What analysis do you use for trading?

sinner · 9 March 2010

tech/a said:
Sinner.

Exiting at B/E doesnt exclude a trader from taking part in any further trades.

I like your long term trade method.

Yes but it does exclude you from your original trade. e.g. You entered a long on ABC contracts for $1 and the price moves to $2 so you move your SL to BE. I entered long on ABC contracts for $1 and the price moves to $2 so I take half my lots off. The price retraces to $1 and you get stopped out. You are not thinking about reloading your trade at the same level (why would you, you are a BE trader - your trade parameters have been modified to indicate $1 is now the level at which your trade is incorrect). I am very much thinking about reloading my trade. See the difference?

If trading is a business, then taking half off at 1:1 is how you make assets. I just simply can't see any case where moving SL to BE is the more appropriate action to take.

For the third time in one page, if you have any systematic way to show this "over 500 trades", then I request that you please do show it. Or at the very least, please explain how you quantify "moving SL to BE" over 500 trades as part of your plan.

tech/a · 9 March 2010

sinner said:
Yes but it does exclude you from your original trade. e.g. You entered a long on ABC contracts for $1 and the price moves to $2 so you move your SL to BE. I entered long on ABC contracts for $1 and the price moves to $2 so I take half my lots off. The price retraces to $1 and you get stopped out. You are not thinking about reloading your trade at the same level (why would you, you are a BE trader - your trade parameters have been modified to indicate $1 is now the level at which your trade is incorrect). I am very much thinking about reloading my trade. See the difference?

Yes but the case you make is extreme.
In YOUR case you had a 10pip risk and made 1000pips.
Had I been stopped out at B/E and taken another trade later I could well have gained a majority or mor of your pips.

If trading is a business, then taking half off at 1:1 is how you make assets. I just simply can't see any case where moving SL to BE is the more appropriate action to take.

I'm not suggesting moving every trade be moved to B/E at 1:1 but thats where I will consider a time to look at risk reduction. Sometimes a logical point for raisng the stop will be between the stop and B/E other times above B/E.

For the third time in one page, if you have any systematic way to show this "over 500 trades", then I request that you please do show it. Or at the very least, please explain how you quantify "moving SL to BE" over 500 trades as part of your plan.

For the third time (evidently) in One page.
I dont have records of my last 500 trades with records of how those trades would have performed had I not moved my initial stop at some later date to deminish my risk.
What I do know is that my Risk begins with 1% but in completed trades is less.

I see your arguement that without statistical varification we cannot be sure if having let trades go as in your example we would not have been better or worse off.

What I will do though is go back over say the last 30 and see how they would have performed when I have time and have stuff all to do.
Quickly looking back on the last 10 I see 6 would have been stopped at the initial risk and only 2 were stopped there the other 4 had 3 at B/E and 1 at a little more 2 were closed for profit and 2 remain open.

sinner · 9 March 2010

tech/a said:
Yes but the case you make is extreme.
In YOUR case you had a 10pip risk and made 1000pips.
Had I been stopped out at B/E and taken another trade later I could well have gained a majority or mor of your pips.

It isn't an extreme at all, it is how I trade almost every day! How can you say for certain this next trade with a 10 pip SL that I'll take tonight during London won't be the next 1000 pip runner? I don't, you don't, but you are the one modifying your trade parameters like you know for certain.

I'm not suggesting moving every trade be moved to B/E at 1:1 but thats where I will consider a time to look at risk reduction. Sometimes a logical point for raisng the stop will be between the stop and B/E other times above B/E.

This sounds more like a trailing stop than move stop to BE, which is different again, and nothing to do with the "free trade" concept I thought we were discussing.

For the third time (evidently) in One page.
I dont have records of my last 500 trades with records of how those trades would have performed had I not moved my initial stop at some later date to deminish my risk.
What I do know is that my Risk begins with 1% but in completed trades is less.

I see your arguement that without statistical varification we cannot be sure if having let trades go as in your example we would not have been better or worse off.

