On LH Mc Gregor. This has to do with R multiples. Do I have my entire account on this trade? No, I have a reasonable position on this trade. I also have a very tight stop of only a point or 2 for each time I enter. I risk a point and make 25 points. Remember I have professional margin too. My leverage is more than the average investor. This allows me to use tight stops on highly volatile stocks. The tight stop allows me to than own more shares to have my normal amount of risk. LH is a setup for a nice retracement. It's overbought and needs to have some profit taking. A small correction in LH though on a 160 stock is easily 20 points. If my position starts to work I'll add to the position and have 2 trades in reality on it. The golden rule is cut your losses short and let profits run. My losses shorting stocks are not very much but my winners are absolutely huge. Rtharp
I must admit that I too don't understand your postion here. >>"I risk a point and make 25 points." Are you saying that on AVERAGE you gain 25 points for every point you lose in your tarding??? >>"My leverage is more than the average investor. This allows me to use tight stops on highly volatile stocks." Being MORE leveraged imparts LESS risk to you as the stock moves against you???? What?? "It's overbought and needs to have some profit taking." Yes, very likely EVENTUALLY it will go down some. Don't they all...eventually? It sounds to me that you are leveraged up to your eyeballs with each trade here, simply shorting and covering losing a point each time you're stopped out in the hopes that it will *eventually* move in your favor. Doesn't sound to me like anything different than what everyone else is trying to do.] tradeRX
>>"I risk a point and make 25 points." >>Are you saying that on AVERAGE you gain 25 points for >>every point you lose in your tarding??? It means he can be wrong many times and right once and come out ahead. If he has 9 losers and 1 winner, he will still make money. If you have a system that loses 90% of the time with only 1R but has a 25R winner 10% of the time, you will come out far ahead. >>"My leverage is more than the average investor. This >>allows me to use tight stops on highly volatile stocks." >>Being MORE leveraged imparts LESS risk to you as the >>stock moves against you???? What?? Example: Stock ABC is 150 points You have $100,000 in your account. You want to limit your risk to 1% which is $1000 You see a good trade with a stop of 1/2 point. So you can buy 2000 shares with 1/2 point stop to have the max risk of $1000 BUT 2000 shares of stock ABC at 150 costs $300,000. On a normal margin account you will only have $200,000 from your $100,000 account. With a professional account, you will have more than 2:1 ratio allowing good trades to be properly traded. Being more leveraged does not mean more or less risk. Risk is defined by your number of shares times your stop. It does allow you to put on positions which you normally wouldn't with a reasonal amount of risk (1%).
I don't think "everyone" is trying to do this. It takes knowledge and skill. Everyone can easily understand the concept, but putting it to work is another thing. I guess Great New Pattern doesn't fit? Maybe change this title to "Patterns that take Great Gonads" In addition, it sounds like it is common for a trader to figure their risk based on the amount of their trading account. I am thinking about this because, I don't. I would be taking more risk than needed most of the time.
Rtharp, Thanks for your reply. I'm still quite perplexed by praetorian2's 19,000 share position in ELY. I just can't imagine taking that kind of risk on one trade. It kind of reminds me of Jesse Livermore. I guess that's how great fortunes are made... and LOST! Obviously, the mere fact that praetorian2 can take on such a huge position shows his trading account is far bigger than mine. Risk is an inherent part of the trading business, I just don't get how such a position makes sense from a risk management point of view. Even if great profit is reaped from this trade, repeating it several times would probably lead to disaster eventually.
LH: 14.06, and better 12.50, are supports. It bounced off 14 support. You don't want to sell something that is technically reversing. Yet, must be aware of the bad news, and expect to stop out, should support not hold.
We are getting off topic on RIsk so I'm starting another thread on it Please go here for that http://www.elitetrader.com/vb/showthread.php?threadid=1468 Please no more on risk here. ONly talk about different trading patterns.
