Trading Plan Help Required

Bin57again · 26 September 2008

Lake
No, I totally agree with you.
Thanks for reminding us of that important point.
I was keeping my response brief but on the psychology side, you're right. As an example, on trend following systems, my best results can come through when my win rate is 25-30% (based on holding through to 5R). However, I know I can get down during a campaign with such a low win rate (e.g. question myself, whether "this time it's different" etc, maybe I coded it wrong), so I often will build into the system a scale out or earlier exit so that I end up with a less profitable system but a higher win rate (say 45%). The commissions will be higher because I'm taking more trades. But at least I know that I'm comfortable with that, my consecutive loser rate will be lower (say max 5) and my drawdowns lower. I also know there's a good chance I'll get off to a reasonable start.
To take it to its extreme, you could sell me a system which had a win rate of 20% but with 7R. I know I couldn't handle that...I don't think many could...
Rub - well done mate. That's awesome. I salute you...
Bin

wbosher · 29 September 2009

Trembling Hand said:
A funny thing goes on when trading small accounts. People are willing to take bigger loses when it should be the exact opposite

I think the reason for this brokerage fees, if they are included in the equation.

For me personally, I'm a newbie with only a few thousand $$ to trade with. If I set my SL at 2% the SP only has go down by a very small amount and I will be stopped out.

Say for example I only have $5000 to trade with, 2% of this is $100. That doesn't leave much room to move at all once you factor in brokerage fees.

I think it was in one of Darryl Guppy's books where it mentions that traders starting with little capital will often need to expand the 2% rule out to 5% or maybe even a little more, until you have enough cash to impliment the 2% rule without being stopped by the slightest downward movement.

Mr J · 29 September 2009

If someone trades 2% (particularly if they trade for a living), they better be able to deal with 50%+ drawdowns.

tech/a · 29 September 2009

A severe lack of understanding shown here in how to position size with a 2% equity risk.

kam75 · 29 September 2009

sydneyboy said:
I am new to this forum and while have traded, gambled? in the past have done so with no serious plan.

At the moment my plan is as follows.

1. Follow trends- refer to Darryl Guppy on Trend Trading- trends either up or down seem to have about a 70% chance of continuing. While still learning about T/A are prepared to lose small amount rather than paper trade as personally feel no involvement when doing so.

2. Be ruthless on money management. Strict money management seems to be far more important than actual selection, should show a profit on lower % of winning trades with good management over good selections with bad management.

3. While 2% risk seems to be written in stone among the various contributors am I being naive in suggesting that it would be possible to increase the risk exposure to 3% and at the same time reducing the stop loss margin. In this I note the chart that skyquake provided,(I don't know how to attach but it is #51 under heading "I lost $1600 in one day trading OZL" showing in the Beginners Lounge shows the percentage possibility of consecutive losing trades. In my admittedly general reviews of the market it would seem more viable to cut and run very early if a price drops as the chance of reversing after a small drop seems to be less than the likelihood of the trend continuing.

4. While trading profitably to gradually (say 0.5%) increase in risk after each profitable trade and reduce back to 2-3% after first losing trade to minimise capital loss.

5. Where the shares, options, whatever rises either:-

(a) sell a percentage as soon as transaction costs are covered and increase the stop loss to this amount so barring disasters at worst you will break even on that trade, or

(b) continue to hold all until a reversal and sell all at first opportunity (again on the basis that once a trend starts it is more than likely to continue). It means that you will never sell at the top of the market, who does anyway, but you should be reasonably close to it.

I am more inclined to option (b) but keen to hear opposing views

I look forward to comments, suggestions, criticisms.

sydneyboy

1. Yes
2. Yes
3. depending on your account size. 2% Rule on 100K good. Smaller account may go larger, 3-4% but never more than 5% risk on any one trade.
4. Decrease bet size if account draws down, increase bets as account grows.
5. Set profit targets instead.

wbosher · 29 September 2009

tech/a said:
A severe lack of understanding shown here in how to position size with a 2% equity risk.