What I will do though is go back over say the last 30 and see how they would have performed when I have time and have stuff all to do.
Quickly looking back on the last 10 I see 6 would have been stopped at the initial risk and only 2 were stopped there the other 4 had 3 at B/E and 1 at a little more 2 were closed for profit and 2 remain open.

Let me put it another way might make it simpler to see the difference:

1. Long ABC contracts at $1, the market moves to $2. I say to the market, thankyou very much for providing me $1 profit on my $1 risk, I will use what you have provided to backstop the trade by taking the profit you have made available on some pre-defined % of my trade amount. Thankyou for the asset, I will now proceed to look for my next asset.

2. Long ABC contracts at $1, the market moves to $2. You say to the market, thankyou very much for providing me $1 profit on my $1 risk, but I do not want it. I would prefer you keep my $1 profit in return for reducing my risk to $0. Maybe we can talk about $2 profit later, but only as long as my entry level was perfect. Otherwise, you can have my contract back Mr Market, even though you left $1 on the table for me and have no idea or care about my entry level. Even though I have not produced any assets yet, I will look for the next one.

See the difference yet?

tech/a · 9 March 2010

sinner said:
It isn't an extreme at all, it is how I trade almost every day! How can you say for certain this next trade with a 10 pip SL that I'll take tonight during London won't be the next 1000 pip runner? I don't, you don't, but you are the one modifying your trade parameters like you know for certain.

Not at all.
Im using my discretion. Im not trading a system. I dont know.
How do I know that it wont go straight down to my stop I dont but at that point I can do something about it.
If Im standing in the middle of the road and a trucks coming at me---Ill move,others may sit there and expect the truck to swerve.

This sounds more like a trailing stop than move stop to BE, which is different again, and nothing to do with the "free trade" concept I thought we were discussing.

If a trailing stop hasnt been placed above the initial stop then yes it is of sorts.

Let me put it another way might make it simpler to see the difference:

1. Long ABC contracts at $1, the market moves to $2. I say to the market, thankyou very much for providing me $1 profit on my $1 risk, I will use what you have provided to backstop the trade by taking the profit you have made available on some pre-defined % of my trade amount. Thankyou for the asset, I will now proceed to look for my next asset.

2. Long ABC contracts at $1, the market moves to $2. You say to the market, thankyou very much for providing me $1 profit on my $1 risk, but I do not want it. I would prefer you keep my $1 profit in return for reducing my risk to $0. Maybe we can talk about $2 profit later, but only as long as my entry level was perfect. Otherwise, you can have my contract back Mr Market, even though you left $1 on the table for me and have no idea or care about my entry level. Even though I have not produced any assets yet, I will look for the next one.

See the difference yet?

Yes see the difference and both are fine both will reduce loss if a trade falls back to B/E.
One will remain open with less of the initial trade and the other closed.
The trade off is that 50% if thats the amount used remains in the read until the stop is hit where by the trader has zero loss.Hedging your initial position and a good way of doing the same.

sinner · 9 March 2010

tech/a said:
doing the same.

Can you explain how they are doing the same thing?

I agree, both reduce your risk to 0. But risk is not all of a trade: there is also reward, opportunity cost, and the bold fact that for some reason you are now willing to sell your entry level price for no further profit potential where moments/hours/days/weeks before (depending on your trading timeframe) you were willing to buy it for infinite profit potential.

I'll quote Mark Douglas again, and that is it for me on this thread:

When I first started trading, especially during the first three years (1979
through 1981), I would thoroughly and regularly analyze the results of my trading activities. One of the things I discovered was that I rarely got stopped out of a trade for a loss, without the market first going at least a little way in my direction. On average, only one out of every ten trades was an immediate loser that never went in my direction. Out of the other 25 to 30 percent of the trades that were
ultimately losers, the market usually went in my direction by three or four tics before revising and stopping me out. I calculated that if I got into the habit of taking at least a third of my original position off every time the market gave me those three or four tics, at the end of the year the accumulated winnings would go a long way towards paying my expenses. I was right. To this day, I always, without reservation or hesitation, take off a portion of a winning position whenever the market gives me a little to take.

lukeaye · 9 March 2010

sinner said:
Let me put it another way might make it simpler to see the difference:

1. Long ABC contracts at $1, the market moves to $2. I say to the market, thankyou very much for providing me $1 profit on my $1 risk, I will use what you have provided to backstop the trade by taking the profit you have made available on some pre-defined % of my trade amount. Thankyou for the asset, I will now proceed to look for my next asset.

