Thank you Big Money. I appreciate your advices, but unfortunately I am not smart (as you can tell), and I am very confused. However, your post has inspired me to pursue 2 journeys: 1) To truly understand price actions instead of just recognizing patterns 2) To find out how pit traders trade and what their edge is Once I completed these journeys, I will incorporate these new understanding into my trading plan. I will continue the process to understand the market and to become a profitable trader. I will not forget that the process will never end. Thanks! PA
Pension Admin, Below is another explanation of Expectancy vs. Accuracy, exactly what I have been trying to get across. I did not write all of the below but it is a pretty good explanation. This explanation is about as simple as it gets and includes the expectancy formula for making calculations in your own trading and research. I hope it helps. PM me if you want me to reference the source to which I have no affiliation or knowledge of other than what I found here. Initial Considerations: In nearly every activity where there is a measurable difference between doing well and doing poorly, there is a natural human tendency to want the majority of attempts to result in success. In most cases, this is entirely appropriate. For a basketball player who attempts five free throws, the ideal outcome is five successful shots. Intuitively, people think that same way about trading. If a trader takes several positions, the more winning positions, the better. Is this really the best way to measure a trader's effectiveness? Applications to Trading: In our own system metrics, we use the term "directional accuracy" to refer to the number of winning trades divided by the total number of trades. For example, if we place 100 trades and make money on 40 of them, our directional accuracy is 40%. Instinctively, most people will discount the possibility that such a series of trades could be profitable. After all, we are losing more often than we win. What this fails to account for is the size of the typical win and the size of the typical loss. Suppose that each trade that goes in our favor, we make $1500 and every time a trade goes against us, we lose $500. In this case, a 40% win rate is more than sufficient to bring in impressive profits. The typical profit per trade can be expressed according to the formula for expectancy: Expectancy = (Probability of Win * Average Win) - (Probability of Loss * Average Loss) Expectancy = (0.4 * $1500) - (0.6 * -$500) Expectancy = $600 - $300 = $300 Counter intuitive as it may be, most trades are losers, but the average trade results in a profit of $300. This isn't just a mathematical curiosity. This is how real world trading works and it's why most traders wind up leaving the market with less than they go in with. Most traders want to be right more than they want to be profitable. Read that last sentence again. And again. Remember you comment about only wanting to take trades that are correct at least 50% of the time? Closing Thoughts: Which would be more profitable for the trader, a system like the one just mentioned, or one in which 75% of trades make money, but the average win is $100 and the average loss is $400? Which would be psychologically easier to trade, a system which makes money but requires the discipline to deal with numerous tiny losses, or a system which looses money but always has another winning trade just around the corner? Our system is certainly not easy to trade from a psychological point of view, but we believe our overall profit performance speaks for itself. Figure this out for yourself to make sure you understand what we are doing here. Your sentence "I will then only trade those setups with more than a 50% winning probability" refers to directional accuracy, not expectancy. I hope the above makes this clearer with the use of real numeric examples. Remember, there is no shame in moving on to another endeavor. Maybe your field of best performance and happiness is not trading. Again, good luck in your trading and life. BM
I totally understand that and I am a true believer in this. I think Mark Douglas has mentioned this in his book, but in finding the setups with the right combination of winning probability and average dollar winning to give a positive expectancy would be a difficult and confusing task for me. PA
"I haven't failed. I've just found 10,000 ways that don't work" - Thomas Edison Of course, this is true. The problem is that unless you are fanatical in your pursuit, you are likely to put yourself in financial ruin by the time you become profitable. It is so hard to give advice without really seeing everything about your trades and your thinking process. I still find posts like this amazing given that there are literally thousands of posts like it in past threads, and there is some really good advice in them. Instead of starting a new thread on it, if you are really interested in changing your fortunes, search the site and listen to how others have gone wrong and some of the advice given to them. Without knowing you, I would say you should try to just have small victories and try to so something simple, like pairs trade or stat arb. Remember, there are many ways to lose, so you have to isolate how you lose. For example, if you have a problem with stop losses, use ITM options. That way your risk is always limited, and the tool forces the correct discipline on you. Solve the problem with the right tool... If nothing works, try sticking a $2 bill in your wallet and NEVER spend it. My dad says it is good luck.
Its all about EDGE. Find a good edge, then trade it. If your current strat is a net loser, then walk away, and try something else. Keep doing that until you find ONE that works. That's the Big Secret. Keep throwing out trash until you find something of value. Needle in the haystack. That's what this Journey is all about. And yes, there is something to find. And no, it doesn't lie within the realm of mathematical esoterica, or quant-finance-algo BS. Yea, the real egg-heads can squeeze juice from that rock. But there are Far more profitable wells to drill. And far easier. Even an average guy like me with no background in math or computer sci can easily exploit. Keep looking. Do not give up. Period. End of story. If you give up without finding one good edge, it meant you never looked long enough. I hope I'm clear. Good luck.
Oh yea, and stop wasting time on these sub-forms. Spend ALL YOUR TIME in the Journals Forum. IDENTIFY, LEARN AND COPY THE STRATEGIES OF PROFITABLE TRADERS POSTING IN THE JOURNALS SECTION. Stop wasting time with this crap. Go to the Journals section AND START DIGGING. Guys in there are trading the easiest, dumbest sh*t making SICK returns. That's the market. Stupid. Now go figure it out.
A good article on day trading. Hope you find your edge soon: http://www.tradingmarkets.com/.site...s/5-Steps-to-Successful-Day-Trading-81413.cfm Good Luck!
No, its not. You don't know what you're talking about. Classic case of "Because-I-couldn't-figure-it-out-nobody-can". Yea, okay. FX is not rigged, or a fools game. Stay with it.