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Prudent Risk Management Is The Only True Edge In TRADING

  1. This is a fact. In order to be successful in trading, it doesn't matter whether you are right or wrong when placing a trade. What does matter is that when you are wrong, you lose a little bit and when you are right, you maximize your gains. Why do most traders (especially day traders) lose? They don't have prudent risk management skills. End of Story. Now, a lot of folks may say, "but the newbie trader doesn't know how to pick entries and exits". While that may be true for some, the real issue is that when they are wrong, they stay married to a position, or add to a position in order to not admit failure. Your best bet would be to learn to embrace failure, learn to shrug it off, learn to admit when wrong and learn to stay in trades that are winners. You see, Prudent Risk Management is not just about placing an initial stop---it's also about managing a winning trade. Remove the focus from high winning percentage. Retrain focus on losing a little and making a lot.
  2. That's it man! It takes most about 10 years to figure that out.
  3. To use a Blackjack analogy (assuming optimum playing conditions):

    - EDGE is card counting (TIMING)
    - PRE-REQUISITE is money management (SIZING).
    In & of itself money management is NOT an edge

    (LOL this is why in the long term, betting (SIZING) on random blackjack hands with NO card counting is not profitable...regardless of how "good" your prudent money management system is)

    If "prudent money management" blabla is an edge in & of itself, you 5 lot pikers wouldn't be spending so much time on ENTRY (ie TIMING).
    You'd simply enter at random (coin flip) & let SIZING (money management) take care of the rest. None of you is doing this

    you also need TIMING (guessing right entry/direction).
    SIZING is a pre-requisite

    Yes, money management (with random entry or wrong guesses) might make your grubstake last longer.
    In the short term, might even be profitable (thru luck).
    But in the long term, eventually it will dwindle to ZERO.
    (there's also commissions & slippage)

    Permabears on ET have guessed (mostly) wrong (TIMING) since 2009 since they have a fixed bias of short short short, everything is overvalued.
    Multiple "2% stop loss" from wrong guesses will dwindle the a/c until you need a home run just to breakeven

  4. blackjack is a rational game which has efficient rules. The market can be totally irrational and inefficient. In blackjack, once 4 aces are turned there are no more. In the market, they can just keep turning aces longer than anybody thought was ever possible.
  5. This is a major part of the point. --prudent risk management dictates that it is prudent to stay in winning trades as they can continue to win ad nauseum.
  6. not that I know that much about blackjack. The only time I ever played it was when I was forced to on dealer's choice night and an ex con would always call it when it was his turn (to get him back in the game.)
  7. Yes--and many others never get to the point of realizing this and will fight the concept to the very end. (Of their money)
  8. I don't know that much about winning trades, but I do know a loss if left unchecked can go ad nauseum on you, so I suppose a win could do the same thing in the opposite good way
  9. Good observation in my view.
  10. I would say, prudent risk management is the foundation of trading. But hardly an edge. With perfect risk management over time you will lose on the spread and commish. As much as I hate to admit it, to make money in the market you really need to guess right.
  11. "There isn't one indicator that is the holly grail. Holly grail of trading is risk management."
    -John Person
  12. Depends on your definition of what "successful" is?
    One thing for sure is that the market is always "right". You don't get paid if you're wrong, you only get paid for being "right". Not only being right, you need to be "consistently right".

    Now what is missing from your post is "conviction". You are on a theory that one can make money without knowing the direction of the markets which is possible. But have you ever imagined those who knows the direction and have that conviction? It would put your "only true edge" & "successful" to shame.

    Open your mind!
  13. Everyone is able to pick direction. It is the ability to exercise prudent risk management that is the only true edge in trading.
  14. "Everyone is able to pick direction", that's true, but not everyone is able to pick the correct direction. I don't care how good or prudent your money management is, if you are not able to generate winning trades, your prudent money management won't provide you the edge as you say or save you. It will be just a matter of time before you are on the sidelines licking your wounds.
  15. Everyone generates winning trades. Everyone generates losing trades.It's what you do when you have a winner or loser that is the edge. Thank you for your posting.
  16. I responded directly to your comment and now you are changing or initiating a new comment to what I originally responded too. When I see this happen, with all due respect, it tells me not to waste anymore of my time. Hope the best for you.
  17. The change was made by you. I responded to your proposition that --if one cannot generate winning trades etc. -- My response stands. Everyone generates winning trades.
  18. actually, I've been doing this, as an experiment - 2 years now, entries based on this site:
    plus an arbitrary stop / don't know if it counts as prudent mm/, so far - can't beat this strategy on my real account..no clue why? luck perhaps, but you need to be lucky in this business - even Simons admits it :)
  19. people fool themselves they can pick direction correctly - but lots of research indicates otherwise.. they are better off taking truly random entries than listening to their guts feelings :)
  20. when does your random experiment take a profit?
  21. Happy with the poll results (80% against) but really thought it would be more in the 90% or so range against. Prudent risk management is the only true edge in trading and I am not surprised to see the poll heavily skewed against the tenet as the largest bulk of traders end up losing money and never grasp this reality.
  22. IMHO I would say:
    1. absolute CONTROL of losing trades is a pre-requisite, until and unless this is achieved there is no chance to consistent profitability, however I also agree that this while necessary is not sufficient.
    2. once the pre-requisite is achieved, screen time, experience, understanding of the Milk (i.e. how the market operates) and thus ability to choose low risk entry point for trades is the final edge that allow for consistent profitability.
    The problem is that most traders attempt to achieve the second (it seems obvious, right?) without first and foremost achieving the first. Being able to identify low risk entry point for trades without absolute control of risk will never lead to profitable trading, IMHO...
  23. This theory of yours is easily proved. Start a Journal; call your trades in advance giving the time of the trade, the direction and the exits.

    You can use SPY as an example and see if you can out perform a buy and hold strategy.
  24. Saying is always easy! Isn't it?
  25. Hi OT, yes I unfortunately agree, I have the theory very clear it is the practice that is taking some time to implement. But at least I now have a clear path to follow even if knowing the path and walking it is not the same...
  26. Risk management is a GIVEN. It is not an edge in and of itself. Heck, position sizing based on setup expectancy is probably more of an edge than "prudent risk management."

    I can risk manage losers all day - doesn't mean it's profitable.
  27. yes, that's true, but...if you do not control your risk you will never be consistently profitable and if my experience is as common as I think it is, most traders will loose a lot of money before they figure out that controlling risk is mandatory and is a pre-requisite.
  28. If what OP says is true, he could easily demonstrate this by taking a strategy which has barely an edge and turn it very profitable ONLY by using money management techniques.
    But he will never do so as what he claims is false, entries are very important.