2. Long ABC contracts at $1, the market moves to $2. You say to the market, thankyou very much for providing me $1 profit on my $1 risk, but I do not want it. I would prefer you keep my $1 profit in return for reducing my risk to $0. Maybe we can talk about $2 profit later, but only as long as my entry level was perfect. Otherwise, you can have my contract back Mr Market, even though you left $1 on the table for me and have no idea or care about my entry level. Even though I have not produced any assets yet, I will look for the next one.

See the difference yet?

Sinner, you move your sotp to b/e, and dont take half your positions off the table, you still pick up the 1000 points, how much more profit have you made?

Why would you want to now cut your profit short? The objective is quite clear, reduce losses maximise profit. You are minimizing profits, you are reducing the same risk, for a greater price, the potential for much much more profit. A conservative approach, not saying its an upforitable approach, just not one i would opt for in my trades.

Of course there will be situations where the sotck moves past your breakeven, but if you have proper trade management, defined rules, i think you will find that most of the time it does occur, you are going to lose anyway. If im trading a breakout, and it breaks out of a range on correct volume etc, then i move my stop to breakeven (the bottom of the range/support) then its fails the breakout and goes through my entry, it will continue lower 9/10 anyway. So for my style of trading, its not logical.

sinner · 9 March 2010

lukeaye said:
Sinner, you move your sotp to b/e, and dont take half your positions off the table, you still pick up the 1000 points, how much more profit have you made?

Err, exactly none because as you can plainly see in the chart the price re-tested the entry level, but never invalidated my analysis by going above my SL level.

I only show the H4 chart for illustration, I took the trade off an M15 chart, during the original H4 bar my entry level price was tested multiple times even though the price went +50 in my favour first and then re-tested my entry level price after going +400 pips in my favour.

For the trade:
EURJPY 1:1 traders: +1000 pips on half lots and 1 opportunity fully capitalised.
EURJPY SL->BE traders: +0 pips on full lots and 1 opportunity lost.

Still have no idea why traders are willing to relinquish their contracts to the market for the price they originally paid.

As for the rest of your post, I am truly curious to know how you have identified breakouts that never re-test before moving, but not curious enough to take another ride on this roundabout.

Good day.

ThingyMajiggy · 9 March 2010

sinner said:
Err, exactly none because as you can plainly see in the chart the price re-tested the entry level, but never invalidated my analysis by going above my SL level.

I only show the H4 chart for illustration, I took the trade off an M15 chart, during the original H4 bar my entry level price was tested multiple times even though the price went +50 in my favour first and then re-tested my entry level price after going +400 pips in my favour.

For the trade:
EURJPY 1:1 traders: +1000 pips on half lots and 1 opportunity fully capitalised.
EURJPY SL->BE traders: +0 pips on full lots and 1 opportunity lost.

Still have no idea why traders are willing to relinquish their contracts to the market for the price they originally paid.

As for the rest of your post, I am truly curious to know how you have identified breakouts that never re-test before moving, but not curious enough to stick around.

Good day.

Good illustration sinner, this is what happens to me every time I've tried it, hence my earlier post about when to do it. Move it to B/E, comes back up stops you out, I never usually enter again either, because I think of it as a failed trade so I move on, but thats just me and my my experience with moving stops to B/E, so I tend not to do it, but I have seen some do it and its worked well for them, I've seen trades that tech has made which have been great, using the B/E method. I think, as with most things in trading, it depends on the individual, instrument traded etc.

lukeaye · 9 March 2010

sinner said:
Err, exactly none because as you can plainly see in the chart the price re-tested the entry level, but never invalidated my analysis by going above my SL level.

