I was almost sucked in to this --- but instead I have questions. Why is peeling off half giving in to psychological pressures. The phantom (a link to his articles is presented in an earlier post) recommends that daytraders do peel. I wish to discuss this. Publias I am not picking a fight with you as some highly regarded people in the industry agree with you (authors) I have personally spoken with have made the same statement. I could present my thoughts but I would like to hear others. Two, for the same reason? how can pyramiding really change the r situation. Dark are you incorporating portfolio heat theories into your statement. Are you saying that by pyramiding you can risk more of the markets money? I know phantom has his reasons for pyramiding (by position traders) but Phantoms reasons seem to more psychological. Please explain your statement. I would like to buy a house in Rancho Santa Fe and not have to show up and daytrade every day. Daytrading 3 weeks a month and letting my pyramids run would be cool. Dark if your second side is winning out perhaps you could just email me. I really need to know
Jem: I can't help answering your question with questions. Why is the pareto principle such a ubiquitous phenomenon? In non-specific terms, what makes it work?
a question with a question--- does the rule work because we believe it to be true. Let me tell you by nature I always question conventional wisdom and the pareto principle may be everywhere but is it really. If I were to make the case for you I would say this. A wacky genius once told me that to think in systems you must have a certain I.Q. He said that level is 120 and up. Perhaps 20 percent of the people think in systems and everyone else thinks in cause an effect. Perhaps God (or nature if you are so inclined to believe) only doles out the goods to 20 percent. Perhaps it is like the golden rule or Fibs. Perhaps not. Nevertheless, I could take your questions to be an answer. In fact it may even be a good answer. But it does seem to conflict with what the R guys believe.
Here is my peel off argument. If you risk IR and you have a system that seems to say you should be looking for 2R then going for 1R and 2R does mess up your Rs. You are now risking 1r but only getting 1.5r on your winners. However, this thought ignores 2 things. By peeling off you have now turned a great deal of 1R losses into scratches thereby turning you real risk into .5R perhaps. The other thing is there seems to be no reason that you cant include in your system the possiblity of peel offs or adds. Its all Rs in the long run is it not. And yes peeling off is pschologically easier. But it also allows you to step up your size. Now for my subjective opionion. It seems that peeling off helps my P&L for stock trading, but hurts my emini trading because my emini's trading relies more on money management while my stock trading relies more on tape and market reading. NOw for the kicker seeing how a specialist deals with you first peel is very valuable information about what is likely to happen next.
more than one way to skin a cat- some ways are just more efficient than others p.s. no offense faster
nope, no way. the 50/50 assumes the market spends 50% going up, and 50% going down. if you knew what the percentage really was, you'd have a shot, but let's not forget that you'd have to tweak for up days (only go long), down days (short), choppy days, blah blah blah... the whole point of trading is having an edge so that you CAN bat 50/50 with stops.
it DOES NOT assume the market spends 50% going up/down.. go and re-read what I said...if YOU enter RANDOMLY...that is, if you BUY or SELL randomly...