TheBramble’s Trading 201

[TheBramble]

if you have risk:reward of 1:4, that means you make $4 for every $1 risked.
if you win 3 times out of 5: (1.5:1)

you should win ($4 * 3) = $12 for every ($1 * 2) = $2 risked.

you should be making $12 for every $2 risked?

the actual values are not representative of the given R:R?

Yes. This was going to be a key point of what I was trying to get across.

We estimate all sorts of metrics for tailoring and tweaking our trading systems, but at the end of the day, reality rarelt justifies the efforts, and when it does lend a hand to our aspirations, we more typically than not, scupper our own endeavours by selling ourselves short (no pun).

The R:R we estimate for our systems, rarely comes it at that value. Typically less. On rare occasions, more.

Take a range player. Clearly defined upper and lower bands and the price ricocheting nicely off each level. Stops just beyond the lower/upper levels, targets just in front of them. Nice easy piece of math. Yet, as it goes closer to the target band, and the momentum falters – do you sit tight to wait for your ordained target to be hit?

Or it’s moving nicely toward target and you get a sharp reverse with volume, do you wait for your stop to get taken out?

Trades RARELY conform to your perfect model of what each trade’s R:R should look like. R:R a complete waste of time.

So, what should we be looking at? What piece of information is really the only thing that matters?

 

[TheBramble]

imho,

this system is working with a trailing stop loss which is why the average loser is significantly less then the initial risk.

Could be performing like this for any number of reasons. The key point is, the actual losses ARE less than the max risk allocated to each trade. Why might that be?

however this is a sticking point for me, when calculating your r:r do you use actual results or the original and maximum stop loss.

Aha! See my post above.

 

[trendie]

First good point. Do you really, truly have that many dead breakeven trades - totally zero? And those that you do, do you count them as a winner or a loser? You can choose, and choose you must. How do you think most traders would choose to classify them? In the context of these formulas, how do you think traders SHOULD classify them?

on short time frame, yes many BE in the past, I used to move SL to BE after move in my favour by 20 pips or so. but this was a waste of time, as if the market is choppy, I would get a similar trigger later on, usually at slightly worse price. so I just let it go to loss, or see where price is congesting, and get a better feel for where the SL should be.

I dont know how traders should classify them. with SB, no cost. but, for DA, a trade closed out for nothing will still incur commissions.

 

[trendie]

Yes. This was going to be a key point of what I was trying to get across.

We estimate all sorts of metrics for tailoring and tweaking our trading systems, but at the end of the day, reality rarelt justifies the efforts, and when it does lend a hand to our aspirations, we more typically than not, scupper our own endeavours by selling ourselves short (no pun).

The R:R we estimate for our systems, rarely comes it at that value. Typically less. On rare occasions, more.

Take a range player. Clearly defined upper and lower bands and the price ricocheting nicely off each level. Stops just beyond the lower/upper levels, targets just in front of them. Nice easy piece of math. Yet, as it goes closer to the target band, and the momentum falters – do you sit tight to wait for your ordained target to be hit?

Or it’s moving nicely toward target and you get a sharp reverse with volume, do you wait for your stop to get taken out?

Trades RARELY conform to your perfect model of what each trade’s R:R should look like. R:R a complete waste of time.

So, what should we be looking at? What piece of information is really the only thing that matters?

completely agree. BSD has written another good post on similar subject.
the number-crunching is useful, but cant be the be-all-and-end-all.
but the stats are a useful mantra when you have sequences of losses, otherwise you'd give up.

agree that we hardly ever trade perfectly, and yes, taking profit when it wavers close to the target rather let it hit, happens often.

what really matters: search me, if I knew I would have fewer grey hairs and more money.

 

[foredog]

First good point. Do you really, truly have that many dead breakeven trades - totally zero? And those that you do, do you count them as a winner or a loser? You can choose, and choose you must. How do you think most traders would choose to classify them? In the context of these formulas, how do you think traders SHOULD classify them?

I would view a BE as a loss because your trade has not progressed enough to your target and either you or your method is telling you that you think the price is more likely to reverse.

(or maybe i'm just a "glass half empty" person)

 

[Axis of Evil]

So, what should we be looking at? What piece of information is really the only thing that matters?

I guess.. your current capital? All calculations aside, if you capital isn't accumulating, then you don't make money. And we're in it for the money, right?

btw.. I also see Break Even Trades as loss. I think risking a heap of money and not getting anything in return is best to be classified as a loss.

Looking at the system, I find it rather strange that the average loss is just 295 USD. If you're going to risk 1% of 375,000 USD, thus 3,750 USD. Your average loss should be 3,750 or not?

 

[Captain Currency]

Greetings The Brambles,

I tip my hat to you, good posting young man.