I only show the H4 chart for illustration, I took the trade off an M15 chart, during the original H4 bar my entry level price was tested multiple times even though the price went +50 in my favour first and then re-tested my entry level price after going +400 pips in my favour.

For the trade:
EURJPY 1:1 traders: +1000 pips on half lots and 1 opportunity fully capitalised.
EURJPY SL->BE traders: +0 pips on full lots and 1 opportunity lost.

Still have no idea why traders are willing to relinquish their contracts to the market for the price they originally paid.

As for the rest of your post, I am truly curious to know how you have identified breakouts that never re-test before moving, but not curious enough to take another ride on this roundabout.

Good day.

No, i mean given a different scenario, you have obviosuly picked a scenario to suit your arguement, as i can also pick. there are points on that chrat where breakeven will work.

I identify a breakout in a different way. Its really quite simple. Let me show you by illustration, i will grab one that i was in.

tech/a · 9 March 2010

but not curious enough to take another ride on this roundabout

True it does become tedious.
Back to your example.
One trader may well have taken 5-15R from the original trade before the
re test.
Another may have used the retest AS THE REASON to move his stop to B/E.
Yet another may have moved his stop to B/E and been taken out.

Many ways to achieve better performance which you have shown.
Good stuff.

lukeaye · 9 March 2010

Consider this chart.

Molopo. My entry is at 1.35 and my stop loss is at 1.27.

For 1R i need to get 1.48, which just so happens to be the top.

Lets just say no brokerage is involved. I Take half my position off the table, and leave the oroiginal stop loss. I have now, a free trade. Now the trade has gone against me, returned to my entry, but no matter i have the lower stop. It breaks it, but once again no matter, i lose what i made, i had a free trade. Now you have succesfully controlled risk.

But consider the other scenario. The stock doesnt pull back to 1.35, it has legs and keeps going, you have half the positions on the table, you are now making half as much profit as i am. If i exit the trade for 8R, you have made 4R, i have made 8R. You have just controlled the same risk, for half as much profit?

That trade was a breakout of resistance, which i dont usually do, but i will show you another example of the way i usually trade.

Rio tinto (by the way these are in my trade journal if you have doubts).

Bought at 69.91
Stop loss 69.00

The stock moves in my favour, i use your method and take half the position off at 70.81. original stop loss in place. Free trade. What a big mistake that was.

I use my method, and move to breakeven after breaking the range $74.48. Or i could have moved it up after 1R, either way. I exited this trade at 79.80. Thats 10R. You have made 5R.

So why would i want to cut my profit short? I dont get it?

sinner · 9 March 2010

tech/a said:
True it does become tedious.
Back to your example.
One trader may well have taken 5-15R from the original trade before the
re test.
Another may have used the retest AS THE REASON to move his stop to B/E.
Yet another may have moved his stop to B/E and been taken out.

Many ways to achieve better performance which you have shown.
Good stuff.

Herr Hans: "Alright traders I am the big boss of Deutschebank Zurich Forex Department, it is the first day of the new financial year, let's see your statements from last year."

Trader Jorge: "Hey boss, here's mine. I took 1:5 trades all year and came out about 20% on top just like I told you I would. There are a few 1:15s in there, where's my bonus!"

Trader Sabine: "Hey boss, here's mine. I've been moving my stoploss to breakeven on all re-tests just like I told you I would. As you can see I still have a few % short from the 1.7 trendline break on GBPUSD."

Herr Hans: "Great work Sabine! Here, have a raise."

Trader Phillippe: "Hey boss, here's mine. I took over 200 trades this year and not a single loss! What do you think?"

Herr Hans: "What the F*** is this S***? You took 200 trades and exited them all for +1? You are F****** S**** FIRED!"

sinner · 9 March 2010

lukeaye said:
If i exit the trade for 8R, you have made 4R, i have made 8R. You have just controlled the same risk, for half as much profit?

