Suggestions for mastering speculation

This is a discussion on Suggestions for mastering speculation within the General Trading Chat forums, part of the Reception category; Originally Posted by timsk 9A. Vary the size of the position (and the placing of your stop) based on the ...

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Old Oct 8, 2008, 11:40pm   #31
 
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Originally Posted by timsk View Post
9A. Vary the size of the position (and the placing of your stop) based on the volatility of the instrument being traded. Using ATR is as good a means as any for evaluating volatility and appropriate position size, IMO.
Spot on and well said,,

Many traders look at historical levels such as support and resistance , cycle as an indication of future performance and there is no reason why volatility should be any different and hence your ATR comment is spot on specially for novice traders,,

For more seasoned traders who are into perhaps more mathematical estimation of future volatility they can look into GARCH model .

Foundation of TA is based on deriving forward looking analysis based on historical evidence,,, Hence ATR can be a simple and reliable start for pos sizing

I be talking about the GARCH model in my next seminar for those who are interested in more advanced and mathematical side of the trading which is only suitable for fast PC execution of the model and hence better estimation of projected volatility

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Old Oct 8, 2008, 11:52pm   #32
 
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Yes, ATR....makes you wonder how traders can get so messed up in market like we've experienced the last few weeks. I suppose ATR works when it does and doesn't work when it doesn't. Just trade the days when it works and avoid the days when it doesn't and you will make millions.
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Old Oct 9, 2008, 12:04am   #33
 
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I also didn't say volatility has nothing to do with my trading. I am saying it shouldn't have anything to do with anyoneís trading. If you are proficient you will be efficient. If you are efficient you trade with close stops because your trades move immediately in your favour after entry and almost never put your stop at risk. Is this making it clearer? If you can only do this using wide stops, then you should endeavour to improve your timing. If you donít want to or donít feel the need to, then donít. But donít say itís function of volatility because it is not.
What I get is that you are talking about a particular type of trading where the market moves in a favourable direction as soon as you enter. In such a situation, you can have a very tight stop - I get that.

However, I can't see how you can say no trader should even consider volatility. With increased volatility, the margin for error becomes much larger no matter how good at entries you are. Therefore, you risk being stopped out all the time and not making anything. It's not unusual for a market to tip the balance one way and then whipsaw at the next moment - the DAX springs to mind.

I'm glad your method works for you and I'm not putting it down but I think you are wrong to say ALL traders should ignore volatility and that by including it a trader has a weaker technique than yourself or isn't addressing the important idea of timing. Your style of trading seems to be all about getting as many winners as possible and tiny risk - that's fine, but there are some styles which don't require such precision and still do very well.

I don't guess which way the market goes. Like you I have rules and a setup that I follow which gives me a good percentage chance in the direction I choose - it's just a favourable possibility though, nothing more. I feel you are almost saying that if a trader had perfect timing, he would never be stopped out and always get 100% winners. That is impossible as there is always an element of chance involved with any trade.
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Old Oct 9, 2008, 12:12am   #34
 
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No, you still don't get it. I said the 'stop' is a function of proficiency, not time, resistance, support, pivot points etc...it is not a mechanical issue, at all. You persist in getting some sort of concrete, tangible answer which doesn't exist. What will it take to make you understand what is meant by proficiency? I use a 1.25 point stop now. I used to use a much larger stop. Nothing has changed other than my ability to judge my entry point better. What more do you want?

I also didn't say volatility has nothing to do with my trading. I am saying it shouldn't have anything to do with anyone’s trading. If you are proficient you will be efficient. If you are efficient you trade with close stops because your trades move immediately in your favour after entry and almost never put your stop at risk. Is this making it clearer? If you can only do this using wide stops, then you should endeavour to improve your timing. If you don’t want to or don’t feel the need to, then don’t. But don’t say it’s function of volatility because it is not.

The art of speculation is recognising what has occurred and as a consequence, what will occur. It is knowing what to expect and then acting accordingly with coolness and precision. It is not taking guesses and adjusting stop size to account for 'volatility'. Like I said, cause and effect, action and reaction. Either you understand or you don't.
I tried to go Long INDU with 20pt STOP. Target is at least 200pts. 5minute ATR, today, was at least 60pts. So, theoretically, I should use Stop Loss 2.5xATR= 150pts. First time, it was stopped out. Second time, it was successful. I knew it should be successful in 2 attempts. I used perfect 1minute entries to do that. So my expected R:R is 200/ (2x20) = 5.

