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N54_Fan
Registered: Sep 2011
Posts: 388 |
02-06-12 01:15 AM
Quote from dom993:
Yes that was a little provocative  - and I appreciate you jumping on it.
My point is that "assuming I want to risk 1% of my capital (on a single trade)" is a pretty poor position sizing decision, which doesn't take into account the win% of your system nor its payout ratio (average win / average loss) nor any other consideration on its statistical performance. Its a kind of one size fits all risk management, may-be a reasonable start in some cases, but far from allowing one to maximize the return of a given edge & account size.
Agreed. But 1% at risk will keep most traders out of trouble that have not run MC Sim on their data becuase so many traders do not even keep stats on their system. In fact most traders do not even have a defined "system" to trade. They just take a trade that looks good without much basis on stats.
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FreakofNature
Registered: Jun 2011
Posts: 1057 |
02-06-12 02:57 AM
Quote from Wide Tailz:
Yes, or if you see your buy signal on the next higher time frame. If trading daily, look to the hourly for another buy signal for adding. Works for scaling in, too.
Entry setup is all about minimizing risk. Low risk opportunity is the edge.........
Precisely why I initiated the thread, as far as Im concerned, there is nothing in trading like low risk opportunity.
FoN
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OptionsCharm
Registered: Oct 2007
Posts: 70 |
02-06-12 05:49 AM
Quote from ssrrkk:
A small stop applied randomly will kill your profits. Absolutely kill it. That's because a stop smaller than the 15 to 30-minute volatility will almost certainly trigger.
Applying a larger stop can alleviate this problem, but an even better solution is to identify places where you don't have to set a large stop -- setups where you know it will either not hesitate and move in your favor, or if it does hesitate, you know with high probability it will move against you. I believe this is what the OP is asking for.
I have to chime in here as I agree with what you had to say in both of your posts on this thread. Indeed this topic about small stop is a very very important discussion that I hope many will participate meaningfully. I think stop and entry goes hand in hand. If entry is excellent, the stop can be really small. If entry is poor (chasing), then stop needs to be big. So it boils down to a really good entry. To ask how to have a small survivable stop is to ask how to find the greatest entry. But then, to be consistent in spotting a good entry perhaps takes a few thousand hours of studying price behavior and will be of a different subject.
For the purpose of this thread, I would just say that my humble opinion is that small stop is the best, compared to very large stops and not too small/ not too large stops. My rationale is that if you don't know how to place an entry in the right place, the chance is good that you don't know where the best stop should be either. The only thing we know is after entry if price did what we expected. Now at least this part is not guessing. Setting an arbitrary stop for a large amount is guessing though.
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anglagard
Registered: Jun 2011
Posts: 183 |
02-06-12 06:05 AM
Correct small stop usage implies price action understanding.
On the other hand it does not mean infallibility, for that though, we got re-entry
Joe
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dom993
Registered: Jul 2008
Posts: 538 |
02-06-12 01:42 PM
I have to disagree that there exist a perfect stop placement ... for a given entry price, the amount of heat that the trade could take & still end-up being a winner isn't a step function.
What we are dealing with are probabilities ... say I am counter-trend trading the ES, and using an initial stop 3-ticks beyond the current price extreme ... that gives me a 70% chance (I am making up that number) that if my entry signal is correct, I won't be stopped and will indeed have a winning trade here. Now, if I am using an initial stop 5-ticks beyond the current price extreme, I get a 85% chance of not getting stopped if the signal is correct. What is the best stop placement? It actually is a function of how often my entry signal is correct, regardless of the initial stop size (within reason). And that might very well vary with time-of-day, up vs down-trend, and a million other variables.
Re-entry ... costs you comms, slippage & price differential between the 1st stop exit & the re-entry ... not a big deal when (intraday) swing trading, but how effective is that when scalping?
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