Suggestions for mastering speculation

[counter_violent]

Do you always make spurious inane comments?

It was only a question !....tsk some people !

 

[new_trader]

It was only a question !....tsk some people !

So was mine

Anyway, time to leave this thread, it is now infected.

 

[the blades]

Have you set a date yet to go live ?

yes, probably once the latest order of pizza is prepared and delivered.

UTB

 

[BSD]

Just caught this gem of a thread !

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.

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

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 !

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/general-trading-chat/39528-good-week-bad-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 !

 

[trader_dante]

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.

 

[Bladerunner]

with the truth

So was mine

Anyway, time to leave this thread, it is now infected.

Infected with the truth or just infected :?:


Andy

 

[the blades]

Infected with the truth or just infected :?:


Andy

just infected!

 

[Paul71]

No, stops are a function of time.

Sorry mate, got to disagree. Stops are a function of price, it's that simple. Prices are up for buying and selling, and although volatility is big at the mo, the same prices are running in the market, up for auction. So you are either with the market or you are not, you can only buy off sellers, and you can only sell buyers, anything else is against the grain.

No offence, Joey, and not intended as bravado face slapping.

Good trading, mate.

 

[Joey25]

Sorry mate, got to disagree. Stops are a function of price, it's that simple. Prices are up for buying and selling, and although volatility is big at the mo, the same prices are running in the market, up for auction. So you are either with the market or you are not, you can only buy off sellers, and you can only sell buyers, anything else is against the grain.

No offence, Joey, and not intended as bravado face slapping.

Good trading, mate.

I agree with you Paul, good post.

 

[firewalker99]

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".
Joey

Having tight stops has nothing do with scalping, but everything with understanding the market's behaviour and having the patience to wait until the probabilities are highest. I don't know anything about new_trader's strategy, other that he uses a 1.25 ES apparently, but that says nothing about the target.

Using a 2 point stop on the ES yesterday, had no effect on my exit (which was +30 points, but only 7 minutes later). I consider myself only a mediocre trader. For example, I've seen many of the more experienced traders use 0.50 ES stops with 50 point targets. Yes, also in the last week or month.

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 have argued many times with you said in the past, but I'm not afraid to admit that the above is absolutely correct. That doesn't change the fact that it'll probably fall on deaf ear's because it's always easier to shoot the messenger, than attack the message.

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?

I fear your point will get lost here. Those who are waiting for a bar to close on their 5 or 15 minute chart, should not complain that they can't place their stops close enough. A chart may show discrete bars or candles but price flows continuously.

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.

Exactly. But most people rather spent time reading complex mathematical theoretic models about risk & money management, Sharpe ratio, R:R, etc, etc. than study the market until their eyes bleed.

Sorry mate, got to disagree. Stops are a function of price, it's that simple. Prices are up for buying and selling, and although volatility is big at the mo, the same prices are running in the market, up for auction.
Good trading, mate.

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.

If you're in a trade for one hour and the market hasn't moved much, shouldn't you ask yourself whether or not the market has given a clear signal? You should always aim to enter a trade when there is a very high chance that price will move in the favourable direction sooner rather than later.

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.

If you're caught in whipsaw, then it means you're timing is off. The only thing that is affected by the current volatility, is the margin requirements your broker demands.

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.

Minimizing risk should be the number 1 priority on anyone's list. Unfortunately, most people only think about the reward, which - unlike risk - is something you don't have complete control over. Is it necessary to have 1 point stops in order to make a profit? Obviously not. But then should it come as a surprise why many people are losing money in this volatility?

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.

Luck (like talent) is overrated...

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.

Well I'm surprised to hear this coming from you... I thought your trading approach had high win%, but anyhow... There are only two explanations for what you are describing: you're either using too wide stops (most likely) or you're cutting your profits short.

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.

ATR is fine as far as it goes. And I'm not ashamed to admit I used it for a long time though, before realizing there is no reason to have 10 point stops just because the market can move 10 points in your chosen timeframe!

Despite that almost nobody will agree, new_trader is right, stops are a function of proficiency, and nothing else. Try a tick chart.