Reading between your lines I reckon you have this trading (numbers) game figured out!

Now you have enough spare time on your hands to prod (in a nice way) the brains of traders on t2w.


Kind regards,

 

[BSD]

Great posts, Bramble and Trendie !!!

What I do, and I guess, or at least hope, that the reason I do it is because it makes sense, at least according to my understanding of markets and trading, is enter markets with zero positive or negative anticipation, I merely observe and otherwise let events unfold with neither despair nor euphoria.

All I care about is what is, not what should be or what I hope for.

Trés Zen, what, haha.

I have initial negative targets that get me out with a stop loss, once I'm a certain way into profitable territory I'll start trailing a stop, so my 1 R of initial max loss doesn't get hit all that often, but smaller losses including breakevens that I also view as losses are obviously a far more frequent tour companion.

Post Breakeven it's more of the same albeit at now reduced risk but still ample opportunity, I'll continue watching what price does.

I don't do profit targets, I'll just let the market stop me out.

Horses for courses, really, I'm sure that target traders have higher consistency at the cost of foregoing home runs, for me it's vice versa, I get lots of good moves reversing on me, that is regularly give up lots of paper profits, but capture much more of real trends when and as they occur that way.

My thinking was always that I want to learn a trading style that I won't have to unlearn one day as one keeps on compounding for eventual liquidty issues.

Don't get me wrong, that's nowhere near an issue yet, but the key thing for me is trading in a way that ensures that I won't have to totally change what I'm doing while growing.

 

[Gumping]

Auh Kun Bramble!

I only just saw this topic and read the whole thing - shame really, I'd have liked to have been in on it from the start. Only problem is I usually am pretty clueless on these things so I would have said little of any use

 

[trendie]

Great posts, Bramble and Trendie !!!

What I do, and I guess, or at least hope, that the reason I do it is because it makes sense, at least according to my understanding of markets and trading, is enter markets with zero positive or negative anticipation, I merely observe and otherwise let events unfold with neither despair nor euphoria.

All I care about is what is, not what should be or what I hope for.

Trés Zen, what, haha.

I have initial negative targets that get me out with a stop loss, once I'm a certain way into profitable territory I'll start trailing a stop, so my 1 R of initial max loss doesn't get hit all that often, but smaller losses including breakevens that I also view as losses are obviously a far more frequent tour companion.

Post Breakeven it's more of the same albeit at now reduced risk but still ample opportunity, I'll continue watching what price does.

I don't do profit targets, I'll just let the market stop me out.

Horses for courses, really, I'm sure that target traders have higher consistency at the cost of foregoing home runs, for me it's vice versa, I get lots of good moves reversing on me, that is regularly give up lots of paper profits, but capture much more of real trends when and as they occur that way.

My thinking was always that I want to learn a trading style that I won't have to unlearn one day as one keeps on compounding for eventual liquidty issues.

Don't get me wrong, that's nowhere near an issue yet, but the key thing for me is trading in a way that ensures that I won't have to totally change what I'm doing while growing.

[cant rep you again!]

While what you say is perfectly correct, that we have to be Zen-like, and I agree, but there can be some overriding reasons why some dont achieve that.

If you are undercapitalised, then you have a daily grind of grabbing enough pips to hit short term targets so that you can retrieve funds to pay bills, etc.
Under these circumstances, allowing a trade to grow, whilst ideal, doesnt happen, since you see it terms of another mortgage payment on the table, and grab it before it slips through your fingers.

It is dawning on me that my current main weakness is under-capitalisation.

(sorry, Brambs, this post off-topic)

 

[BSD]

That's a very valid point Trendie !!!

I think that's probably what most locals did back in the day, but you can still make a superb living that way.

 

[bansir]

Anyone else spotted the smoke & mirrors in this question yet?

Hi Bramble,
Not sure if I understand correctly, but I think the jist so far is no matter how many sums you do you can't predict how many consecutive losers / winners you're going to get.
On a trade by trade basis you can look at a particular set up and make a judgement as to whether there is enough room to make a profit compared with your proposed risk.
I also share the same sticking point as Elefteros wrt R:R measurement.
If one is trailing stops then the R:R at any point during the trade decreases.
One could calculate an average risk value for the trade I suppose and use that.
I think I've probably missed the point you're making. I'll think on it a bit more.

Best Regards,
Neil

 

[rols]

Hi Bramble,
Not sure if I understand correctly, but I think the jist so far is no matter how many sums you do you can't predict how many consecutive losers / winners you're going to get.
On a trade by trade basis you can look at a particular set up and make a judgement as to whether there is enough room to make a profit compared with your proposed risk.
I also share the same sticking point as Elefteros wrt R:R measurement.
If one is trailing stops then the R:R at any point during the trade decreases.
One could calculate an average risk value for the trade I suppose and use that.
I think I've probably missed the point you're making. I'll think on it a bit more.

