What analysis do you use for trading?

[BBand]

Hi Tech,

I think you are being a tad unfair

"I can double an initial R objective from 3 to 6 by halving the risk straight after I take a trade"

The initial risk is what the trade was based on, so it should be the risk value used in the final R/R!!

The fact that you reduced it during the trade is good trade management, or money management (whatever you want to call it)

You've learnt too much from your accountant on how to "cook the books"

Peter

 

[Mr J]

Is it little wonder when you make your thoughts very well known by posting on most strategy threads, yet there is no real evidence from yourself and your trades.....that journal has gone mighty quiet

What do real trades have to do with this discussion? Nothing. I've stated my reason for not posting in my journal at the moment. I don't see any evidence on the other side of the topic Sam, and there rarely ever is.

May be your 2 cents, but not every topic has two right answers. The maths is in my favour, as it almost always is since my positions tend to be mathematically based.

Hopefully we can all agree R:R and winrate have an inverse relationship, that is that increasing R:R decreases winrate, and that decreasing R:R increases winrate. If you don't agree, then consider whether price in a market is more likely to move 10 tick or 20 ticks in a certain direction. Hopefully you will agree that it is more likely to move 10, and then you would be automatically agreeing that winrate and R:R have an inverse relationship.

So now, the question is no longer whether changing R:R affects winrate, but by how much. I've stated that if a breakeven trader changes R:R, the winrate will compensate to continue to give a breakeven expectancy. Why do I say this? We already know this from the Martingale strategy, but instead of applying it to individual events like a coinflip, apply it to groups of events such as half a dozen coinflips. Martingale over 6 coinflips will result in a high winrate, but a poor R:R.

The reason why simply changing R:R won't produce a profitable trade is the same reason why martingale does not work. If people still don't understand, I can explain why martingale doesn't work, and then tie that into trading. Honestly though, if someone doesn't know why martingale doesn't work, they're not ready to trade.

You/I anyone can manipulate if they actually trade their R/R and if you actually recorded and followed your R/R you wouldnt have posted the above.A trader doesnt decide anything it IS what it IS.

Of course R:R can be manipulated, it's as easy as setting a stop loss and target profit. This isn't theoretical R:R, this would be someone deciding their R:R. What they can't decide is their winrate.

Im not talking theoretical R/R at the start of a trade either.
I'm talking closed trade R/R from your figures of past trades since you started.
You constanly work at increasing R/R and win rate.

Then we are talking different things, and I'd say you're coming at this in a strange way. Adjusting R:R in the way you are talking about means increasing our skill. This is competely different to what I'm talking about, which is arguing against the idea that predetermined R:R alone can produce a positive expectation. This is the only thing I've debated.

I do work to increase my final r:r and winrate, but again, I'm talking about the people who before the trade think they can turn themselves from a breakeven coinflipper into someone hitting 40% at a predetermined 3:1.

 

[ThingyMajiggy]

What do real trades have to do with this discussion? Nothing. I've stated my reason for not posting in my journal at the moment. I don't see any evidence on the other side of the topic Sam, and there rarely ever is.

What do real trades have to do with R:R? What has that comment got to do with the price of eggs? Relax, I was just stating a fact from your little tear jerker below. You don't need to over-analyse and come up with a theory/argument for everything you know

At least someone does . Not many people ever seem to agree with me down here in trading strategy discussion..

You may continue your theoretic arguing now ladies.

 

[professor_frink]

............

 

[tech/a]

Hi Tech,

I think you are being a tad unfair

"I can double an initial R objective from 3 to 6 by halving the risk straight after I take a trade"

The initial risk is what the trade was based on, so it should be the risk value used in the final R/R!!

The fact that you reduced it during the trade is good trade management, or money management (whatever you want to call it)

You've learnt too much from your accountant on how to "cook the books"

Peter

Peter.
No not at all.
I can have say a position with $1000 risk at say 10c
10000 of them.
I initially think its going to rise 30c thats J's 3R
I get in the trade and notice a volume supported test of the low after 3 hrs trading at B/E so I move the stop there.
Instant No risk.

Which then comes to.

What do real trades have to do with this discussion? Nothing

Everything!

Lets say I do that with 10 trades and everyone of them work out my R is phenominal.
In real life I you anyone should work at reducing their finally recorded risk that they actually liquidate.
I may start with a 1% risk but in real closed trades be way way lower than that!
Hence my return to risk is much greater in real life as my theorehtical when I place a trade.

Of course R:R can be manipulated, it's as easy as setting a stop loss and target profit. This isn't theoretical R:R, this would be someone deciding their R:R

See above.
B/B see above. I dont think I'm being unfair just how it is with me.
I know a few others also dont wait for a stop to be met either.

I dunno but perhaps its something you havent thought of??

 

[Mr J]

You don't need to over-analyse and come up with a theory/argument for everything you know

I give about as much thought to my theories as I do deciding what to eat - just pops into my head. It's the explanations that are time-consuming .

Everything!

Lets say I do that with 10 trades and everyone of them work out my R is phenominal.
In real life I you anyone should work at reducing their finally recorded risk that they actually liquidate.
I may start with a 1% risk but in real closed trades be way way lower than that!
Hence my return to risk is much greater in real life as my theorehtical when I place a trade.

But we are discussing different things. I'm discussing the flawed idea that predetermined R:Rs can turn a breakeven trader into a successful trader, while you're talking about the result of the trades.