Please explain. Who are you refering to?

If it's me, I'm only too happy to be corrected, that's why I'm here.

wayneL · 29 September 2009

Mr J said:
If someone trades 2% (particularly if they trade for a living), they better be able to deal with 50%+ drawdowns.

Why?

tech/a said:
A severe lack of understanding shown here in how to position size with a 2% equity risk.

Why?

Statements without explanation are worth jack s#1t.

FXanyone · 29 September 2009

Hi Guys,

Looking for a little help. I am new to this forum so forgive me if I am in the wrong thread.
I am a full time trader, primarily of fx and foreign stock indicies.

Was wondering if someone could point out a website with technical commentary for the ASX 200. Sure they must exist, I just havent found one?

Finally I am not looking for an ensorsement of a site, I am capable of making my own decisions and taking risk- just looking for a few pointers as where to look
Thank You

mazzatelli · 29 September 2009

wayneL said:
Statements without explanation are worth jack s#1t.

Best not to be in your warpath today!!! lol

lukeaye · 29 September 2009

I see no real trading to plan to be honest. As somebody else stated just ideas. You cant have one without the other ie, no money management but an expectency of where price will go, or money management with no idea of where price will go, i dont think you have grasped either properly yet.

Have a read of Nick Radges adpative analysis. otherwise be prepared to be wrong, alot. and get emotionally tied up in every trade. the way i got over this is by writting out set rules and scenarios of what i think can happen with the stock im looking to trade, and having an action plan for every scenario. that way there is no emotion, just technical analysis.

i started the same as you, thinking i had ideas, but no real rules i stuck with, and i tore up probably $15000 in my first year thinking id only trade small. the market will suck you in, trust me.

Mr J · 29 September 2009

wayneL said:
Why?
Statements without explanation are worth jack s#1t.

Replies like this are worth even less.

tech said:
A severe lack of understanding shown here in how to position size with a 2% equity risk.

If we flip a coin thousands of times, there will be stretches were heads comes up 35 more times than tails. There's our 50% drawdown. It has nothing to do with an individual situation, but the result of variance.

kam75 said:
3. depending on your account size. 2% Rule on 100K good. Smaller account may go larger, 3-4% but never more than 5% risk on any one trade.

I disagree. First of all, few people could trade at 5% risk and handle it emotionally. Second, our maximim size is determined by our tolerance of variance or by the mathematics of the trade (risk, profit, and probability). It can certainly be acceptable to risk more than 5% on a trade.

lukeaye · 29 September 2009

kam75 said:
1. Yes
2. Yes
3. depending on your account size. 2% Rule on 100K good. Smaller account may go larger, 3-4% but never more than 5% risk on any one trade.
4. Decrease bet size if account draws down, increase bets as account grows.
5. Set profit targets instead.

LOL at this. Kam can i ask you, if your bullish on say 4 stocks, and you use your 5% rule, what happens when all 4 reverse? thats a 20% drawdown, i thought you were a coach?

just goes to show, those who cant teach, those who can do.

AlterEgo · 29 September 2009

wbosher said:
For me personally, I'm a newbie with only a few thousand $$ to trade with. If I set my SL at 2% the SP only has go down by a very small amount and I will be stopped out.

Say for example I only have $5000 to trade with, 2% of this is $100. That doesn't leave much room to move at all once you factor in brokerage fees.

This is why trading stocks with such a small account size is most likely to end in failure – you can’t position size properly. Be prepared to lose most of your account.

Trading with such a small account is pretty pointless in my opinion, unless you are prepared to lose it and just treat it as a learning exercise.

lukeaye · 29 September 2009

AlterEgo said:
This is why trading stocks with such a small account size is most likely to end in failure – you can’t position size properly. Be prepared to lose most of your account.