Best Regards,
Neil

Strangely enough I have been investigating with the help of MT4 various combos of results.
Here is a sample over 99 trades.
the winners almost equal the losers
yet there is an profit by letting winners run and under certain conditions giving losers a negative trailing stop.

One thing I have seen time and time again both in real trading and back testing that moving the stop to break even reduces profits.

Initial deposit 10000.00
Total net profit 12675.50
Gross profit 32259.00
Gross loss -19583.50
Profit factor 1.65
Expected payoff 128.04
Absolute drawdown 280.00
Maximal drawdown 2779.00 (19.73%)
Relative drawdown 19.73% (2779.00)
Total trades 99
Short positions (won %) 54 (53.70%)
Long positions (won %) 45 (48.89%)
Profit trades (% of total) 51 (51.52%)
Loss trades (% of total) 48 (48.48%)
Largest profit trade 1858.00 loss trade -407.99
Average profit trade 632.53 loss trade -484.50

Maximum consecutive wins (profit in money) 5 (3128.00)
consecutive losses (loss in money) 4 (-1846.00)
Maximal consecutive profit (count of wins) 3885.00 (3)
Average consecutive loss (count of losses) -1846.00 (4)

consecutive wins 2
consecutive losses 2

 

[simcom]

TheBramble - thanks for this superb thread. Don't want you to feel that it has been totally wasted on newbies. I for one have found it extremely informative!

 

[TheBramble]

I would view a BE as a loss because your trade has not progressed enough to your target and either you or your method is telling you that you think the price is more likely to reverse.

Well, I see no point in beating yourself up over a BE. I was just kidding - you don't HAVE to choose to count it as a loss or a win. You could even decide that any absolute wins/losses within a given central band of ‘loose change’ aren't even considered.

'Progressed enough to target' - sounds like you're expecting reality to make a commitment to your trading system.

‘Price is more likely to reverse’ – uh? It’s a done deal – a closed trade. Either your system closed it according to your rules or you panicked and “discretionised” it.

 

[TheBramble]

what really matters: search me, if I knew I would have fewer grey hairs and more money.

Axis of Evil has it.

 

[TheBramble]

I guess.. your current capital? All calculations aside, if you capital isn't accumulating, then you don't make money. And we're in it for the money, right?

That’s the one.

btw.. I also see Break Even Trades as loss. I think risking a heap of money and not getting anything in return is best to be classified as a loss.

Not a dead loss though? You kept your stake. Not many plays that allow that as an option. True, you would have had more if it had been in the risk free pot, but even 1/365th of 8% on largish numbers doesn’t impress when you consider the potential. That’s one thing that even Sharpe doesn’t factor. (About the only bloody thing it doesn’t….)

Looking at the system, I find it rather strange that the average loss is just 295 USD. If you're going to risk 1% of 375,000 USD, thus 3,750 USD. Your average loss should be 3,750 or not?

Yes. And that tends to be much closer to real life for most traders than the idealised textbook models. Would you agree?

 

[TheBramble]

Now you have enough spare time on your hands to

That would have been a 'pistols at dawn' moment had you not had the joys of fatherhood so sore upon you. 'Time on my hands'...bloody cheek....

 

[TheBramble]

Hi Bramble,
Not sure if I understand correctly, but I think the jist so far is no matter how many sums you do you can't predict how many consecutive losers / winners you're going to get.

Exactly. Or more importantly, when…

On a trade by trade basis you can look at a particular set up and make a judgement as to whether there is enough room to make a profit compared with your proposed risk.

The point is, that is what we do. On every trade. Does iot ‘look lile’ it fits our criteria. And we’ll take those that almost but don’t quite more often than we ’should’.

I also share the same sticking point as Elefteros wrt R:R measurement.
If one is trailing stops then the R:R at any point during the trade decreases.
One could calculate an average risk value for the trade I suppose and use that.
I think I've probably missed the point you're making. I'll think on it a bit more.

Why would a trailing stop necessarily reduce your R:R?

 

[Vaco]

For me r:r now seems to matter more when planning a trade, is this trade worth taking whts the maxmum i'm willing to risk on this trade and is the potential profit worth the risk.

If it looks good take the trade, if conditons change or your system knocks you out at break even or a reduced loss then expected then thts just part of the way your system works, actual r:r should be compared to projected r:r in order to analyse the system and yourself. Are you falling short of your targets because they are unrealistic or because your not letting the trade play out? is your trailin stop causing smaller losses or are you getting cold feet?

I still think win/loss ratio is very important for our mental health for the same reasons already posted by trendie i think, it keeps you from giving up on your system after a bad run when you look at it and see even at the now reduced win/loss you will still be profitable.