I dunno but perhaps its something you havent thought of??

No, I usually close before I lose the total risk amount. That amount is usually only reached if I'm prepared to give the trade a lot of room, or if it's a tight stop, or if I'm not there to manage it.

 

[barney]

............

Disagree Prof

You guys can correct me if I'm barking up the wrong tree, but ...

What Tech is on about is RR in results based stock trading scenarios ....

What J is on about is RR in a more theoretical/testing type of sense, but more from more a Forex point of view ?

Both of you are correct in my humble opinion ... Trading stocks is a totally different ball game in relation to assessing the potential RR, than if you are trading Forex ...

If you want to increase your initial potential RR on Forex, you will want to adjust your position sizing accordingly, or have deep pockets to cover the swings ....

In a stock scenario, you are looking for longer more stable tends to take advantage of, hence the potential for a larger initial position, and tighter stops

Basically any trader needs to understand the range and behavior of whatever instrument he/she chooses to trade .... without that knowledge, you are most likely dead in the water .....

And I should know cause Ive been DOA a few times more than I care to remember

 

[Mr J]

What Tech is on about is RR in results based stock trading scenarios ....

What J is on about is RR in a more theoretical/testing type of sense, but more from more a Forex point of view ?

Tech and I were definitely talking about different things, as Tech is talking about the R:R that results from trades, while I'm talking about predetermined R:R. I don't use a predetermined R:R myself and use Tech's method. My r:r is averaging about 6:1 at the moment, but it's not a goal, just the result of my trades.

None of this is about stocks or forex, my 'theories' apply to markets in general. I have another theory in which markets are markets, and that they generally behave in similar ways .

 

[barney]

My r:r is averaging about 6:1 at the moment, but it's not a goal, just the result of my trades.

I have another theory in which markets are markets, and that they generally behave in similar ways .

6-1 is about as good as it gets, so that is impressive ...

I agree that markets (stocks are a bit different) behave similarly, but each market has its own range, and that is what punters should be looking at instead of how the MACD looks or whether the MA's are lining up

6-1 !! ..... its all downhill from here J .. JK ..... well done.

 

[tech/a]

Ok
Now on the same page!

 

[nunthewiser]

Group Hug ?

 

[lukeaye]

Group Hug?

Only if you have clothes on.

 

[Mr J]

6-1 !! ..... its all downhill from here J .. JK ..... well done.

You're actually right. For me the best trades will come during fast moving bear markets, but there will be fewer opportunities. More opportunities in a bull market, but a lower return per trade. Far more opportunities during ranging, but also a far lower return.

I notice we've gone a fair bit off-topic .

 

[lukeaye]

I notice we've gone a fair bit off-topic .

Its still on topic, we are discussing forms of analysis for trading. MM and its importance.

The OP hasnt posted again though ahaha

 

[brty]

I would just like to throw a spanner in the works after the group hug in terms of R:R.

Using Tech/a's example...

I can have say a position with $1000 risk at say 10c
10000 of them.
I initially think its going to rise 30c thats J's 3R
I get in the trade and notice a volume supported test of the low after 3 hrs trading at B/E so I move the stop there.
Instant No risk.

The stock moves 20c in your favour.

Where do you place your stop, why, and how much are you risking??

brty

 

[tech/a]

I would just like to throw a spanner in the works after the group hug in terms of R:R.

Using Tech/a's example...



The stock moves 20c in your favour.

Where do you place your stop, why, and how much are you risking??

brty

You may not move your stop.If you didn't and the stock fell from its profit back to its original stop then you would record a $1000 loss which in the scope of things would be added against all other losses and divided by trades closed to then determine Loss V Profit as a % of capital.

But if you did and you moved it to B/E then your risk is basically zero on the trade (Other than Brokerage),if it was to be closed out at the new stop level.
When recording that trades performance it would be B/E no effect on Profit or loss. A Dot Ball.

Why can be any number of reasons,for me technical.
Could well be no other reason than to have a profit and wishing to eliminate risk.

 

[brty]

Thanks Tech.

I would like some other opinions please before I comment about my spanner.

brty

 

[tech/a]

Sidchrome?

Will be away from 2 this arvo back on Tuesday.
Adelaide cup holiday over here---off mountain biking Kangaroo Island!
Ok Ok theyre little mountains!

 

[brty]

Enjoy the trip Tech, perhaps they should rename the activity for those in SA :

You canna hand a man a grander spanner. You can read all about it when you get back...

brty

 

[Synergy]

But if you did and you moved it to B/E then your risk is basically zero on the trade (Other than Brokerage),if it was to be closed out at the new stop level.
When recording that trades performance it would be B/E no effect on Profit or loss. A Dot Ball.

Why not move the stop above break even and get some negative R:R action happening?

Surely the R:R of a trade must use the initial risk, not the decided risk when the trade is closed out?

The Risk on a trade for me is the maximum amount I'm prepared to lose when i take the trade. The reward is the result of the trade. But I do not trade base on R:R, and like Mr J believe that the horse comes before the cart, and changes to the way we trade effect results, in turn effecting R:R. The R:R only changes because you're making a fundamental change to the trade or the way you trade (eg tightening stop).

risk:reward is of little use to me. My risk on any position is around 20%. But in reality my avg loss is around 5%. The initial risk on any trade is still 20%.

I find a profit:loss ratio that incorperates the win rate to be more useful. Risk constantly changes throughout a trade, but the end results are fixed and provide a much more stable benchmark.