Trading Naked - Part 2

[Bloodhound]

Some more food for thought...

Are you using your stops as hard / disaster stops? i.e. like a nuclear deterrent. It's there but you don't ever want to use it.

or

Are you happy to see this stop hit every time price goes against you?

 

[foredog]

The other point in the argument is of cousre size.

Say you want to risk £300, if you have a hard stop of 15 then £20pp sb'ing if you have a logical stop of 30 points you are only long £10pp.

So then you have to weigh up how many more times you'd get stopped out with the tighter stop against how much more the winning trades will return.

Not quite as simple in eal life but you get my point

 

[neil]

Testing this method. mark a nearby High Low on the 5min and trade the break.
Anyone else tried similar?

 

[apmf]

Probably more of interest to APMF but I forgot to post this yesterday and it's a classic example of pilot error throwing a spanner in the works IMO. The mistake, from my perspective, was adding at T6 as price was still way too close to my T5 entry. In order to stay within my risk management rules I had to move my T5 stop to break even as T6 triggered.

View attachment 66798

Net result was T5 was stopped out (and T6!) but T5 would have made the money yesterday, and probably would have resulted in a cash neutral or even mildly positive day, rather than a losing one.

Anyway, thought this might be interesting as it shows all the hallmarks of greed being brought on by frustration at cable being so choppy!!

Rob,
I know exactly what you mean. I was about to do the same mistake yesterday. Thanks for pointing it out. To be honest I did realized it later in the evening, call it greediness carelessness or foolishess.
Today I havenot taken any trades so far for some xyz reason and I don't regret much as GJ looks very choppy so far. Lets see if I can get any late entry on GJ.

 

[jel31]

Some more food for thought...

Are you using your stops as hard / disaster stops? i.e. like a nuclear deterrent. It's there but you don't ever want to use it.

or

Are you happy to see this stop hit every time price goes against you?

Mmm, I have to let stops get hit because I'm not in front of the charts most of the time. I mostly use orders on the hourly so my stops are my stops and that's it. Also, I'd find it very hard to use discretion when stoping out of positions early (bet they'd turn back in my favour!), just have to walk away... this means minimum stress for me anyway.

 

[Bloodhound]

The other point in the argument is of cousre size.

Say you want to risk £300, if you have a hard stop of 15 then £20pp sb'ing if you have a logical stop of 30 points you are only long £10pp.

So then you have to weigh up how many more times you'd get stopped out with the tighter stop against how much more the winning trades will return.

Not quite as simple in eal life but you get my point

And to add to that point, if you are using fixed take profit levels which are calculated as a multiple of risk, then the stop levels will have an impact on returns this way as well.

 

[apmf]

Been an interesting morning...

I lost 0.8% of capital again, bringing the weekly total to -1.6%. I'll post charts later. I don't feel too bad because even you guys are being chopped around.



This is something I've really been thinking deeply about. I can't get my head around it though... here is something I've come up with though, setting add-on targets. I'll post as £ per point for simplicity.

Example: Buy £1 per point GBP/USD @ 1.6350 and stoploss at 1.6300

If price rises 37.5 (75% of stop) points, add another £2 per point bringing the total to £3 per point.

Look to exit at target level of 1:1, but because of adding it would be £62.50 profit when your risk was £50 (or less if you exit before stop loss).

The only problem with this is the fact if price retraces, you can give back all/most of your profits or even result in a small loss.

Hawk, Can I ask you how will you be moving your stops in this case?. What will you do when price reverses on you immediately after the addition of £2 per pip?

 

[Bloodhound]

Testing this method. mark a nearby High Low on the 5min and trade the break.
Anyone else tried similar?

Hi Neil,
That's pretty much what a lot of mine and APMF's entries are I think.
All the best
Rob

 

[apmf]

Hi Neil,
That's pretty much what a lot of mine and APMF's entries are I think.
All the best
Rob

Thats correct! Unless Neil meant something different ? I am just looking for the first clue for the start of the daily trend, I may get wrong many times before actually getting it right (direction). And if I cannot see any HH -HL or LL -LH then I wait for it to develop.