    For the record, I don't employ any money management and I'm profitable for years.
  29. Let's review the Four Cardinal Rules of Trading, which I'm sure many of you fellow ETers learned as I did.

    Rule #1 - Trade with the Trend. This is the rule for entering a trade. No details are given but if you can successfully enter a market in the direction of an extant trend, your chances for success are much higher than trading against any extant trend.

    Rule #2 - Cut Losses Short. This is the first exit strategy. It is how you avoid big losses. Another way of saying this: "When you find yourself in a hole, stop digging."

    Rule #3 - Let Winnings Run. This is the second exit strategy. This is how you establish gains, which is every bit as desirable as minimizing losses.

    Rule #4 - Risk Management. This is just another term for Money Management. The first three rules are about timing (entry and exit strategies). This fourth rule is about sizing: how much to trade in order to maximize the gains established by the timing rules (aka your edge).

    So knowing when to enter and when to exit trades is your edge.

    And knowing how much to bet on your edge is money management.
  30. I think what OP is saying is that there is very little proof that most traders can guess any better than 50/50 what is going to happen. So give us all a random entry and let's see how we handle it. After you put it on you only have a few choices

    1. close it out and get flat

    2. close it out and take the other side

    3. add to it

    4. subtract from it

    or a combination of the above

    did I leave out anything?

    oh yeah, 5. Do nothing
  31. 6. Avoid random entries. Learn how to enter with trends, vastly increasing your chances for success.
  32. it's one thing to guess right on the trend, it's another thing to manage a trade where you just accidently got on the right side of a trend.
  33. What's with the guessing and accident stuff? That's not what the OP said btw. What he said was being wrong on the entrance doesn't matter, whether it is done randomly or systematically.

    This is utter nonsense of course. Entrances matter. Even if you can salvage a small loss from "guessing wrong", how can that possibly be as good as "guessing right" and riding that trade to a good profit?

    Avoid random entrances. Figure it out (trading with the trend). It's well worth the effort.
  34. It's both. You still need some sort of timing edge in buying and profit taking to go along with good money management. If you only have one, you will be 98% likely to lose.
  35. All traders guess right. All traders guess wrong. It's what you do with those guesses that makes a winning trader or a losing trader.
  36. So what you're saying is that exit strategy(s) matter. Duh! Everybody knows that.

    My issue with you that you,re also saying entry strategy does NOT matter. I call bullshit on that.

    What you're saying is that, so long as they both use good exit strategy, there's no difference between a random guesser and somebody with an 80% probability of entering trades correctly. What is this idea based on? Certainly not actual evidence.

    I would bet the 80% entry guy using random exits will do at least as good as the random entry guy using great exit strategy.
  37. would you rather give your money to a guy who claims he is a really good guesser when it comes to identifying the trend, or a guy who is very good at setting stops?

    either way, they are both just guessing, except the stop setter has something very concrete to work with, like your account balance. The entry guesser has nothing but dreams and theories and past data to bet on.

    a good stop setter has very good entries
  38. for those of you playing at home that means if you enter randomly with a risk reward of 1:infinity, the only thing you have control over is the stop. So it all comes down to, "Are you a good stop setter?"
  39. For how many ticks will he be right Forty Draws?
  42. imho risk management - is a result of correct trading method that encompasses the entry, the position management and the exit

    so it is not an only edge , its not even an edge in itself, it's a result of the edge and its proper exploitation
  43. %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
    and trend study + trends.........................................................
  44. imho risk management is all about known you entry your exist and how to manage your position by setting hard and soft limits and being disciplined.
    Prudent Risk management is all about timely execution on all of those fronts with positive results.
    Like many have said. Knowing when to get out of a bad trade is pivotal in preserving the stack. ;)
  45. Identifying the trend in a given time frame is easy. All you need to do is to develop a definition of trend and then apply it to the market/time frame in question. Easy!

    Knowing where to enter and where to exit to take advantage of the trend, well that's the tricky part.
  46. that's why I say you have to be in to win (or at least have resting stops to enter.) I'm too slow to catch a fast moving trend. Almost every good strong trend I have ever been on the right side of was just a lucky accident. Exiting is another matter. There's no good way to exit a trade. That's why I just don't do it. If I haven't been stopped out I just move on and let the profitable trade take care of itself. At some point it will be a thurs night before NFP sitting on a huge profit, or everything is just working too well, or they have given me so much money it is just ridiculous, then maybe I will close out, but it very rarely has anything to do with my ability to guess the end of the trend.
  47. loyek, i have read many of your posts and your method ("i never take a profit") is intriguing. May i ask you some questions?

    1) what's your historical win rate?
    2) do your profits easily cover your losses and much more?
    3) how do you exit the profitable trades? when you say you let the profitable trade take care of itself, what does that mean?
    4) do you add to your profitable trades?

  48. 1. incredibly low
    2. easily, but it takes forever
    3. I don't know, just depends on the market
    4. always, that is my only "secret"
  49. I have a mechanical sytem with no exit strategy. If you trade it long enough, eventually you will go broke. I have no stress because I already know how it will go. But getting back to prudent money management, just like any poor employee, I put a little of my profits away for old age. I suppose I would be richer if I had just piled on, but I'm already nervous enough as it is. The only peace in my life is opening up my Vanguard mutual fund statement. It can be down 50% and compared to trading I still feel safe.
  50. More intrigue! Why will you go broke if you trade it long enough?
  51. yes, no free lunch, my technique is nothing special, its often referred to as anti martingale. A martingaler believes if the last spin was black the next spin will be red. An anti martingaler believes what has gone up will keep going up. And that's how I bet. Which brings us back to prudent money management.

    the most important thing before you start is to clearly define what a minimum and what a maximum postition will be, and it is based on starting account balance and not reduced during drawdown or increased when it is going good.

    for me a min is about 200% of starting balance and a max is about 10 times starting balance, and then there are medium positions that get developed that are somewhere in between. The goal is always to keep your losers your smallest positions and your winners your largest positions. Once a position gets maxed out it is quite a comforting feeling to just ignore it and everyday see your stop losses become more and more irrelevant.

