Can you be a little more specific? Monday @ 10:00 am EST I will short 100 SPY. (Random entry). Where do I place my stop to only risk a small amount? Assume an account size of 25K How do I determine what the noise amount is, and how far outside the noise do I place my protective stop?
Extreme healthy profits can be made using random entries and Prudent Risk Management. It's just that simple---Prudent Risk Management is the only true edge in trading. There is no other.
This is where the edge is. It must be related to account size, market noise and Total Liquid Net Worth (TLNW). I don't risk any more than 2% of TLNW and many times, much less. So, I cannot forward to you a chart or rules about where to place a stop. That is proprietary. That is the edge and each trader would have a different definition of where to place the stop outside the noise.
I've made this point before but I would like to reiterate--The risk management forum is one of, if not the least, visited forums on ET. This is very telling. Most ET posters do not pay attention to the risk management forum. Most traders do not pay attention to risk management. Most traders lose money. ---Izzy
Perfect risk management is taught or was being taught at clearing firms when floor traders in Chicago would enter intern training program. A true scalper has near 100% perfect risk management. That risk management is occurring at tick bid/ask level. Current algos that layer the DOM try to do this or emulate the floor scalper at incredible speeds. A retail trader/position/swing trader try to approximate this but at huge spreads. So the scalper is pure random entry, he's always trying to make the market. The clearing firms discouraged speculation because they have seen numerous traders come and go from speculation. A scalper is random entry based on which side he gets filled. If his ask is hit he immediately tries to unload at the bid making the spread and vice versa. If the market moves in his favor the scalper lets it ride for a few seconds before unloading. But always a scalper cuts his losses immediately if market moves away from his fill.
Buy1Sell2 feels that he has to keep his edge under his hat. I'm not sure how widespread knowledge of a prudent risk management system would affect the market but I won't be getting any specifics from him. Given the same scenario. A short of 100 SPY at 10:00 EST on Monday with a 25K account size where would you place your exits. Can you be more specific than "slightly above", "Price action dictates stop loss" & "Variance zone"? Why a 2 hr Chart? This is not intra day trading. I use EOD data. I can place stops that will stay in place all day but don't have time to monitor the market. I believe that prudent risk management is an integral part of an Edge but have my doubts that it can lead to success with random entries. I am more than willing to be proved wrong.
long 100 spy at 190.0,...stop 186.0... stop loss value is 400 dollars.. take profit is either 194 or 198. 25,000 equity/400 = 62.5 100 spy costs 19,000 to keep trading fixed 100 spy.. 25,000-19,000 = 6000 6000 / 400 = 15 so essentially you can only trade 15 times before you need to reduce amount of shares. if you had 10 consecutive losses, 4000, but let your winners ride for 5 trades, letting your winners ride implies, more than the 400 dollar stop, the setup would need to yield 4 times the stop loss..or 1600, 1600 x 5 = 8000. You would be at 29,000 equity. if take profit is only 3 times stop loss.. 1200 x 5 = 6000, you would be at 27,000 if take profit is only 2 times stop loss.. 800 x 5 = 4000, you break even. so you need to filter the setups where profit potential is 2-3 times stop loss..