 

[Shakone]

Been an interesting morning...

I lost 0.8% of capital again, bringing the weekly total to -1.6%. I'll post charts later. I don't feel too bad because even you guys are being chopped around.



This is something I've really been thinking deeply about. I can't get my head around it though... here is something I've come up with though, setting add-on targets. I'll post as £ per point for simplicity.

Example: Buy £1 per point GBP/USD @ 1.6350 and stoploss at 1.6300

If price rises 37.5 (75% of stop) points, add another £2 per point bringing the total to £3 per point.

Look to exit at target level of 1:1, but because of adding it would be £62.50 profit when your risk was £50 (or less if you exit before stop loss).

The only problem with this is the fact if price retraces, you can give back all/most of your profits or even result in a small loss.

The market is full of people with presumably lots more money than you who have a particular level/setup/whatever that they want to transact at. You really need to think carefully about your reason for entering the £2pp part. Because simply moving up 37.5 pips doesn't mean anything to me, and it is unlikely to mean much to others. That isn't an ideal setup. You could enter your second part right in front of resistance where some heavy sellers have been waiting all day just to jump in. Are you sure you want to do that? .

Also where will your stop go? I assume your first entry had some reasoning behind it, and the stop placement also had some reasoning (whether fixed or technical). Your second entry if it is just for 37.5 pip rise will give you difficulties because to get a technical stop, you may have to adjust your position sizing (which eliminates the 2pp idea) or possibly have a bigger stop than usual. And if it reverses very quickly, then you're going to lose your what you had made from the initial trade twice as quickly because you doubled up.

Adding to the position when it is going well seems good to me. But adding just for an arbitrary 37.5 pips (or whatever fixed pip move you settle on) seems more than a little risky.

 

[apmf]

GJ is behaving seriously very ugly. These days cannot be avoided and preservation of capital should be everyone's aim. Hope I would have not given back everything which I made yesterday if I was trading today. lol!

 

[HawkTrader]

The market is full of people with presumably lots more money than you who have a particular level/setup/whatever that they want to transact at. You really need to think carefully about your reason for entering the £2pp part. Because simply moving up 37.5 pips doesn't mean anything to me, and it is unlikely to mean much to others. That isn't an ideal setup. You could enter your second part right in front of resistance where some heavy sellers have been waiting all day just to jump in. Are you sure you want to do that? .

Also where will your stop go? I assume your first entry had some reasoning behind it, and the stop placement also had some reasoning (whether fixed or technical). Your second entry if it is just for 37.5 pip rise will give you difficulties because to get a technical stop, you may have to adjust your position sizing (which eliminates the 2pp idea) or possibly have a bigger stop than usual. And if it reverses very quickly, then you're going to lose your what you had made from the initial trade twice as quickly because you doubled up.

Adding to the position when it is going well seems good to me. But adding just for an arbitrary 37.5 pips (or whatever fixed pip move you settle on) seems more than a little risky.

Very good points.

Just to note though, the £PP were made up numbers, I thought nice round numbers would be clearer.

What I'm trying to get across is not a fixed thing, but a 'what-if' scenario. Adding to your position when it's moving in your direction and trying to catch a few extra pennies before your target is hit. Of course you wouldn't add if you weren't happy with the risk, but in the case of KJ it's a good idea because his setup reoccurs often.

If price has been in your direction for the duration of the trade, and you're almost at your TP level, why not add to the trade if you're confident it will hit? You're almost there and you're only gonna hold on anyway.

Hawk, Can I ask you how will you be moving your stops in this case?. What will you do when price reverses on you immediately after the addition of £2 per pip?

Also where will your stop go?

The stop would be placed at B/E of the original trade. So we were looking at an extra 12.5 pips, we place our stop 12.5 pips away from the second entry = B/E or small loss depending on how tight you decide to place the stop.