 

[Paul71]

Having tight stops has nothing do with scalping, but everything with understanding the market's behaviour and having the patience to wait until the probabilities are highest. I don't know anything about new_trader's strategy, other that he uses a 1.25 ES apparently, but that says nothing about the target.

Using a 2 point stop on the ES yesterday, had no effect on my exit (which was +30 points, but only 7 minutes later). I consider myself only a mediocre trader. For example, I've seen many of the more experienced traders use 0.50 ES stops with 50 point targets. Yes, also in the last week or month.



I have argued many times with you said in the past, but I'm not afraid to admit that the above is absolutely correct. That doesn't change the fact that it'll probably fall on deaf ear's because it's always easier to shoot the messenger, than attack the message.



I fear your point will get lost here. Those who are waiting for a bar to close on their 5 or 15 minute chart, should not complain that they can't place their stops close enough. A chart may show discrete bars or candles but price flows continuously.



Exactly. But most people rather spent time reading complex mathematical theoretic models about risk & money management, Sharpe ratio, R:R, etc, etc. than study the market until their eyes bleed.







If you're in a trade for one hour and the market hasn't moved much, shouldn't you ask yourself whether or not the market has given a clear signal? You should always aim to enter a trade when there is a very high chance that price will move in the favourable direction sooner rather than later.



If you're caught in whipsaw, then it means you're timing is off. The only thing that is affected by the current volatility, is the margin requirements your broker demands.



Minimizing risk should be the number 1 priority on anyone's list. Unfortunately, most people only think about the reward, which - unlike risk - is something you don't have complete control over. Is it necessary to have 1 point stops in order to make a profit? Obviously not. But then should it come as a surprise why many people are losing money in this volatility?



Luck (like talent) is overrated...



Well I'm surprised to hear this coming from you... I thought your trading approach had high win%, but anyhow... There are only two explanations for what you are describing: you're either using too wide stops (most likely) or you're cutting your profits short.



ATR is fine as far as it goes. And I'm not ashamed to admit I used it for a long time though, before realizing there is no reason to have 10 point stops just because the market can move 10 points in your chosen timeframe!

Despite that almost nobody will agree, new_trader is right, stops are a function of proficiency, and nothing else. Try a tick chart.

Brilliant post, FW. Spot on mate!

 

[Jaydee]

Firewalker, you are talking about a very specific type of day trading where a high hit rate and low risk is important. If I trade purely off the orderbook and don't use any charts, I am more inclined to trade this way. However, that is not my point. My point is that there are many ways to trade and, consequently, a high winner rate and low risk rate is not the only way, neither is it the best or the worst way. The fact that a trader says that risk is more important than reward just represents their own trading personality. Another trader will tell you the opposite and, another still, will tell you they are both equally important. It doesn't matter and nobody is right here. The be all and end all is not entries and timing perfection for everybody and, for that reason, it is incorrect to tell them that their method is wrong and they should be focusing on this or that - their method is only wrong if they consistently lose money.

An example I keep trying to give is, what if you weren't an intraday trader, what if you were trading over a period of weeks rather than minutes? Could you still get the same level of precision? I don't think so. Why is that? The obvious answer is because the market moves in a much wider range in the period of a day or week than it does in a minute or 60 minutes - i.e. it is more volatile in the longer time frame. Therefore, to say that a trader shouldn't use volatility is pure folly because it depends on the time frame and the way they trade.

Minimizing risk should be the number 1 priority on anyone's list. Unfortunately, most people only think about the reward, which - unlike risk - is something you don't have complete control over. Is it necessary to have 1 point stops in order to make a profit? Obviously not. But then should it come as a surprise why many people are losing money in this volatility?

Yes, but you are referring to just tight stops in this case and risk isn't just having a tight stop. It is about sizing correctly, not risking too much per trade as well as stops. If you are a big trader or trading an illiquid market, liquidy management also plays an imporant role.

I also think less people worry about trade exits more than entries and stop levels - read across the various trading message boards in the World and it seems that most are trying to get 90-100% hit rates. They pay no attention to trade exits which are the hardest to master of all.

If you're caught in whipsaw, then it means you're timing is off.

