yeah, but I'm not talking about probabilities for price support, I'm talking about support for probablities.
Ummm... I have been trading a trend following system for years with AN AVERAGE R/R of "1 to 2.8" and AN AVERAGE win rate of 41%. I think that qualifies. My largest drawdown... 22%. Risk reward ratios don't have to be "planned" before a trade. The risk can be determined ahead of time and the reward can be considered "infinity" and calculated after the fact. That doesn't make them invalid. Hope this helps you form a new OPINION.
While I appreciate the effort you put into your reply and your Monte Carlo simulations, even with a trading system that generates an "80% win rate" your risk of loss is STILL infinite as far as the number of trades you may lose. Short of a system with a 100% win rate (you know, the robot one you can buy on the internet for just $99) there is no guarantee that you won't have 26 losses in a row (or more), even with a "high win rate" system. Yes I know, but the probabilities are that it's less likely to happen. Tell that to the person who was "lucky" enough to suffer through 26 losses with the 80% win rate and blew up their account because they put their faith in the win rate of the system). When it comes down to risk and money management WIN RATES OF TRADING SYSTEMS DON'T MEAN SQUAT. They may do something to soothe your fears and help you sleep at night, but that will only last until you wake up one morning and look at your trading account and learn first hand they really didn't matter. As far as controlling emotions while trading a "low win rate system" is concerned, there's a reason why less than 10% of traders are profitable for the long haul... it has everything to do with emotions and discipline and very little to do with win rates or risk/reward ratios. I've been trading for a long time and if I were to offer any advice to someone starting out it would be to not be so obsessed about the win rate of a system.. learn to develop the patience and discipline to trade a trend following method... and if you're afraid of drawdowns, risk of ruin, or just losing money in general... FIND ANOTHER WAY TO SPEND YOUR TIME.
Very good point. Exactly the way I trade, too. Just limit the risk, and the rest will take care of by itself.
Yeah, why even use charts & high tech software, just go with your emotions, the rest would take care of itself. http://www.youtube.com/watch?v=o2we_B6hDrY If that doesn't work, http://www.youtube.com/watch?v=au2mOdwGENk
1. Stops and position size are NOT the same. Stops should be dependent upon the volatility of the market/vehicle traded. Your position sizes should always be built around the size of your stops, NOT the other way around. You can take a very viable trading system and destroy it by setting static stops... and if you don't factor volatility into your position size so that your losses are similar across markets you might as well go to a casino and put your money in a slot machine. 2. You really think someone should "reduce size" when there is a trend in effect? So if I tell you that your probability of winning has increased you want to REDUCE the amount of your position??? 3. Doing the same thing all the time (when the proper conditions present themselves) is called being consistent... it's how the "5%" that you refer to make our money. 4. You may have to "read the market" but you don't need to have an opinion as to why what is happening is happening or guess about anything to place a trade. This is where probabilities come into play... know exactly what your entry and exit signals are and follow them consistently... and then keep your emotions in check. There are many styles of trading, but some trading mechanics simply must be followed no matter what your style if you plan to win for the long run.