Any ideas, am I getting a bit ahead of myself?

 

[HawkTrader]

Some more food for thought...

Are you using your stops as hard / disaster stops? i.e. like a nuclear deterrent. It's there but you don't ever want to use it.

or

Are you happy to see this stop hit every time price goes against you?

I'm using disaster stops.

I will share a story sometime in the future about why that is, but it wasn't a pleasant experience that I want to go over. Plus it was really stupid (but yes, I DID have a stop)!

What I do is set my stop slightly higher than I think, and my risk of 2% max along with it. The stop is a 'protection' incase price shoots off before I can get my finger to the mouse and hit 'Close trade'. I always close the trade even before it's half way to my stop, but sometimes I'm wondering if I'm too trigger happy? It's worked well for my 6 trades so far this week, except 1 which would have turned out to be a winner. No point waiting though!

 

[Shakone]

One thing that I'm not so keen about just playing the break of the 5 min, is that although I believe it can work, you regularly have to sit through plenty of pullbacks through your entry. So for those playing the break of the swing on the 5 min chart. I've often observed that you can get nice swing high and low, and then it will break the high and then come down and ever so slightly break the previous swing low. In effect it is like the market wants to take out those who were trailing stops up behind the last 5 min swing low before moving higher.

So I wonder if any of you have considered in an uptrend on the 5 min waiting for the recent low to be broken, then waiting for it to come back and break the top and entering immediately on that one. For example an entry would be at the T7 line.

 

[Shakone]

Very good points.

Just to note though, the £PP were made up numbers, I thought nice round numbers would be clearer.

What I'm trying to get across is not a fixed thing, but a 'what-if' scenario. Adding to your position when it's moving in your direction and trying to catch a few extra pennies before your target is hit. Of course you wouldn't add if you weren't happy with the risk, but in the case of KJ it's a good idea because his setup reoccurs often.

If price has been in your direction for the duration of the trade, and you're almost at your TP level, why not add to the trade if you're confident it will hit? You're almost there and you're only gonna hold on anyway.



The stop would be placed at B/E of the original trade. So we were looking at an extra 12.5 pips, we place our stop 12.5 pips away from the second entry = B/E or small loss depending on how tight you decide to place the stop.

Any ideas, am I getting a bit ahead of myself?

Well I wouldn't say it definitely won't work. But I would say that you should take each trade as a separate thing. If you believe it rising a set number of pips is a good second entry, then why isn't it a good first entry? If it is a good first entry, then go for it.

As you say, if you're confident it is going to hit a certain target point before your stop will get hit, then go for it. But I would advise that you consider each trade separately, and when you enter the second trade are you really thinking you are confident it will hit the target point or are you thinking 'I've made some money, so I've got money to gamble with'?

Only you know the answer to that. Like I said, adding to winning positions I'm all for, but add on your setup whatever that might be.

 

[HawkTrader]

Well I wouldn't say it definitely won't work. But I would say that you should take each trade as a separate thing. If you believe it rising a set number of pips is a good second entry, then why isn't it a good first entry? If it is a good first entry, then go for it.

As you say, if you're confident it is going to hit a certain target point before your stop will get hit, then go for it. But I would advise that you consider each trade separately, and when you enter the second trade are you really thinking you are confident it will hit the target point or are you thinking 'I've made some money, so I've got money to gamble with'?

Only you know the answer to that. Like I said, adding to winning positions I'm all for, but add on your setup whatever that might be.

I'm simply saying we've entered a trade, we have no idea if it's going to win us money, or lose us money. If price started going in the opposite direction and was about 50% towards hitting my stop, I kill it. That's just how I am. On the other hand it might go in our direction, so since we know we are correct so far and we have a target level, why not add to that target level? This is kind of what Phantom of the Pits was saying.

Cut your lossers, add to your winners(?)