    I use to trade this sytem with no stops and that was more profitable simply due to reduced trading costs, but I was concerned what would happen to my account if I died and my kids had to sort it out. So now I go to sleep with a stop loss on everything. To an outsider my stops seem to have no rhyme or reason, due to adding to positions, some become incredibly tight, like 10 pips, and others can get very wide, like 100 pips away from average price. And some are actually more like trailing stops and will stop me out at a profit (although not much of one and I consider getting stopped out a loss even if it is a profit.)
  52. the secret isn't the system. It's just the basic premise, always the same, keep losses short and let profits run. You can add to winners you can add to losers or you can just put it all on the first time, don't matter to me, as long as there is something which keeps losers small and let's winners run.
  53. What determines how much you can lose, and, how much you might win?
  54. Who makes more money, the little shop on the village corner or the big supermarket in the center of the town!

    One of the biggest mistakes a person dabbling in trading can make is to think that he/she can "consistently" have large winners and small losers.

    Those who try would do well to understand this quote.

    “If I am I because you are you, and you are you because I am I, then I am not I and you are not you. But if I am I because I am I, and you are you because you are you, then I am I and you are you.”
    Rabbi Menachem Mendel of Kotzk
  55. I agree that trading is gambling, but trading is not a casino game!

    In order to acquire the required skill sets to trade effectively, a person must gain experience.

    In order to gain experience a person must place both losing and winning trades.

    In order to place both losing and winning trades a trader must have a prudent risk management approach that will allow enough time (trades) for the experiences.

    5% of capital (cash in bank) per trade is way too much.

    1% of available trading capital ( % of cash in bank) is ok for some, depending on market traded and strategy used.

    0.5 % of available trading capital ( % of cash in bank) is best for most.

    Of course, what makes a big difference is how much you have starting out, and if a person uses high leverage as in FX trading, then they are more than likely not employing any risk management at all, and are just throwing loose money at the market in a hope that the might make something, which I think we all know what the likely outcome will be.

    Prudent risk management is not an edge, it is a requirement for successful trading, as there is a big difference between an edge and a requirement.

    An edge would be something like knowing when not to trade, as it removes you from the market during highly volatile periods which equates to high risk.

    Why climb an apple tree and risk breaking your legs, when you can pick the apples off the ground - all you need do is give the tree a little shake first:)

  56. If you cannot define your edge, you don't have one.

    Prudent risk management should be part of your trading plan.

    I believe that having the discipline to follow a trading plan is part of my edge.
  57. Really? If the right opportunity came along, i would go in 150%.
  58. How much are you willing to lose? :)
  59. 0 since the right opportunity would mean zero risk :D
  60. There are opportunities each and every day, but every trade carries risk.

    If you are talking about being in the right place at the right time, then that of course is a different story, but to go in 150% would be foolish in my opinion, as you might get away with it a rare few times, but one day you will get caught and be one sorry trader.

    Consistency is far better than one hit wonders!
  61. I went all in one time. I am still living off that money. Wouldn't have mattered if I had lost, I was one sorry trader when I put it on.
  62. Would disagree. There aren't opportunities every day, you may think there are, but probably a matter of seeing what you want to see.

    I only need a few times of going all in 150% to make a fortune.

    Would rather take 1 hit wonders* every now and then, screw consistency.

    * i suppose they wouldn't be 1 hit wonders if they came about regularly!
  63. So you would never go 150%.

    It is not unusual for me to employ over 100% of my trading capital but I only risk 1% on any one trade.
  64. no, i really meant the risk being 150%!!!!

    i think i would do maybe 20% risk on a trade if i had huge conviction on it.
  65. One man's misfortune is another man's gain.

    Opportunity is in the eye of the beholder.

    I would imagine that you are either not telling the truth, dreaming, or just trying to stir the s*it:)
  66. read druckenmiller's speech is the best advice i can give.
  67. No thanks, I much prefer Enid Blyton:)
  68. Yes, i think that might be best for you.
  69. I'd rather own the little shop on the village corner than be a manager at walmart
  70. Why? The Walmart guy probably makes more money and has no risk.
  71. quality of life
  72. yeah, the corner shop guy has really good quality of life...no vacations, insane hours, no relief when he needs time off and constant business worries, supplier worries, customer worries....
  73. yes, that pretty much sums it up. I went nine years without a single vacation or day off other than the 5 days NYSE was closed each year.
  74. Exactly right . Anyone can enter a trade correctly. It's the management of that trade that is the key to success. Much too much emphasis is placed upon correct entries
  75. Want to point out something that should be obvious to all here now. The previous posting was made on Sep 13 and it is now Oct 5. This thread continues to show on the ET homepage in the risk management section's recent 5 threads. As well, the other 4 threads listed do not have a plethora of communications. What does this mean? --It indicates that there is a genuine lack of interest among traders in the subject of risk management. Now we know that most traders, especially day traders, lose money and we know that most traders are not interested in risk management-----See the connection? This section should be the most heavily visited and posted to area of ET bar none.
  76. The answer to that is easy - most do not have a clue what they are doing!

    The majority waste endless hours and endless money - I know as I was also once a fool ! - in search of certainty in an uncertain endeavor!

    If you are in..and you are up..and it stalls..then why should you stay in..as it has stopped moving the way you want it to move!

    How much does a measly commission cost compared to what you can lose on a trade!

    It makes one laugh when you hear people talk about saving a few $ on commissions, and then they sit back and watch their p&l go into the red to the tune of $50..then 100..then 150...then 200...and then they panic and get out!

    What happens next !!!!!

    If someone wants to make money trading, then the first thing they have to do is know what their max risk per trade is, and stick to it (can be less..but never more) no matter what - NO MATTER WHAT!

    If this is not possible, then best to quit and give the money to your kids, charity, or just blow it on booze and women if you are single, for at least you can say you had a good time :)

  77. This is where I have to disagree!

    My argument is as follows:

    Bad timing is bad trading - you lose as soon, or very shortly, after placing a trade.

    Good timing is good trading - you win as soon, or very shortly, after placing a trade.

    In my books, CORRECT timing is everything!

    For every trade you place, you should have the following worked out, otherwise you are just guessing!

    1. $ risk - giving you the no. of shares or contracts to trade

    2. Entry level

    3. Exit level - Stop Loss

    4. Exit level - Profit Target

    All above are SET before you pull the trigger!

    If your Profit Target is hit - take it!

    Why take the risk!

    You can say to use trail stop - but in volatile markets you can get gaps and give back more than you should have!

    Of course, what is not mentioned here are the levels themselves, for, depending on the trader and how market is traded, the levels could be way different - so, it is all relative to how much money you have, how much you know about the market you are trading, and how good you are at TIMING!

