It’s relative to time frames of course. Infinity is the upside index wise, But you may not be able to cope with the drawdowns.
True. It happens to me also. We take the trade as if it’s going to be a win. We don’t even care about the downside. Sometimes I risk bankruptcy for a +1 tick. That’s this kind of thinking that kill you. Look for both potential. Upside and downside. Estimate the gross probability, Let’s say you have a 2 risks for 1 reward. And your gross estimate is 3/5 win, 2/5 loss. You get an expectancy : -0.2 Don’t take that bet. Probabilities are tough to estimate. But the payoff is the only sure thing. Even though sometimes we have to wait, For the price action to show us where to exit. Error in payoff estimation are lesser I believe, Than errors in probability.... One thing is sure. Don’t over bet. Don’t over risk. Set a maximum loss for each trade ! I’d have tried to lose not more on Friday, Than what you’ve done for the week. At least ....
It is basic to have a timing as accurate as possible to be able to put a tight stop. When you are fired you can re-enter with a tight stop. We must not let the loss become great. It is my humble opinion.
I have the same opinion, I respect Volpri but I do not understand how it can be profitable by averaging the entry. If it works perfect. Every trader is different.
No money management will ever turn a losing strategy into a profitable one. If your system is sound then averaging in makes sense. You end up with a better entry. But you need to bet small to begin with.
For the probability intervals, You might ask yourself... How confident, on a scale of five, are you ? 1/5 Low confidence -> Max 1Risk for 4Rewards 2/5 Below average -> Max 2Risks for 3Rewards 3/5 Above average -> Max 3Risks for 2Rewards 4/5 High confidence -> Max 4Risks for 1Reward So don’t risk more than 4risks for 1 reward. If you thought about getting +10Pts. Don’t lose more than -40Pts. Also you should be betting appropriately. Given the probability and payoffs. But never over bet !
very sage comments. The exact reasons I stop writing DOTM call/put: infinite (almost infinite on the put side) downside and limited upside. Though you do feel good, winning all the time, until that one drawdown.
It can be profitable because I am averaging down based on the probabilities of PA patterns PANNING OUT AND on the general context. And positioning myself for either scenario happening. Look at my journal on yesterday’s trade and you may want to look at the trade the day before, that is March 19th. But for now lets look at yesterday’s Friday’s trade 20th March. The trade was averaging down 1 contract at a time up to 6 contracts. My last two entries near the top of the channel were 2 contracts each one. So, at my max position size I had 10 contracts (the red triangles are my entries). Then it was a matter of waiting for price to trade back into the channel. I started averaging in short at the bottom of a bear channel. I have not explained yet the thinking behind this trade as I had to till and work in my garden yesterday but maybe over the weekend I can give a more complete explanation. A a multi view of the PA and various ways to interpret it. But here is a partial explanation based on a bear channel tactics. Normally, I would not start averaging in short on a bear channel until price is in the upper half of the channel. That puts odds in my favor. However, in this case just prior to the bar, where I began to build my position, we had two big bear bars heading to the bottom of the channel. And by my entry bar we are 62 bars deep in the channel. Most of these 62 bars were bear bars and all the larger bars were bear bars. There were many more bear bars that were in series than bull bars in series. Most all the bull bars were overlapping bars..even those that were in series. Many of the bear bars had gaps between their close and the close of the previous bar. Gaps between the low of the present bar and the low of the previous bar. Gaps in several cases between the high of a bar and the low of a bar two bars back. All this taken together indicates weakness. However, bear channels on a smaller time frame (in this case 5 min TF function as bull flags on a larger TF.) Bull flags odds favor a SUCCESSFUL BREAKOUT WILL BE TO THE upside. BY SUCCESSFUL I mean a BO with follow-thru. Nevertheless, most BO’s of a bear channel on the top side WILL FAIL (75% of the times attempted) and price goes back into the channel until one BO does succeed. So, given all this why would I short and do so at the bottom of a bear channel? And average down too? Three reasons: 1) since the channel formed we have had no real BO attempt out of the top of the channel and by the time of my entry we are 62 bars deep (with weakness described above in those 62 bars). The odds are high if price trades back up to the top of the channel (as it in fact did) while