For pure ATR based calculation, it would be 200/150 = 1.3

It means, an experienced trader can take better R:R trades with minimal risk. That's how I understand about what you've been trying to talk about. does it make sense?
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Old Oct 9, 2008, 12:20am   #35
 
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Originally Posted by new_trader View Post
Yes, ATR....makes you wonder how traders can get so messed up in market like we've experienced the last few weeks. I suppose ATR works when it does and doesn't work when it doesn't. Just trade the days when it works and avoid the days when it doesn't and you will make millions.
Your comments are non technical and irrelevant. Understanding volatility is crucial in risk assessment and hence directly correlated to pos sizing,,,
Personal un justified views such as ATR works when it does and does not work when it does not is not a type of defence that one should put forward in acceptance or denial of theoretical concepts specially when it comes to volatility..

If you feel pos sizing and volatility are not a measure of risk analysis please refer me to some theoretical papers so I can update my knowledge,


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Old Oct 9, 2008, 8:48am   #36
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No, you still don't get it. I said the 'stop' is a function of proficiency, not time, resistance, support, pivot points etc...it is not a mechanical issue, at all. You persist in getting some sort of concrete, tangible answer which doesn't exist. What will it take to make you understand what is meant by proficiency? I use a 1.25 point stop now. I used to use a much larger stop. Nothing has changed other than my ability to judge my entry point better. What more do you want?

I also didn't say volatility has nothing to do with my trading. I am saying it shouldn't have anything to do with anyone’s trading. If you are proficient you will be efficient. If you are efficient you trade with close stops because your trades move immediately in your favour after entry and almost never put your stop at risk. Is this making it clearer? If you can only do this using wide stops, then you should endeavour to improve your timing. If you don’t want to or don’t feel the need to, then don’t. But don’t say it’s function of volatility because it is not.

The art of speculation is recognising what has occurred and as a consequence, what will occur. It is knowing what to expect and then acting accordingly with coolness and precision. It is not taking guesses and adjusting stop size to account for 'volatility'. Like I said, cause and effect, action and reaction. Either you understand or you don't.
Unless I'm missing something, all you've done is deduce that a stop of 1.25 will suffice for winners of 1pt or less. Of course volatility seems irrelevant for this type of "micro-scalping".

http://www.trade2win.com/boards/gene...ad-week-2.html

All credit to you for posting those results, new_trader, and I'm sure in a prop environment you would do very well, but don't make it out to be something it isn't.

Joey

Last edited by Joey25; Oct 9, 2008 at 8:56am.
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Old Oct 9, 2008, 8:54am   #37
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Originally Posted by new_trader View Post
No, you still don't get it. I said the 'stop' is a function of proficiency, not time, resistance, support, pivot points etc...it is not a mechanical issue, at all. You persist in getting some sort of concrete, tangible answer which doesn't exist. What will it take to make you understand what is meant by proficiency? I use a 1.25 point stop now. I used to use a much larger stop. Nothing has changed other than my ability to judge my entry point better. What more do you want?

I also didn't say volatility has nothing to do with my trading. I am saying it shouldn't have anything to do with anyoneís trading. If you are proficient you will be efficient. If you are efficient you trade with close stops because your trades move immediately in your favour after entry and almost never put your stop at risk. Is this making it clearer? If you can only do this using wide stops, then you should endeavour to improve your timing. If you donít want to or donít feel the need to, then donít. But donít say itís function of volatility because it is not.

The art of speculation is recognising what has occurred and as a consequence, what will occur. It is knowing what to expect and then acting accordingly with coolness and precision. It is not taking guesses and adjusting stop size to account for 'volatility'. Like I said, cause and effect, action and reaction. Either you understand or you don't.

Have you set a date yet to go live ?
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Old Oct 9, 2008, 9:17am   #38
 
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I don't guess which way the market goes. Like you I have rules and a setup that I follow which gives me a good percentage chance in the direction I choose - it's just a favourable possibility though, nothing more. I feel you are almost saying that if a trader had perfect timing, he would never be stopped out and always get 100% winners. That is impossible as there is always an element of chance involved with any trade.
No, I am not saying a trader will always get 100% winners. There is always the chance of misjudgement and this is why a trader must use tight stops. Capital preservation is paramount. As the trader progresses and makes new discoveries and has new realisations they will modify their behaviour and the result will be their stops are being hit less often and their entries are improving and they are becomming profitable. This is irrespective of ‘market conditions’ because the trader becomes aware of what is what and what is not. Simple.
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Old Oct 9, 2008, 9:19am   #39
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eg of how historic volatility can be useful...re sp cash over the last 3 days we've had lower lows, red candles and the range (ie the volatility element) has contracted. this has occurred 17 times since 1998, in all trades we have bounced in the next 24 hrs (ie before 2115 tomorrow)....without giving everything away, im now long biased, expecting to hit 992-97 min tomorrow . dyor, fwiw, this is data mined, im also hedge with deep otm puts, so risk reduced in case of meltdown
fwiw, targets hit.

grey - spot on
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Old Oct 9, 2008, 9:23am   #40
 
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Have you set a date yet to go live ?
Do you always make spurious inane comments?
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Old Oct 9, 2008, 9:25am   #41
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Do you always make spurious inane comments?
It was only a question !....tsk some people !
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Old Oct 9, 2008, 9:30am   #42
 
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It was only a question !....tsk some people !
So was mine

Anyway, time to leave this thread, it is now infected.
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Old Oct 9, 2008, 9:34am   #43
 
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Have you set a date yet to go live ?
yes, probably once the latest order of pizza is prepared and delivered.