  78. Not only that - but proper entries inherently reduce risk

  79. I was going to say that shud be "obvious" but I wont :)

    Exactly, automatically reduces your risk for every trade you make, which is what every trader should always be perfecting.

    After all...Time = Money...does it not!

  80. One of the things I've come to appreciate during my tenure here

    Not many grasp / appreciate - the obvious

    Oh well

  81. Recently, someone mentioned "3 W's" in a post on diff thread. The majority overlooked the importance of "3 W's" , but a very small few knew exactly what the post meant.

    Some things really never change!

  82. WWW
  83. The "3 W's" are related to all four "pillars" !

    Screen Shot 10-22-15 at 06.14 PM.PNG

    Screen Shot 10-22-15 at 06.15 PM.PNG

    Screen Shot 10-22-15 at 06.16 PM.PNG

    as per the above mentioned "mentor" !

    Screen Shot 10-22-15 at 06.42 PM.PNG
  84. This is incorrect . Until a trader learns how to utilize prudent risk management, timing is of no value.
  85. Anyone, I mean anyone, can time trades correctly. This is not a major skill set. The skill is in the management of the trade.
  86. By definition, if you can time trades correctly then you can make money because even a timed exit would yield profits. But keep banging that same old drum B1S2.
  87. Thank you for your posting. ---Will do-- Banging the same drum is what trading is all about. Always being consistent in trade management. Most traders lose money. They lose due to money/risk/trade mismanagement, not from timing.
  88. You know most traders? I would say no they don't, risk management is an additional factor to consider.
    So, I can give you completely random entries and you'll make money because this is what you seem to be saying.
    You can make great returns using no risk management, just by timing correctly, that's what I claim.
  89. Certainly can make extremely healthy profits using random entries with prudent risk management. Risk management is the only true edge a trader has.
  90. I want to swing trade SPY;(daily time frame)
    Can you outline a specific prudent risk management strategy for me that I can trade with a random entry?
  91. I'd like to hear this too. Since we are talking about SPY, there's plenty of liquidity for everyone and these random entries won't compete with your trades, you have no reason to decline.
  92. Your wasting your time. B1S2 doesn't trade intraday. That random entry shit with prudent stops will put you through the meat grinder. I'm sure he means well, but his basis is on longer term stuff, in which case random entry with very favorable R:R ratios can possibly work
  93. He mentioned "extremely healthy profits" which suggests huge returns with low risk.
    Now, if we are talking if by some chance random entries with MM can make ANY return then probably yes. Then again, so can any random trend following strategy with no MM.
  94. risk management(know to admit when your wrong) + higher percentage of winning trades = wealth beyond imagination

    no risk management + higher percentage of winning trades = stasis or even loss of wealth

    risk management + low percentage of winning trades = wealth

    no risk management + low percentage of winning trades = poor house

    ..the above is all you need to know about trading...develop your skills to get a higher percentage of winning trades and use risk management.

  95. Percentage of winning trades is almost completely irrelevant. It's the sizes of your winners and losers that decide your results.
    If you disagree, why don't you just short puts, you can probably achieve 96-97% win rates but the losers won't be that amusing for your equity curve.
    It's amazing what kind of "advice" is given on this site, I sure hope all the newbies don't accept it at face value and make up their own mind through trading.

  96. I would like to swing trade SPY using end of day data.

    Possibly you could outline a specific risk management strategy that could be traded with a random entry.
  97. just look at the 2hr chart using EOD, draw your trendlines/support/resistance. Place a buy or sell stop order above or below the trendline based on the direction its breaking. If prices are stepping down, your trendline will be negatively sloped. So your buy stop order with stop loss would be slightly above the trendline. Calculate what effect your stop loss value will have on your account. If your stop loss gets hit and you loose 10% of your account, you will only be able to trade 10 times before you run out of cash or hit margin limiting criteria. The price action dictates your stop loss size, if the variance is high and your stop loss is within the variance zone, most likely it will be hit. If your unable to place a stop loss outside the variance zone, than your account size is too small to trade that derivative. If your buy stop on a negatively sloped trendline gets hit and your stop loss doesn't get hit, the previous intermediate term highs and lows will dictate where to exit the trade or TP /take profit.
  98. Certainly. Pick a random entry and place a stop that will lose a small amt if wrong. However , if right, let it run placing protective stops outside the noise. It's that simple.
  99. Actually I do trade intraday. Prudent risk management is the only true edge no matter what the time frame. Reminder, Prudent risk management is not just about placing an initial stop, it's about cutting losses short but also letting winners run.
  101. No. Swing trading is not that simple. No offense, but I don't think you are a real trader. You don't just place random swing trade orders without assessing intraday market bias. Any swing trader worth a shit knows this
  102. Actually it is that simple. You must divorce yourself from the idea that I need to place "correct" trades and rather reap the full benefits from the ones that actually are correct.
  103. Mr. B1S2

    Do you have any idea what momentum is and what ignites it? If you did, then you would understand that there are better entries that can increase your win rates. Ignoring entry criteria is beyond amateur.
  104. Successful trading is one of the simplest endeavors one will ever undertake. --Most people cannot trade successfully.
  105. CORRECT
  106. risk management + HIGH percentage of winning trades = BEST TRADERS

    Not many will achieve this level
  107. High percentage of winning trades is easily achieved. There is no edge in that--anyone can do that. The only true edge in trading is in utilization of prudent money management which includes not scaling or out of trades as well.
  108. Very true, but higher percentage winners + high risk:reward ratio is rarely achieved