I am averaging down ...the odds favor that any real first BO attempt will fail and as you can see it did. So, I just kept adding and adding to my short 1 contract at a time except in the last two entries I added two contracts short each time (as that would give me more gas in the tank at the top end (that is, at the probable failure point) when BO price likely will fail and price will go back into the channel. So, I am playing the odds that the first actual BO attempt will fail. And it did. 2) Those two large bear bars at the bottom of the channel just before I started shorting were strong bearish. All previous PA was weak. I reason this COULD even be a successful BO south of the channel that would be forthcoming. But less odds it will happen. If it is successful breaking out the bottom , then it would be a case of the unexpected event (for remember bear channels function as bull flags). If the unexpected happens then I should look for a measured move down because the flag is failing. So, I need to position myself for an unexpected event also. If it happens I will be in the market off the bat and will simply “scale in”not down as price moves in my favor. So, because, of all the weakness mentioned above, and visible on the chart, and especially those two bigger bear bars just before my entry bar I am willing to short at the bottom of a bear channel. If the unexpected happens and the successful BO south happens well...I am in the market for a measured move down and don’t miss out. If however, price trades back up to the top (as it did) I am building my short position betting a BO attempt at the top will fail. Either way I am positioning myself for WHATEVER. 3) Price is trading below all three MA’s giving good possibility that the successful BO COULD be south. BUT also giving the good possibility that any BO attempt north of the channel will fail. As you can see the scenario of the FAILED BO attempt out of the top was the one that unfolded and so I used the tactic of averaging down short and adding to my short position as price traded against me. Then when it traded back into the channel I held until it reached just past my first entry short. Profit before commissions $1626.25and that was was trading MES. And only 10 contracts. The same thing could be done trading ES but many small traders would not want to lay that much money on the line and keep adding. Especially, with the volatility we have been experiencing. There are other PA ways to look at this trade but here is one using a bear channel. If the BO south would have happened then on any initial PB I would be adding short AND on any good move in my favor I would be pressing the trade by adding shorts ...even more, expecting a measure move down. My exit is at one wack all 10 contracts at the green triangle. Around 2.5 hours later. There are other ways to explain this price action and how to trade it. Maybe over the weekend I can show sone more examples of different ways to look at this and trade it. And they are all valid ways. The chart below is a 5 min overnight chart. Opening bar for RTH was 5 bars back from my first multiple entry bar. The opening bar RTH’s is that doji bar.
Nice trade. Explanation. Unfortunately you’ve started accumulating quite early. Your average price is something like 2400. 4Risks to make 3Rewards. I like the fact that you’re prepared for multiple scenarios. At 2400 you were at the 50% retrace, You could have break even maybe.
Yes, I did start accumulating early as it turned out however, that was because I was not sure which scenario would actually unfold so I started shorting when I did. That way I would be positioned for either scenario. If it had gone the other way I would be scaling in adding to a winning position and pressing the trade. Often in these sort of trades risk can indeed be greater than reward. But the probability of a profitable trade is good in either scenario. It is always a tradeoff between risk ..reward and probability. In this case the immediately probability was it would BO out of the bottom was slightly more than any BO out of the top. But the odds the BO at the bottom would be a successful BO (with FT) was not that good as BO’s out the bottom of channels fail often too and such a BO if successful would be the unexpected event happening. But if the unexpected event did happen it means a high probability measured move down with VERY low risk. However, IF it did trade up to the top of the channel there was a high probability the BO at the top would fail (75%), so I had no problem taking the risk. If it had broken out of the bottom successfully then the risk would have been small and the R:R would have been much much better. Either way, I saw good probability and an opportunity to trade in either direction and MOST LIKELY end up with a profitable trade so I took it. As it panned out I ended up taking the higher risk trade.