I am only going to say this one last time. Seriously.

The difference is that I can hold my trade FOREVER as long as my original analysis remains valid because my stoploss remains wherever my trading plan dictates it should.

You have changed your trade parameters, and probably not in a systemic way. The market does not know or give two craps about your entry price, and unless you are the big dog moving the markets through your IGmarkets account, there is a very very very low probability that you picked the perfect entry. I mean, which part of your analysis dictates to you that the market is now beyond any chance of re-testing your entry price? Did it magically become a support zone or something because you went long there? You are willing to exit the market before your analysis has been proven incorrect on every single trade. If you don't believe your stoploss level reflects your trading parameters why did you put it there in the first place?

So please, for the fifth time today. If you have some systematic way of moving your stop to breakeven I would love to hear it. Otherwise, this is all just bla bla to me. All I wanted to discuss was the semantics of "free trade". So far none of the SL->BE proponents has convinced me of anything that I haven't heard before and disagreed with.

lukeaye · 9 March 2010

sinner said:
I mean, which part of your analysis dictates to you that the market is now beyond any chance of re-testing your entry price? Did it magically become a support zone or something because you went long there? You are willing to exit the market before your analysis has been proven incorrect on every single trade. If you don't believe your stoploss level reflects your trading parameters why did you put it there in the first place?

So please, for the fifth time today. If you have some systematic way of moving your stop to breakeven I would love to hear it. Otherwise, this is all just bla bla to me. All I wanted to discuss was the semantics of "free trade". So far none of the SL->BE proponents has convinced me of anything that I haven't heard before and disagreed with.

Sinner, that is the point entirely. Why are any of those points significant? Thats just it, we can speculate that it is an important support zone, or it is a retracment level, but in the end these are just probability based price points, where behaviour has been previously noted to move in a probable way. The market doesnt give a toss about my entry or stop, and it doesnt give a toss about yours either!

But, what i can give a toss about, is the fact i have reduced my possible loss, and given myself the greatest profit potential. In every single case, you have halfed your profit potential. But i guess this comes down to your style of trading. As you have demonstrated, on your 4h chart on that particular currency, its worked so maybe your take half off the table approach is appropriate in that case. But in mine, time and time again, it demonstrates that all i am doing is halving my profit potential.

Synergy · 9 March 2010

Taking half of a postition off the table is something that confuses me. I don't understand why it's done.

Once you buy a position it will either move into profit or loss. It will move up or down. Your analysis or experience has shown that the position you've bought, on average, will be profitable, which is why you bought it.

At any time after you buy the position, it could move up, or down. You don't know either way for sure, but probability or experience says that you'll be in the position until it's not likely to move up. So, you've entered when you think it's going to go up, and sold when you think it's going to go down. All makes sense...

But, at some stage you thought you'd sell 50% of it. Where was the analysis at this point? What was the position likely to do at the point you did this? It's still likely to either move up or down from this point. It's still something you have the ability analyse.

I can't see room for fence sitting when analysis and probabilities can give a definate answer (on average) as to whether you should be holding or selling.

Knoxy · 9 March 2010

Guys, depends on the strategy and what you're doing. Sinners leaving the stop loss where it started will work as the further the price action moves in the right direction the less relevant the 'disaster stop' becomes. When you test them most strategies will do better with no or very wide stops. Risky yes but giving more breathing room to the trade will usually improve returns. I guess Sinners point is the loss is controlled as it is no worse than when you entered the trade.

I trail my stop but only put it where the chart tells me to, BE is no magical point.

Like Sinner I exit the trade when the trade idea is invalid, rather than wait for it to hit the stop. Very rarely get stopped out, more common that I exit on a reverse signal or profit protection stop.