    Only those in the know can do this. Obviously you don't know
  109. You have made my point for me. Anyone can achieve high win rates. In fact, that is what most traders especially newbies focus on. Thus, the books and courses etc etc etc. The only edge in successful trading is what do with the trades. This is where the great traders focus. Not on "will I be right", but on "I'm getting out quickly when wrong" and " If right , I will exploit that to the max." Really quite simple and thank you for your corroboration.
  110. That's true and neophytes should only focus on risk management if they wan't to protect capital (and possibly bleed slowly). Many traders at this stage, but I assure you, plateaus will not be broken until they learn to read price. I went through all the aformentioned stages
  111. 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?
  112. 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.
  113. 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.
  114. I'm sure you mean well, but you just don't get it. Good luck to you
  115. Actually--I do get it.
  116. 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
  117. 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.
  118. 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.
  119. yep
  120. 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..
  121. What you will find is that a trader with a 25k account size assuming that is their TLNW can only stand to lose 500 dollars on the first trade. If the stop necessary to be outside the noise is more than 9.5 pts away, then the trader cannot take the trade. (assuming 1 contract ES). That trader more likely needs to be trading on a 1 minute chart , 5 minute chart or perhaps 15 minute chart, but realistically not trading at all and just investing.
  122. Don't you mean long?
  123. yep
  124. 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..
  125. Stick with your assessment. Any idiot can enter randomly and place stops outside the noise. I wish it was that easy. You will slowly get pounded in the anus, and hopefully learn something along the way. What B1S2 is advocating is a learning process, and not a successful approach. I still doubt he actually trades
  126. Not a learning process at all. What is worth learning is the value of risk management. You've already agreed with my tenet in toto.
  127. Notice the loose correlation in the poll results with the percentage of winning and losing traders. It's not a coincidence.
  128. But that is no longer a random entry. :)
  129. He is only stating a risk management principle that conforms to the idea of cutting losses and letting winners run. He is stating that you would not stay in trades beyond a specific loss percentage. He lists 2 to 3% --that can be fine if it related to account size, but 3% is too high when compared with TLNW.
  130. I contributed a posting earlier today where I indicated that analysis using TLNW may show that a trade cannot be taken. This is some of the best advice you will ever receive. This is where the rubber meets the road.---risk management.
  131. Yes, and typically the only way to get that kind of reward/risk ratio is a buy low/sell high type of strategy. However low and high are only relative, not absolute, except for zero. That's why trading (whether financial instruments or real assets) is the easiest and yet the hardest way to make money there is.
  132. Yes, however low and high are easily found.
  133. What is the average ratio of consecutive wins to losses?..
  134. Would these rules be considered prudent risk management for a random entry?

    Rules for random Long entry: (Reverse for short)

    Max risk is 2% of trading capital. With a 25K account max risk will be $500 per trade. Attach a stop loss order to your initial long order.

    Close position at end of day if position shows a loss. (Don’t carry losing position overnight.)

    Trail a stop 25 cents under the low of the previous day until exit is hit.

  135. In your example, I don't see what the TLNW is. Also, what is the significance of the previous days low? Might be significant, but just to generalize would not be prudent. I think the rule about not carrying a loss overnight may be overly prudent. If the trade make sense and is in the direction of the trend, you will likely want to keep it. Yes, I know that things can happen overnight but that is where you need to compare the risk with your TLNW. If it's just 25K, you probably need to just daytrade with very tight stops, or just invest and not trade.
  136. And that's the uncertainty point. There is no possible way to ensure that only 2-3% of your TLNW max will be risked with overnight trades. That's exactly why I trade intraday. Less profit, better risk control, and great sleep. My worse nightmare would be a trading halt on multiple open long positions. Rare but can happen
  137. That is why when trading overnight positions you are not using 10 times margin on account size as one would in the intraday. Outraday trading must be played with less risk. This is why an individual with 25k TLNW likely needs to buy and hold or trade intraday with very tight stops. There would be no reason to trade intraday unless using high margin and tight stops.
  138. There are many ways to hold a technical edge in trading , prudent risk management is how that edge is preserved.
  139. Just to further the point--If someone is losing sleep over a trade, then they are necessarily wildly overextended. You're not but there are those that are.
  140. I've been able to get it up 20 consecutive wins.. There is no risk management in this trade except discretionary exits. Look at DD on one of them. But combine this win ratio of 100% with objective risk management, what do you have?
  141. Why does TLNW matter. I only want to risk trading capital, and only a percentage of trading capital per trade. If you are trading your TLNW then using a percentage of it makes sense. Does the amount of capital I have available make a difference to my risk control?

    The prior days low has no significance. It is a rule that is specific. I'm trying to get away from the generalities into specifics.

    Why do you feel that 25K is not enough to swing trade?
    Why do you feel that day trading or investing is superior to swing trading with 25K. Don't all methods of trading, day, swing and long term hold require prudent risk control?

    It shouldn't matter what capital I have what should matter is how I control my risk.
  142. TLNW matters because one needs to have reserves in order to trade successfully. If the entire TLNW is 25k, then it would be best to remove 20k from the trading account and just trade with 5k. I am a proponent of having only 20% of TLNW max in the trading account. This will give a better perspective on how much you would like to risk if the account is kept small as it relates to TLNW. --Forget about prior day's low and instead drill down to 60 min and 240 min charts to see which days low is significant. If placing your stop outside the noise would then be too much risk, then the trade cannot be taken. --Day trading will allow someone to look at significant lows and highs on much shorter timeframes and thus place their stop extremely close, yet be able to let their winners run. Realistically though, the trader with just 25k TLNW is better served to just invest for longer periods of time.
  143. What do you do with the other 80%? Some kind of fixed income?
    With no risk management?
  144. The other 80% is investment capital held in long term plays etc. Right now it's in cash and bonds etc. As far as risk management--that is easily done using margin of 1 to 1 or less and using diversification.
  145. Thanks for all your posts here. They really changed my trading and the way I look at the market....for the better. Much appreciated :)
  146. I hope the ideas of risk management have helped. Thanks for your posting!---and the nice thoughts!
  147. B1S2

    I'm still in disgreement with you that entries don't matter. A good entry reduces risk. If you do more intraday research, you will see exactly what I mean.

    No offense to you, but I don't want newer traders to come in here and read this protect your money is the holy grail BS. I've been down that road and bled slowly. The trading business is just too competitive to disregard entry significance. Prudent risk management alone is a mediocre approach, and IMO, an incomplete strategy.

    You may be ignorant in regards to intraday mechanisms, but there are people here who want to daytrade. You can't form opinions about it until you walked the shoes, but you consistently mention how daytrades can be managed. The variables differ drastically and you are just unaware, so stop spewing your flawed intraday management guidelines. In regards to daytrading, finding sweet spot entry points is one of the hardest plateus to break through. I'd say impossible for most, but once mastered, will payoff enormously. We are all here to contribute and learn, and you have emphasized things (in many posts) that I totally agree with. For example, how over leveraging blindfolds us and hinders proper trade management.

  148. Cut your losses short and let your winners run. Excellent advice, but you're talking generalities. When you get to the specifics of how to do this, it becomes a lot more complicated and without some type of edge all you are going to do is delay taking your trading account to zero.

    Yet it is recommended that a trader with a 25K account either daytrade or buy and hold. "Buy and Hold " is just a trend following strategy with no risk management.

