Everything I say is what I have come to believe and has helped me become successful. You may disagree with what I say, but in the end I am the one trading my charts with my game plan and making money for my living, so please be respectful if I say something you truly disagree with because these are the things that have worked for me and I realize they wont work for everyone. I also trade a discretionary system that has a set of flexible rules that allow me to trade all different types of market conditions, which is based off of price action. So again, these are things that I have learned and pertain to how I trade and have helped me become successful.
This thread is mainly to talk about ideas that are on my mind, things that I feel about trading, and to post ideas/ thoughts that I think would help some beginners. Always remember to never stop learning and adapting.
Daily profit/loss limits, risk to reward ratios, and win ratiosfor me, these three topics always go hand in hand. I dont really hear them talked about much together, but when I do hear them talked about, I typically hear things that I dont totally agree with, so here is my take on the issues. I understand the logic and the math behind risk to reward ratios, expectancies, etc. All that is nice to know, but I think people get too caught up on that issue rather than being able to spot high probability trades consistently. But, anyways, here is the reason they need to be talked about together. People set daily loss limits and profit targets to stop trading at. This will make your risk to reward ratio become pretty much irrelevant. In order for the risk to reward to work in your favor you have to take every trade your system shows you is a good trade.
A very simple and unrealistic example: lets say you have a trading system that is right 50% of the time. Lets take the randomness out and say there is a loser, winner, loser, winner, loser, etcYou risk 4 ticks to make 8 ticks. You just took a 4 tick loser. You get scared and because of the loss, you let a trade go by and miss a winner. You get anxious and take the next trade. Another loser and you are down 8 ticks now. You have just hit your daily stop loss limit and end the day down. If you would have traded the next trade, instead of stopping at your loss limit, you would be break-even and then two trades after that you would have been in the profit. Only if it was so simpleSo, when you stop trading based on loss and profit limits you aren't adhering to the math behind the risk to reward ratio and the assumption that you are going to win X%; therefore, you limit yourself and are basing your system off of skewed probabilitiesprobabilities that are already not in your favor. Also, if your system really won X%, why would you ever stop trading (during your normal trading hours, whatever they may be) if you hit a dollar profit target? Wouldn't the math tell you that you should trade the entire session because X% of the time you will win X dollars, which presumable is larger than what you stand to lose? Maybe I am making it too simple, or maybe you are lying to yourself about how successful your system is if you are trading with loss and profit limits.
I need to stress this point: I am not saying to trade 24hrs of the day, to keep trading if you are just making bad decisions, to keep trading if there is really big news that is making the market completely unpredictable, or there is no liquidity in the market.and so on.
What I thinkstop worrying about risk to reward ratios, win percents, expectancies and start worrying about taking high probability trades, consistently. I enter into trades that I will initially risk 8 ticks to make 1-2 ticks (rare). But I also enter other trades where I risk 8 ticks to make 16-24 ticks, depending on how the market is moving. Most of my trades are 8 tick initial risk and 8 tick profit. Focus on watching the market patiently and take trades that are high probability. In the end, how many trades do you really need to take a day or week? The answer is less than most people …