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Old Oct 9, 2008, 10:09am   #44
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Just caught this gem of a thread !

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I disagree. Current market conditions have been the ultimate acid test of the wisdom and advice of Socrates. He is, no doubt, the Grand Master of trading.
The only thing he was was a first class charlatan and posturer spouting esoteric nonsense whose sole purpose was to dazzle total newbies with simple and gullible souls into believing that he was a proficient trader.

Real traders understand that trading is nothing more than a simple probability game.

But then he couldn't have known that as he couldn't have traded his way out of a paper bag if his life depended on that as he proved when he went live for one single time only and promptly lost.

Bull****ters bull**** around with misleading complexity that has no other purpose than to impress, real traders understand the inherent simplicity of markets, that there is no secret conductor conducting all market participants in a manner that could be predicted with a crystal ball,no, instead of wasting their time on understanding what cannot be understood as all markets are is just the sum of their participants differently motivated actions, so they just make like a casino, forget about hit rates as a priority, walk the walk, and make lots of money.

Click the image to open in full size.

Quote:
Originally Posted by Joey25 View Post
Here's a trade I've just done which illustrates that you can have wide stops based on volatility, and provided you use the vol to your advantage in the exits, you'll do far better than being ultra-precise and scalping for a few ticks.

The trade was a pivot point fade, the pivot point being more fadeable the more time has passed throught the day.

The stop is based on resistance, but should come in similar to 15-min ATR

Sell 3 at 1027.00
Stops at 1033.25
Exit at 1018.25

Profit = 3 x 8.75 = +26.25 points

Even though the stop was 6.25 away from the entry point, the move only got as high as 1027.25. What I'm saying is that the price should reverse somewhere between 1027.00 and 1033.25 - where exactly I don't care.

The point is the position of the stop is not the same as the risk of the trade

Then throughout the life of the trade the P/L deteriorated at times by 4pts, and the end result was inefficient in that it got as low as 1014.00. But who cares when the end result is + 9 handles?

Joey
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Originally Posted by Grey1 View Post
Your comments are non technical and irrelevant. Understanding volatility is crucial in risk assessment and hence directly correlated to pos sizing,,,
Personal un justified views such as ATR works when it does and does not work when it does not is not a type of defence that one should put forward in acceptance or denial of theoretical concepts specially when it comes to volatility..

If you feel pos sizing and volatility are not a measure of risk analysis please refer me to some theoretical papers so I can update my knowledge,


Grey1

Spot on guys !


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Unless I'm missing something, all you've done is deduce that a stop of 1.25 will suffice for winners of 1pt or less. Of course volatility seems irrelevant for this type of "micro-scalping".

http://www.trade2win.com/boards/gene...ad-week-2.html

All credit to you for posting those results, new_trader, and I'm sure in a prop environment you would do very well, but don't make it out to be something it isn't.

Joey
If it's even true - and NT has never gone live as far as I am aware -, then that kind of trading is COMPLETELY irrelevant, as it is NOT scalable, you CANNOT compound it.

But turning the leastest into the mostest is why we are doing this, otherwise you could make far safer and better money becoming a consultant or sthg.

High hit rate is just for those who have a need to be right, but it is NOT the way to make the most money.

Most net losers in markets are right more often than they are wrong.

Should give some people sthg to think about !

Does one see or does one not see ?

LOL !
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Old Oct 9, 2008, 10:20am   #45
 
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Most net losers in markets are right more often than they are wrong.

Should give some people sthg to think about !

Does one see or does one not see ?

LOL !
Exactly.

The results from my journal, although statistically small, illustrate the point. 10 winners, 3 losers and I lost almost everything.

Let's put it down as a live experiment to test the validity of the "spanish stop". Markets do not always come back no matter how far away you put your stop and if you make money doing this, it is almost 100% down to luck. It cannot be continued for any lengthy period of time.

I have, in my own trading, actually noted an INVERSE RELATIONSHIP between win:loss ratio and account growth. I know this sounds insane but it is true for me - the more winning trades I have, the less I end up with ultimately.
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