    The above leads me to believe that you are trading form a bias of Fear. My guess is you cut your losses way too soon and don’t let your winner run, but take off your trades at the first sign of a reversal.

    I suggest that you incorporate risk management into your overall strategy but that you develop a proven edge that you can exploit.
  149. :thumbsup:

  150. But I think what he's saying is that there is no such thing as an 'edge' apart from 'risk management'
    i.e - you may aswell flip coins to decide long or short, but make sure that you always make more on your winners than you lose on your losers.
  151. Lol. When are you going to start automating you old codger?
  152. Likely never

    1.) I ain't smart enough
    2.) Doubtful I would trust it
    3.) I actually love trading / watching the charts / reading story as it unfolds


  153. Yes. Entries are all fine and dandy but they are not an edge. The edge is how you manage those entries, indeed how you allocate your resources. Trade from bias of fear? Absolutely. The specifics of prudent risk management are the edge and I don't divulge those specifics other than the 2 percent of TLNW rule.. Each person has to define their own specifics for their edge. Most foiks will not establish those specifics due to "need to be right" "Gambler mentality" " Narcissistic personality disorder" or perhaps just plain laziness. It's hard for people to understand that successful trading is about prudent risk management and that's all it's about. It's counterintuitive to human nature.--Just so everyone knows, I day trade nearly every day.--Izzy
  154. Funny you mention that. One of my algos developed a mind of its own and actually makes some money. Not sure why, as I pay people to code them. I actually trade it with small size just for shits and giggles. Very puzzling
  155. Just from what I have personally seen from new clients and trading house acquaintances over the years - position management is one of those trading axioms that gets platitudes and lip service, but is rarely deployed in a systematic and uniform practice by individual traders. Just sayin.

    Seems like most guys spend 95% + of their energy on the entry signal and managing the position is a weak afterthought. Which is a shame, really. Just my 2 cents.
  156. EXACTLY!

    Any real trader knows this and it is the hardest part of the success formula. Managing trades (stops and targets) is the easier part
  159. I said easier. Not that easy though. Takes time to master. Entry refinement took me much longer
  160. Entries are very easy to spot and learn. Anyone can do it. Typically within the first few days of looking at charts. Risk management is the part that most cannot handle. It's easy as well, but most never embrace. Traders do not lose money due to bad entries, rather they lose money because when they are wrong, they won't admit it.---and when they are right, they won't exploit it. It's that simple.
  161. Basically that is why you have people scaling in and out and using breakeven stops. Those are two of the hallmarks of poor risk management.
  162. Agree here. Two inferior behaviors
  163. Like when they are wrong about money management being an edge. :)
  164. Here we disagree. I'm a swing to long term trader in stocks. I have no problem adding to a position as it moves in my direction. Break even stops preserve my capital.
  165. Thanks for your posting! It's fine that you have your own opinion. Most people do not believe prudent risk management is the edge. I already knew that.
  166. The break even stop is a psychological crutch employed by newbies and sub-par traders in order to not lose money and feel good about themselves, but is actually more effective in keeping the trader from realizing extended gains. The trader who is using the break even stop is playing to not lose instead of playing to win. The break even stop rarely has any basis in fact with regard to market activity or support and resistance levels. The market doesn't care where your break even stop is. The market doesn't know or care what your account size is and whether or not you are wildly overextended. Suggestion: Abandon the use of this worthless and ineffectual tactic and set your stop according to market levels, using correct position size for your account.
  167. Well I've been at this for 30 some odd years and I manage to fund my lifestyle with my trading so newbie and sub-par might not fit but I use stops in order to not lose money and I do feel good about myself.
    Reviewing my trades this has rarely happened.
    For sure I'm playing not to lose on a trade that has gone in my favor and has reversed. Number one priority is protection of capital. Why would you assume a trader was wildly overextended?
    I don't think it is either worthless or ineffectual. By taking a trade off at breakeven I can re-assess then get back in or stay out depending on what the market is doing.
  168. The only time a breakeven stop is viable is when it is outside the noise and chart/TLNW related. In your posting, you indicate that you play not to lose on a trade that has gone in your favor and reversed. Certainly----but instead of using a breakeven stop--just get out or go the other way. I stand by my assessment of the breakeven stop utilization.
  169. If "Prudent Risk Management Is The Only True Edge In TRADING" , does that mean that there is no other edge? Or in other words: trading is gambling and with prudent risk management you make your money?????

    If trading is not gambling it means that there is an edge.
    If there is no edge in trading, how will you make money with risk management if you have a lot of losses? Prudent risk management can never generate profits I think, only TRY to preserve your capital and profits. I think you need an edge in trading to generate profits.
    Which means that in that case your opening statement is wrong.

  170. Trading is gambling..., btw

  171. Then you are a lucky gambler.
    My gambling capacities in a casino are inferior to my"gambling" capacities in trading.
    But what is the defintion of gambling? Because there the first misunderstanding can already appear.
    I will not open that discussion again as it was already extensively done before.
  172. Good

  173. That is why having an exploitable edge will increase your probability of being successful.
    Prudent money management alone just increases the amount of time it takes the trader with the edge to aquire your money.
  174. And why it vital we trade as the house..., and not a gambler

    Many don't get what this actually means.., unfortunately - for them :)

  175. Poll: Is Prudent Risk Management the only true edge in trading?

    Answer: No

    Maybe if the question was phrased somewhat differently, I would've answered Yes. But it wasn't.

    I'm not so sure I even agree it's an edge in itself. Because no risk management can force price to go in your favour in the expected way, there should be no expectations of profits from risk management alone.

    Aside from that:
    Risk management and, often unmentioned / too often forgotten, position sizing, are powerful tools for proper capital preservation. Doing these two right should protect against most damaging losses, long enough for having realistic chances to exploit incoming profit opportunities. In this way, winners are not really "expected" or in any way predicted, but a possible by-product of sound risk management by weeding out the painful losses.

    It's a beautiful concept, but how can you say it's the only edge possible? Maybe it is for you, but so what?

    As for having stop-loss at break-even or not, isn't such a hard rule a form of bias? Does the market care either way? Also, having stop-loss always beyond "noise" seem to enforce even more limiting assumptions. Imagining all the possible trading plans, having break-even SL might be defended with the argument that the time- (cost) and price- (risk) differences have at that point become equalized, or something entirely different, ie hedges or other combinations.

