Rule Based Discretionary Trading

We've just published a new T2W article called "Rule Based Discretionary Trading" by Jim Harrison.

Quick Summary: Jim Harrison describes how to instill a "paradigm shift" in your trading business.

PS. Don't forget to rate the article after you've read it and share your comments on this thread.

This speaks to where I am in my trading. Lately I have been focusing on trading my plan and not endlessly looking for new strategies. This search indicates a lack of faith and commitment to the set-ups I am trading. The article smacks of live trading experience, not technical analysis addiction that consumes many traders.

A very interesting article. I appreciated most of it. But I'm sad to see an author and educator of Jim's stature and experience espousing the views he apparently has of reward/risk ratios.

He says "One of the most important numbers to calculate is your closed trade risk reward ratio. Are you risking $1.00 to make .50 cents? Ouch! That will hurt over time." But two of the most consistently successful traders it's been my pleasure to meet have much "worse" risk reward ratios than that.

The truth is that it's not nearly as simple as that comment (and all the books) would have you believe. What matters is not the R/R ratio in simple terms but the R/R ratio relative to the "strike-rate". Clearly this author knows that, and has chosen for some reason to oversimplify. This puzzles me.

Roberto, I am very bemused to observe he uses the terms Structure, Transmutation, Rules of Engagement, and Strategy. <TIC>

The strike rate is not mentioned and I agree quite rightly it should not be. The best reason is probably that if the strike rate from top professionals were to be declared this would only serve to make aspirants to feel both inadequate and in addition, to divert them from the true mission in front of them.

Kind Regards As Usual.

Roberto,

I liked the article and I think I know why he took the approach he did on reward/risk.

Although we all know that its really expectancy that matters this article is targeted at beginners. My recall is that the first failure point for beginners is normally not cutting their losses short (honouring their stops). The second one is taking their profits too soon (fear of giving back the profit). So you get the emphasis on getting enough out of your winners.

I think that it is easier for a beginner to find a lower strike rate strategy and learn to trade it than to find a very high probability low ratio strategy. So you end up with the 2:1 or 3:1 heuristics. Even if you do find a high strike rate strategy the discipline to take the win it is supposed to be getting rather than 1 tick less each time because of nerves will make a big difference to the businesses profitability.

Roberto,

I could not agree more with you. If you notice, I stated that ONE of the most important ratios is the closed trade risk reward ratio.

The strike rate, or Win Ratio, is very important. A strategy that seeks a negative risk reward ratio but has a win rate of better than 70 % +/- can be profitable as well.

The point I was trying to make was simply this:

Most traders are lured to the markets without any means to create structure in the inherently unstructured world of trading. By creating structure, traders are more likely to find the skills needed to survive long enough to learn the mechanics of how they react to the emotional strains of trading. Once they reach that point, they more than likely will be able to discern the "higher points" of Closed trade R/R and Win Ratios and the effect that outlying trades have on their trading capital.

Glad everyone enjoyed the article and I wish you all "A little more today than yesterday!"

"I like to measure my results, not in dollars, but in my ability to consistently trade my plan, which, over time, gets me the dollar amounts I desire."
Wise words!

thanks legends,i am watcher,i dont want to come in to a conclusion and raise irrelevant questions ,to all members please wait,i will also shoot all kind of threds,