Agreed, sometimes it is, but other times it's because 'anything can happen' - as I have said before, there is an element of chance in every trade. As you mentioned earlier, entries are made when the chances of the trade in the favourable direction are the highest - there is nothing more than a favourable possibility. Losing money over a period of time on a number of trades is the fault of the trader, but losing money on a single trade can be down to chance not giving you a winning trade this time round (not always, sometimes a trader makes mistakes, but the other times it's down to chance).

Despite that almost nobody will agree, new_trader is right, stops are a function of proficiency, and nothing else. Try a tick chart.

I would never deny that proficiency is imporant, but stops are not just based on this - unless proficiency encompasses everything that has been said in this topic (ability to measure time frame, liquidity, volatility, etc correctly).

 

[superfly]

Using a 2 point stop on the ES yesterday

Try a tick chart.

Or try a fixed (2 point) range chart...................

 

[chilltrader]

..I have been using a stop on the ES contract of 1.25 points since the start of September 2008 (this year). Yes, every session.

you prefer to bleed slowly then?! :cheesy:

 

[Paul71]

... what if you weren't an intraday trader, what if you were trading over a period of weeks rather than minutes? Could you still get the same level of precision? I don't think so....


Jay, this is why intraday is so popular with individuals, you know where you stand, it's black and white, and easier to work the %s, most of the time.

 

[Jaydee]

Jay, this is why intraday is so popular with individuals, you know where you stand, it's black and white, and easier to work the %s, most of the time.

I'd agree with that mate. I just thought it was a bit misleading to say volatility is nonsense and stops have to be tight and entries perfect when the style to which new trader and Firewalker refer is so specific which is why I was trying to provide another angle.

 

[Paul71]

I'd agree with that mate. I just thought it was a bit misleading to say volatility is nonsense and stops have to be tight and entries perfect when the style to which new trader and Firewalker refer is so specific which is why I was trying to provide another angle.

Understand what you are saying Jay, but volatility basically opens up range width, which offers more potential for profit. This has to be put into the context of 'solid' price 'discovery', not just a blip on the radar, the price has got to have real market attention.

 

[Jaydee]

Understand what you are saying Jay, but volatility basically opens up range width, which offers more potential for profit. This has to be put into the context of 'solid' price 'discovery', not just a blip on the radar, the price has got to have real market attention.

Yes, I agree the price must be focused on, but when you start looking at wider ranges and larger periods of volatility, price discovery become less obvious, more aggressive and random. The 'tipping point' for a move is rarely in the range of one or two ticks for volatile market conditions as it is during a smaller trading range - there is a great deal of noise around the areas where the market is about to make a move from.

Also, you get the situation where you are waiting for that point to sell and somebody hits through several price levels, going through the price you wanted. You couldn't get in earlier, because the trade could go either way if you entered too soon. You can either wait and hope it retraces to get your initial entry price but, doing this, you risk losing the trade if it doesn't retrace; or you can get in at a slightly worse price keeping your stop tight, but there is a good chance of a retracement stopping you out. (This situation happened a great deal while I was trading the Eurostoxx on Wednesday). So, you get two choices, you either stop out more until you get the move right or, you increase the stop size. The effect of both of these will be similar - you will lose more trades but less ticks per trade on the one and lose less trades on the other with more ticks per trade being lost.

I would be surprised in these market conditions if traders, who were keeping their trade stops the same as they were a few months back, are still be returning the same ratios of winners to losers - it would make more sense that they were having to have a few more 'bites of the cherry' to get the move they were seeking exactly right whilst using tight stops.

 

[Paul71]

Yes, I agree the price must be focused on, but when you start looking at wider ranges and larger periods of volatility, price discovery become less obvious, more aggressive and random. The 'tipping point' for a move is rarely in the range of one or two ticks for volatile market conditions as it is during a smaller trading range - there is a great deal of noise around the areas where the market is about to make a move from.