    Managing risk and positions are crucial. How anyone does it is not as important as the possibility for consistent results though. If all you have is a hammer... and all that. Declarations of the One True Way (tm) to do anything, usually falls on deaf ears, and is often not the best medicine for curing intellectual laziness either. I do agree that sound risk management is very helpful and should be provided for dilligently for those who seek some security and possible consistency in their trading. As is often said, but it's also true: Trading should be boring. At least if the goal is along the lines of consistency.
  176. 32consecutive.png

    32 consecutive trades
  177. Professional traders about reward-risk ratio
    “You should always be able to find something where you can skew the reward risk relationship so greatly in your favor that you can take a variety of small investments with great reward risk opportunities that should give you minimum draw down pain and maximum upside opportunities.” – Paul Tudor Jones

    “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” – George Soros

    “Frankly, I don’t see markets; I see risks, rewards, and money.” –Larry Hite

    “It is essential to wait for trades with a good risk / reward ratio. Patience is a virtue for a trader.” –Alexander Elder

    “Paul Tudor Jones [had a principle he used to use] called 5:1. […] he knows he’s going to be wrong [sometimes] so if he loses a dollar and has to spend another dollar, spending two to make five, he’s still up $3. He can be wrong four out of five times and still be in great shape.” –Anthony Robbins on Paul Tudor Jones

    “The most important thing is money management, money management, money management. Anybody who is successful will tell you the same thing.” – Marty Schwartz

  178. ET... begin asking yourselves the right questions to improve the answers you're getting.

    Exclude trades requiring traditional risk management.
    Build risk into consideration from the beginning and never think about it again.

  179. I tend to view trading as a form of gambling. I have read any number of exchanges here at ET where one says it is and another says it is not. I think the barrier to agreement is failure to define the term. So long as the principle of an uncertain outcome is accepted as a characteristic of each and every trade, then trading is gambling. Someone here once made the point that not all gamblers are degenerates. There are pros who take a systematic or scientific approach to their games and they make bank consistently. To me, there seems to be little difference between the pro backgammon player, for example, and the pro trader. There also is little difference between the wild-eyed degenerate cashing in his IRA and heading to he track and the revenge trader trying to get back that $300 loss all at once and instead blowing out his $5K account.
  180. What's it called when a casino takes the other side of a gambler's bet? Business? Is there a more appropriate word when the odds are predetermined to perfectly favor winning?
  181. How enlightening, I will be able to sleep better tonight now :wtf:

  182. It's pleasant understanding why -- but rotten knowing god left urf and friends no choice -- but to pull all the nests down -- and stomp the eggs until there's no life.
  183. Exodus 21:24

  184. The judge has decided I am unfit to post, due to my dealing with monkeys, which is fine, as I can accept what is given to me.

    I will now leave this site, and again, I might return, or I might not return.

  185. Appears you went full tilt yesterday posting

    Why and to what end - really

    I get you want to help other's - but do you really think this behavior the most conducive to accomplishing that

    How about whenever the mkt dishes out a shit sandwich - you allowing that to get under your skin??

    Anyway - See Ya.., when I see Ya

  186. I will reply because your post is important, but I do not like going back on my word.

    Firstly, in relation to the market getting under my skin, the answer is no. The reason why is simple, and that is, I never overtrade anymore, so even if my initial trades go against me, I have adequate scope to add to positions and still make a profit. The market of course can keep going against you, but that is why you always cap your risk, by whatever means possible, and as my current situation does not allow for full control, meaning watching the market closely, I use options to cap my risk.

    Now the more important bit. I do not like 2 faced people, never did, nor do I care one little bit about such people, never will.

    I have great respect for those who genuinely try, and I can tell fairly quickly if someone is genuine, or if they are just passing their time, which most do on these sites.

    We all know most want the easy answer, which is not possible, and we also know the only true way is by self discovery, so, in that respect, I have no intention of helping anyone, but I do point out, by posting, how I think people can help themselves.

    When idiots arrive, they will always be replied to in exactly the same manner in which they speak, and if warranted, with some additional words to highlight their ignorance and rudeness. An eye for an eye, a tooth for a tooth, has always been my motto, and will always be, no matter what, even if it means I get banned from a site, which has happened in the past, but which has never bothered me, nor never will.

    In summary, I have learned over the years, to not let any person, or what they say, interfere with what I do, and as I truly believe in what I think and say, I will never ever be nice to someone who is not nice to others, no matter what!

    Needless to say, alcohol interferes with the brain, and you do not think correctly, so if this is happening you, then the only answer is to stop taking alcohol, which I have done, and glad I done it, as I have started to make some money again, instead of spending all my money on drink and fools!

    If you surround yourself with fools, you will become a fool, nothing more certain, so be very careful with whom you choose to associate with!

    I will now leave again, and again, I may, or may not return, as it will all depend on what is posted.

  187. Sage advice. I now hold the same attitude, but there was a time in the not too distant past I'd let them get to me. But no more, as I will no let someone else get what they want for themselves through me if it can only come by damaging me.
  188. Very sage. Yet within your bliss which is indeed extremely advanced enlightenment ...u give up you and limit yourself to the single timeline u believe is attainable. You will do better without limits. We, the world, will be grateful either way but please don't give up ur dreams.
  189. It didn't start out that way. It started out as a coping mechanism for avoiding being targetted by bullies. It is proven to work well over time, as it dissipates the energy for abusement - making you invisible to predators and parasites. Ie. google: "grey rock method", something I've practiced all my life way before I found it on the internet. It does however frustrate destructive behaviour around your person, enough so that you can actually have a platform to correct bad behaviour without being a target yourself.

    However, where you see me "give up", I simply see myself shifting my attention to where I can possibly win and participate on my terms. Why continue fight a battle where you have nothing of value to win, even if you don't really lose directly either? Why engage in activities I care nothing about, just to prove I'm something I'm not? This works in trading, so why not also in life?

    Reality is limitation, or it wouldn't be real, so limitation is unavoidable. But by not reacting and dancing to other people's agitations, I feel I'm being more true to myself and actually gaining more power and freedom, even in settings that otherwise would be dominated by predators. By only participating on MY terms, there can even be room to meet on equal terms.

    I have dreams, but they are that, a play and a dance. I have no need for bliss or by being undisturbed, but am amused by all chaos there is to experience - which is what makes life, and trading, interesting.