 

[mb325]

It seems paradoxical to me to take T1 based upon one of the 5m setups we've been discussing throughout these threads, only to then add onto this position at a completely arbritary number (whether being 37.5 pips or 45 or whatever). The logic behind T1 is that it's a breakout/continuation, the logic behind T2 is...?

I would only add to a trade if a similar setup occured, 1m charts are easier to read for mini-pullbacks and other opportunities imo.

 

[barjon]

Hawk Trader

I think Shakone has about said it all, but if you are thinking about additions then the general rule is that no unsuccessful secondary position should wipe out all the gains of the original position. If I read you right, that wouldn't be the case with your example and stop adjustment.

There is a straight mathematical way of compounding which is better than most which is a reflective pyramid. eg: if you have an average expectation of, say, 60 points you add positions until you're at one half expected profits, then reduce positions until you entirely close out at +60. Stops must be set to satisfy the rule mentioned above.

ie: original position 10
add 5 when +10
add 2 when +20
reduce 2 when + 40
reduce 5 when + 50
close 10 when +60

good trading

jon

 

[HawkTrader]

Hawk Trader

I think Shakone has about said it all, but if you are thinking about additions then the general rule is that no unsuccessful secondary position should wipe out all the gains of the original position. If I read you right, that wouldn't be the case with your example and stop adjustment.

There is a straight mathematical way of compounding which is better than most which is a reflective pyramid. eg: if you have an average expectation of, say, 60 points you add positions until you're at one half expected profits, then reduce positions until you entirely close out at +60. Stops must be set to satisfy the rule mentioned above.

ie: original position 10
add 5 when +10
add 2 when +20
reduce 2 when + 40
reduce 5 when + 50
close 10 when +60

good trading

jon

Hi Jon,

Excuse my ignorance, but I just want to get this straight... math's has never been my strong point!

You're simply add/reducing every 10 points in your favour? Could you please put it into another example with stops etc, because I'm not getting this?

Sorry...

 

[Bloodhound]

Just my 2 cents re adding to positions and also stops (and I may wrong!).

I think taking arbitrary levels of price to add to positions is dangerous as one needs to understand what price is saying. Hopefully this chart will illustrate what I mean.



Sharp drop, followed by breather, followed by weak drop, followed by another breather and then a final drop. I view each of these pullbacks / periods of consolidation / noise (whatever they may be) as a bit like price pulling up at a set of traffic lights. For whatever reason it has dropped, finds a level and stalls. At this stalling point it might do one of threa things: either carry on down, go into chop monster mode or reverse - hence I plan for these eventualities. If it is to carry on then logic dicates it will indicate this by dropping below the level where it stalled (so add more below previous low). If it is going to reverse then it will break upwards from its consolidation zone (so stop and reverse above this level) and if it is going to get choppy, well that's what it will do and I must aim to minimise the damage that this chop might cause me.

Shakone is dead right IMO about the spikes through levels followed by sharp pullbacks. The question is then how to deal with these and this is where trade expectancy comes into play. To me, stops are my nuclear deterrent for when my broker suddenly goes offline (LOL) or BT decide to zap my braodband etc.. If a hard stop gets hit then I feel I have failed in my job at managing a trade correctly. In other words, the stop is my last line of defence. If I am expecting price to go up and it starts going down, what should I do? In a perfect world, kill the trade. Sadly, and this why I originally raised the question, the world may be perfect but I'm not and I find it very hard to kill trades sometimes. The counter to this though is that, on days like today and yesterday, super aggressive stop management means a string of losers / break even trades as one is stiffling price. Is there an answer? I honestly don't know. I've been sitting staring at cable wondering this for day after day and the only answer I can come up with is to be super aggressive on the days which merit that sort of treatment and more relaxed with 'logical' stops in place on the messier days. The problem is that I haven't found a way of predicting which way she's going to behave in advance LOL!!!

P.S. Foredog has already mentioned this but there is also a mathematical element to all of this in terms of position sizing, TP levels, expected average run distance - all of which are directly affected by the original stop size.