Also, you get the situation where you are waiting for that point to sell and somebody hits through several price levels, going through the price you wanted. You couldn't get in earlier, because the trade could go either way if you entered too soon. You can either wait and hope it retraces to get your initial entry price but, doing this, you risk losing the trade if it doesn't retrace; or you can get in at a slightly worse price keeping your stop tight, but there is a good chance of a retracement stopping you out. (This situation happened a great deal while I was trading the Eurostoxx on Wednesday). So, you get two choices, you either stop out more until you get the move right or, you increase the stop size. The effect of both of these will be similar - you will lose more trades but less ticks per trade on the one and lose less trades on the other with more ticks per trade being lost.

I would be surprised in these market conditions if traders, who were keeping their trade stops the same as they were a few months back, are still be returning the same ratios of winners to losers - it would make more sense that they were having to have a few more 'bites of the cherry' to get the move they were seeking exactly right whilst using tight stops.

Jay, i suppose we all deal with the markets in our own little way. Good trading mate.

 

[firewalker99]

Have to disagree on each of your arguments. I'm not trying to pick a fight, but I'm under the impression that a lot of your comments are based on personal experiences. Which I'm sure are valid in your opinion, but there are no reason to make general assumptions about how price-discovery takes place.

Yes, I agree the price must be focused on, but when you start looking at wider ranges and larger periods of volatility, price discovery become less obvious, more aggressive and random. The 'tipping point' for a move is rarely in the range of one or two ticks for volatile market conditions as it is during a smaller trading range - there is a great deal of noise around the areas where the market is about to make a move from.

There is absolutely no reason to believe that more volatility implies more randomness. As for 'less obvious', that depends on what one is looking for. Price action has been very straightforward for the last month. As for "a great deal of noise", support, resistance, demand, supply, cause, effect,... nothing has changed and I don't see any reason to believe there is such a thing as noise. On any timeframe.

Also, you get the situation where you are waiting for that point to sell and somebody hits through several price levels, going through the price you wanted. You couldn't get in earlier, because the trade could go either way if you entered too soon. You can either wait and hope it retraces to get your initial entry price but, doing this, you risk losing the trade if it doesn't retrace; or you can get in at a slightly worse price keeping your stop tight, but there is a good chance of a retracement stopping you out.

I think you fail to see the point... there is no such thing as 'entering too soon'. If you enter based on a setup, a signal, a pattern, etc. and the trade doesn't go your way, no one is saying you should stay in and let your stop be taken out. Getting out breakeven and re-entering when the odds are more in your favour is a perfectly fine option. On the other hand, if you enter before any such setup/signal/... shows up, you've got no one else to blame but yourself.

So, you get two choices, you either stop out more until you get the move right or, you increase the stop size. The effect of both of these will be similar - you will lose more trades but less ticks per trade on the one and lose less trades on the other with more ticks per trade being lost.

No, closing a trade out prematurely (preferably at breakeven) because the market is not doing what you expect it to do, is not losing a trade, it is taking control of the few variables over which you have control and is protecting your account. Managing risk should always come first. Once you have the trade right, it won't matter if you re-entered because you won't need to "make up for the money lost" in the first one. Increasing the stop size is by all means unnecessary. I might illustrate with a chart later on.

An example I keep trying to give is, what if you weren't an intraday trader, what if you were trading over a period of weeks rather than minutes? Could you still get the same level of precision? I don't think so. Why is that? The obvious answer is because the market moves in a much wider range in the period of a day or week than it does in a minute or 60 minutes - i.e. it is more volatile in the longer time frame. Therefore, to say that a trader shouldn't use volatility is pure folly because it depends on the time frame and the way they trade.

Whether you are a swing trader or not, is irrelevant. Suppose the market moves on average 100 points in 15 minutes and you are trading off the 15 min interval, are you going to place stops 100 points or more away from your entry? If you are, than I suggest you find yourself a better method, because there's absolutely no need to risk. Also, if you trade over a period of weeks, won't you be looking at what happened on the hourly or daily timeframe?

I would be surprised in these market conditions if traders, who were keeping their trade stops the same as they were a few months back, are still be returning the same ratios of winners to losers - it would make more sense that they were having to have a few more 'bites of the cherry' to get the move they were seeking exactly right whilst using tight stops.

A lot of traders are returning a higher win% then during the two months before September. I have no general statistics, but hearing that from guys who've been in this business for 10 years, I'm sure that means something.