Trading with such a small account is pretty pointless in my opinion, unless you are prepared to lose it and just treat it as a learning exercise.

i disagree, whilst it is harder, it can be done. if you are correct with your position sizing you can make 700 from 100. all it means is that your limited to the trades you can take.

The best thing you can do is when setting up your trade, check where your stop loss needs to be first, then determine if this allows you to profit enough

wbosher · 29 September 2009

AlterEgo said:
This is why trading stocks with such a small account size is most likely to end in failure – you can’t position size properly. Be prepared to lose most of your account.

Trading with such a small account is pretty pointless in my opinion, unless you are prepared to lose it and just treat it as a learning exercise.

You're probably right. I was trying to save at least $10,000 before entering the market but a few unforeseen problems put an end to that (car problems, replacing clapped out kitchen whiteware etc...).

With the market going off the way it has been for most of this year I took a punt and jumped in with only $3000 because I didn't want to miss out. I'm doing ok but nothing to write home about, far better than I could get leaving my money in any bank though. Could have gone horribly wrong I guess but up to this point it hasn't. Fingers crossed...

lukeaye said:
i disagree, whilst it is harder, it can be done. if you are correct with your position sizing you can make 700 from 100. all it means is that your limited to the trades you can take.

The best thing you can do is when setting up your trade, check where your stop loss needs to be first, then determine if this allows you to profit enough

I generally try to enter a trade directly above a fairly strong support level and get out if it falls back through, seems to be working ok for me at the moment (most of the time).

lukeaye · 29 September 2009

exactly, you can place a stop close to support, risk very little with a great return? if it moves in your favour you could make very good money with little risk? whats wrong with risking 100 to make potentially double that? brokerage is like $9? Am i missing something here?

Dont get to greedy, if you can make more money then you put in, regardless of the amount, then what is the problem?

nomore4s · 29 September 2009

Mr J said:
If someone trades 2% (particularly if they trade for a living), they better be able to deal with 50%+ drawdowns.

Am I missing something here? I'm just getting over the flu so my brain still isn't quite working properly yet.

What is the difference between a 50% drawdown using 2% and a 50% drawdown using 4%? Aren't they both still 50% drawdowns on the account - the only difference is one takes longer (ie more trades) then the other to actually get to 50%.

nomore4s · 29 September 2009

kam75 said:
4. Decrease bet size if account draws down, increase bets as account grows.

Isn't this what using fixed fractional position sizing does?

As the account grows 2% becomes larger in dollar value and as the account drawsdown it becomes smaller in dollar value.

Mr J · 29 September 2009

nomore4s said:
Am I missing something here? I'm just getting over the flu so my brain still isn't quite working properly yet.

What is the difference between a 50% drawdown using 2% and a 50% drawdown using 4%? Aren't they both still 50% drawdowns on the account - the only difference is one takes longer (ie more trades) then the other to actually get to 50%.

Yes, that's what I'm saying. 2% vs 1% will see larger drawdowns more frequently, and newer traders might be surprised at how great a difference it makes. If someone flips coins 30 times a week, it wouldn't be unusual to see a 50% drawdown within a couple months. A 50% drawdown could happen using 1% trades, but since it will usually require a far greater sample, the trader doesn't have to be as prepared for it.

Wysiwyg · 29 September 2009

Mr J said:
If someone flips coins 30 times a week, it wouldn't be unusual to see a 50% drawdown within a couple months.

I recommend trading shares instead.

Trading Plan Help Required

Bin57again

wbosher

Mr J

tech/a

No Ordinary Duck

kam75

wbosher

wayneL

VIVA LA LIBERTAD, CARAJO!

FXanyone

mazzatelli

lukeaye

Mr J

lukeaye

AlterEgo

lukeaye

wbosher

lukeaye

nomore4s

Commonsense isn't that common

nomore4s

Commonsense isn't that common

Mr J

Wysiwyg

Everyone wants money

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Trading Plan Help Required

No Ordinary Duck

VIVA LA LIBERTAD, CARAJO!

Commonsense isn't that common

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Everyone wants money

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