Is the Futures Mag Article Wrong or Me?

Discussion in 'Risk Management' started by JScott, Mar 28, 2009.

  1. JScott

    JScott

    That’s a good question . . . and if the calculations can be squared away, that’s what this thread should really be about.

    Interestingly enough, in the example presented by the author, which is probably a typical setup for a lot of traders (try to hit 67% of first target, etc.), the biggest lever to increasing your P/L is reducing your risk. The second lever is increasing the win percentage of hitting the second target.

    But that's the whole point of this. I think most people would be surprised to find out that a trade setup presented here with a 67% chance of going in your direction still could be a losing proposition. You risk eight, but you are trying to make 12. But actually you are risking 16. So the reward/risk is less than 1. Not that great as we all know.

    In the end, I still personally advocate a scale-out exit strategy. But I prefer a two-tiered approach over a three-tiered approach. Basically because I’m convinced that catching runners has drawbacks for me, and that’s what a three-tiered approach plays off of. My personality is suited to singles and doubles and it's worked well for me. So I'd still advocate whatever exit strategy suits someone's personality.

    There are many ways to skin the exit cat, but I think if traders ran scenarios based on their own trading experience with probabilities in mind, I think they’d be surprised. I know I was.
     
    #11     Mar 29, 2009