Jeffery, If my system produced 'NINE' LOSERS for every winner, I'd reverse the order, BUY when it said SELL ...and make a fortune!! A system that produces many more losers than winners doesn't sound like a good system to me. Isn't random chance the standard that we strive to best? I wonder how many "high-probability winning systems" have actual validity outside our heads in the real chaotic world. Do any of you guys actually objectively MEASURE your results/methods against pure random outcomes? Shorting a run up, then stopping out w/point loss, then shorting again, then stopping out again, then shorting again until it finally drops isn't rocket science. I don't see the big deal here. Is the TA really working when it tells you to short but,low and behold, you're stopped out numerous times? Then, finally, your "high probability" methods are "redeemed" as the stock comes tumbling down just as your system "knew" it would all along. I don't see any rocket science here. Regarding the risk...isn't he holding this stock overnight? He's expecting a 20-25 point gain, surely he doesn't expest this in one day. A gap up of 5 or 10 points would hurt in a highly leveraged account, wouldn't it? tradeRX
TraderRX First as I said before in a thread above this is OFF TOPIC. NO MORE OF THIS TOPIC ON THIS THREAD PLEASE USE THE THREAD ABOUT RISK FOR THIS DISCUSSION. THIS THREAD BY ITS NATURE GETS VERY LONG. PLEASE DON'T GET OFF TOPIC. First 99% of my trades aren't held overnight. I don't like overnight risk. I'm a daytrader. WHen a 160 dollar stock drops it can easily drop 15 points in a day.A a 10% correction in a highly overbought stock is a very normal thing. A 10% correction for $160 stock is 16 points. It's also very common (especially in weak market like this) for investors to have to take profits when they see them disappearing. A 10% correction can very quickly become 25%. A 25% correction is a 160 dollar stock is over 40 points. The average range of a stock this high in price is about 10 point on the upside. The downside could easily be 30 points. If the stock dropped that fast in one day it wouldn't bounce for a few more days, and the odds are very unlikely it will gap up after dropping 20% in a day. Gaps up are due to an imbalance of buyers in the market place. How many stocks drop 20% and have everyone running to buy them? Usually they need to have the dust settle first for sometime. ALso If I made a trade and made 20 points with a stop of only .50 how much would a 5 point gap hurt me? NONE! I'm still sitting in pure profit of 15 points. I know quite a few traders who have systems that make 70-80% of time they are right. There is nothing wrong with that. Unless when they are wrong they lose 30-70%. This is what most of the traders I know who concentrate on being right instead of expectancy have in their system. Over the long term they will bust out. And guess what you are right Technical Analysis isn't rocket science. It actually is this easy! The problem is the most traders and their psychology going on. They have issues and want to make it complicated. rtharp
El cazador, that climb in the last hour was the specialist pushing this monster up. He's very long like me. (3 times he showed 100k to buy and was hit while trying to gun it. That move up was made possible b/c that seller is all done. 11 mil shares is a ton on this one.)I like to be on the same side as the specialist. He's gonna gun it to 16 to sell all that he bought at 14.3 Besides the 4500 I have from the high 18's, my average is like 14.4. Im very confident on this one cause the seller is done. The reason I'm fighting this fight in the first place is that I'm long 4500 from thurs unfortunately. I am definately trying not to have a monster gain. I'm just using the god rule to get out. (the trading gods give you ONE and ONLY ONE chace to get out flat, and you MUST use that opportunity) The specialist is also very long from there. I rarely hold overnights lately, and 4500 was way too much. Rather than take the 20k loss. I decided to try and get enough shares to make an average that gets me out EVEN or with a small loss. I know it's not a good Idea, but the green candle on friday makes it a great new pattern trade anyway. It opened at 15, and closed at 15.1 or so. Ignore all the trades before the open. I agree that 19k is a lot of shares to hold overnight, and it will be quite a dent if it opens 5 points lower, but I think that all (most) of the bad news is out of this company by now. Mgregor, I really don't think I'm taking that much risk on this trade. My stop is like 14 on most of the shares. Risking .4 to make 2 points is a risk im willing to take on any number of shares really. .4 risk is only really 8k anyway. My account is really not that large, and yours is probably larger, but I think that risk managment is fine on this trade. I never try and shoot the lights out, I just try and make lots of high probability trades. The speciailist is VERY long, so I am as well. He was long on thurs, so I went long there too. ------------------------------------------------------ As for the heat that rtharp is taking on lh, I also tried this short. I lost 400 bucks, and called it quits. I honestly think that it's going higher. Friday looked like the breakout of consolidation before a much larger move continues. As long as rtharp continues to only risk a point though, his position is fine in theory. I oftne take 5-25k positions in a stock and risk a dime or so when I think it has bottomed. When i'm wrong, I lose a few k, when right, I make a ton. Consider USG. I wrongly called 3 bottoms before I did get my move. I made 2k on my first one, and lost 5k on my second 2 "bottom" calls together. On each one I did it with 15k shares. On the last one, the one I posted on this board, I did it with 21k shares finally, and I made 11k on it. Had I sold more near the top rather than being stopped out, I would have made a lot more. The point is that as long as you consider your risk, and are persistant in something you believe will work, you'll be fine. For the record, I think lh goes a lot higher, but I think that this pattern is ok for shorting blowoff moves. It is definately not a "great new pattern" play though. ---------------------------------------------------------- I'm sorry that this post is long and meandering. This board has gotten 2 pages more posts, and I'm trying to respond to all (most) in one long one. ---------------------------------------------------------- Mgregor. I think I said earlier, but I think that this is an ELY bottom. I hate taking risk. My trading style is all about not taking risk, but making lots of small plays for high probability gains. As long as my risk is very defined (.4 on most of my position which is the 14 stop) you can take as many shares as you feel that the liquidity of the stock will allow. I know I can move 19k shares like buttah in this one. I bailed on a long on ELY around 2 pm and I knocked it down a nickle to bail on 12k shares at market. I am pretty confident that the 14 bid will be huge and I can get out of all if I want to right there. ----------------------------------------------------- I'm sure tha this is not going to answer everyone's questions, though I tried. Please quote me on any part, and I'll respond to that particular section. As far as rtharp's lh play, maybe we should make a thread for shorting massively overbought stocks, cause that really doesn't follow the particular pattern I'm playing in "great new pattern" trades.