades, do the same with your loss percentage and average losing trade, and compare the two. If you continue to trade with exactly the same success as you did in the past, in terms of both win/loss percent and win/loss amount, this is what you can "expect" your future trades to be like, on average.
Arithmetically this will be the same as your average trade if you don't have any pure break-even trades. You can also compare the two as a ratio instead of the difference between them, which is how it is also sometimes given. ( @Massive l -- )
Of course, you don't know whether your next trades will look like those you have done in the past, but that's where your consistency comes in. Also, the more older trades you put through this formula, the more likely it is to give you a good prediction of your future. If you've done 5 trades, you don't have enough data. If you've done 100, it's going to be better.
The concept just gets your thinking away from pure win/loss percent and factors in how big the average wins and losses are. A good winning % can be killed by a bad R/R -- but a below 50% win % can be pulled up if your profits, when they come, are much better than your losses. You need to know both the win rate and the R/R, basically.
It gives you a number you can use to judge how you're doing, that's all.
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