Trailing means you can ride trends and make the odd killing. However, in day trading in say, EURUSD, I use profit targets and take half off the table. Otherwise I'd spend all day watching price action bounce around without making a buck. I may get 5 signals in a day, make 20 points each through scaling out giving 100 pt profit. Doing things the other way may result in 0 pts. I make a steady income yet still have half there to catch the big ones.

So I think you're being harsh luke, there are good reasons to take profits consistently than dream of the big one all the time.

lukeaye · 9 March 2010

Knoxy said:
I trail my stop but only put it where the chart tells me to, BE is no magical point.

Knoxy, where is the magical point? BE is not a magical point, neither is my intial stop, neither is my intial entry. From a Risk v reward scenario, the break even is the most relevant point in terms of my main objective as a trader. That is, reducing losses, increases profits. The B/E stop is the most logical stop, as it helps me in an objective way, to best acheive my goal. Its is really my only 100% certainty in trading.

As motorway said, price points become significant/insignificant as price/time/trend change. So What you perceive as your "magical point" intially may change quickly. You Break even point doesnt change, it does not vary, it does not change between significant or insignficant, it always remains significant to your long term goal.

I think the real debate here, as im sure sinner will agree, is whether moving to breakeven given a set of systematic rules, will dramtically change your expectancy, so much so it does not reflect in your R:R. He seems to think that it does, where i seem to think that it doesnt.

My strategy is probably much different to his though, so based on my strategy maybe it is. Based on sinners strategy maybe his is better. I guess at the end of the day, you need to find what works best for your style of trading. Find what gives you the greatest equity cruve.

barney · 9 March 2010

lukeaye said:
I think the real debate here, as im sure sinner will agree, is whether moving to breakeven given a set of systematic rules, will dramtically change your expectancy, so much so it does not reflect in your R:R. He seems to think that it does, where i seem to think that it doesnt.

I guess at the end of the day, you need to find what works best for your style of trading. Find what gives you the greatest equity cruve.

Hi Luke, (I think that (highlighted) is the bottom line)

For me, and my humble trading exploits, I don't doubt that all the extrapolated methods have merit from each users point of view ....

Tech is more than happy with his method. You (Luke) are happy with yours ..

Sinner (for me) makes sense for a long term positive equity curve ( ie even a mediocre trade takes 50% off the table and gives potential for more if the trade runs) ....

Of course, this also requires a double "lot size" on entry ......... (but if you are trading currencies, that double lot size can also be "split up" into more suitable sizes to suit the traders "initial bank", due to the leverage available etc etc

Bottom line for me here is ...... The traders ability to read the market is paramount to his/her success ...... Personally, I am reading the market pretty well nowdays (FX), but I still stuff up on a lot of my entries due to impatience/lack of confidence/ etc etc etc .....

I have a strategy in place to try and eliminate my biases, which is working ok atm, but that is up to the individual trader to work out their weaknesses. and formulate a trading strategy which still works because it minimises those weaknesses ............

for me, that is the analysis I work on to improve my trading .....

(apart from the weekly/daily/minute range of the Euro ... lol )

Cheers all.

sinner · 9 March 2010

lukeaye said:
Rio tinto (by the way these are in my trade journal if you have doubts).

Yeah I just read your journal.

If I had known who I was arguing with wouldn't have wasted my time.

Please guys, somebody wake me up when the quantifying starts.

neither is my intial stop, neither is my intial entry.

Absolute rubbish.

In a range there are clearly two magical points.

In a trend there are clearly three.

During a fakeout/breakout/retest there are four.

These are all unique price levels which the market cares about immensely and always reacts most strongly to.

I completely and utterly disagree with the above quoted statement.

lukeaye · 9 March 2010

sinner said:
Yeah I just read your journal.

If I had known who I was arguing with wouldn't have wasted my time.

Please guys, somebody wake me up when the quantifying starts.

When somebody runs out of intelligent things to say, they usually result to personal attacks.

I didnt say i was a perfect trader.

Your magical point is magical point until it isn't.

As your previous graph shows, what you "think" will be the magical points, quite often isn't.

What analysis do you use for trading?

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