    There is no virtue to being poor, not in being mundane. Doesn't mean you need to be anybody special either - just yourself, on your terms, which is different than mine. What I suspect is that most of the undesirable behaviour is just old patterns, unawareness and lack of experience.
  190. :thumbsup:
  191. If aspiring traders could only trade this way

    And I do not mean trying to get / persuade / force - the mkt to bend to you - that ain't happening - ever

    Rather..., trade it..., when it meets / is on - your terms

    Patience my dear Watson..., patience till the time right - then strike with all the vengeance.., and deliberation of a cold hearted hunter

    or..., fight the damn thing..., then H123..., myself..., and our colleagues - will end up with your money

  192. I'm sorry to read those words J_S, but I expect that you will return. FWIW there are just two recent people on ET whose posts I would make a point of reading, you are one and I'm sure that you know who the other is.
  193. MN, never ignore what others write, for, the next poster may be the smartest person in the world when it comes to trading, you just never know until he/she posts.

    I must admit, I have been humbled this evening, and it has made me think serious about what I say and do. As I was watching the market close on my laptop, a programme came on tv about a man in England who got motor neuron disease, and wanted to end his life in Switzerland with assisted suicide. My focus quickly shifted to the important subject!

    I consider myself to be a "tough" bastard when it comes to emotions, but I have to admit, this one got me. It is a programme well worth watching, as the last 6-8 months of his life are covered in great detail, ranging from his home relationships, to his close friends and college class. A very successful business man, with 4 languages, age 57, not much older than myself, faced with the dreaded motor neuron disease, and his daughter of 18 only after dying from bone cancer in the last year or so.

    It is amazing how a simple thing can stop you dead in your tracks, and make you really think about the silly and stupid things that we concern ourselves with. We think we have problems, when in fact we are 10,000 times better off than most, especially those who find themselves in such situations.

    From now on, I will think before I post, as you never know who you are talking to on this stupid internet!

    I am never afraid to admit when I am wrong, especially when it is made as clear as day to me.

  194. A good policy and one that I wish had come naturally to me. Like trading, it is a learned behavior.
  195. Yes, and we are not as tough as we think we are, which I suppose can be a good thing.

    Habits are things that we acquire, mostly bad ones, and it is very hard to change a habit, as it takes years to learn them, and you can not reverse overnight what has taken years, it is just not possible.

    I have watched the market very closely that last few weeks, on mobile phone during the day, and on laptop during the evening. The reason is simple, if you are not in tune with what is happening, then it becomes very hard to gauge what might happen next. Even though anything can happen at any time, be in no doubt what so ever, that the moves are controlled, be it with auto trading, or big institutional orders, but controlled they are, by those who have plenty of money.

    So you do not part with your hard earned cash, I believe the best way to beat the controllers at their own game, is to watch them closely, and get a feel for what they are now doing, as they can change tactics quickly enough, but not in an instant - that only happens when a black swan arrives, and control is gone out the window for a short period.

    Prudent risk management is a fundamental requirement for trading, as risking too much will cause you to lose too much, and this will end your trading career very quickly.

    Add selective trading to the equation, and now you are getting somewhere, as, you should only be entering and exiting when the controllers are doing so, as they move price due to their sheer size.

    Therefore, your ultimate goal, should be to identify when and where the controllers are at work. I have found they operate slightly different, with the open of the US markets being the time for the institutional control, and the remainder of the day being the auto trader control.

    Thus, I have found you require a different approach to trade both effectively, and by using the different approaches, you are less likely to get caught out and make a good deal more winning trades than losing ones.

    If you try and use the same approach for both, I am convinced your odds are drastically reduced, and if you get the approaches mixed up, you are even reducing them more!

    You know why price moves differently, so all you need do is identify the difference, and once identified, it should be easier trade the differences. If you find you are getting in, and your stop is being hit very frequently, then you must stop, as you are entering at the completely wrong time, or have your stop way too close, or even both to make it worse!

    Timing is everything when trading, so it is a good idea to concentrate on your timing, and not on squiggly lines and indicators that have no real association with the way the controllers work, for, they are not going to make public what they are doing, as that would be silly of them, to say the least.

    Just some of my thoughts of course!

  196. I was watching that programme too, in my opinion its wrong that the man had to go to Switzerlandand and pay £7000 in order to carry out his wish. I count my blessings too that I'm fortunate to be in good health as there are some people that I meet who are not.
  197. MN, maybe I am getting soft:), but I am going to try an experiment with 2 people, but I must first know if you are currently trading, and are able to trade the ES or NQ during the evening time, say anytime between 7pm to 9pm GMT - or you can trade spreadbet if you like for smaller risk, but the charts have to be accurate enough, and IG's charts are OK.

    What I will try, if interested, is a way to trade with the auto traders, and you can then say what you think about what I have said, as in, yes, you think it works well and helps you have more winning trades than losers, or, it is just the same as any other way you have seen, no real difference.

    Es or NQ for a valid reason, as that is where the auto traders mostly hang out!

    The other trader is already picked, so let me know if you are interested in this little experiment with live trading?

    It can be any day, no particular day of the week, and if only 1 day a week then that is fine, but, the more days tried the better, as you need to get enough trades done to get the win/loss ratio, as there will be both winners and losers.

    The downside to this, if you use spreadbet is small, if outright futures then about $3K risk, and the upside, is, if it works you can keep doing it, and possibly make a lot of money, once you don't get carried away and start overtrading, as it is very easy to want more when you make some, but it must be proven first of course:)

    SPY or QQQ can also be used for small risk, with small share size, but I will need to check the charts, as I have only been watching ES and NQ, but they should be in sync enough.

  198. Yes, I see the UK gov rejected the right in the UK, but that is life, no good complaining about it.

    That was a very hard programme for his family to make, and I must say his wife was very brave throughout, and she spoke with common sense and truthful words. I did not think they would show him starting the drip, but they did, and I was delighted they showed it, as it brought the reality of it home.

    As mentioned, we really have nothing to worry about, and we waste most of our life pondering over silly and ridiculous things that have no real bearing on life, but that is the society we find ourselves in, and it is so easy to get into the rut, as that is what everyone else is doing.

    It takes a strong mind to say No, but learning to say No is probably one of the best things you can do for yourself in this life.

  199. I still love Ya

    Hell.., if we never let loose once in awhile - we go F'n nuts


  200. Yes, but the problem is you don't know what the other person is really going through. It just so happens than SO is not well, and I have apologized to him on his ES thread.

    Best to keep your big mouth shut, as it really does no good shouting off anyway, which you rightly said.

    Why are you right so many times:D

  201. Because I have extensive experience..., and consider myself a consummate professional....

    At being wrong

  202. [QUOTE="Redneck, post: 4244165,

    Hell.., if we never let loose once in awhile - we go F'n nuts



    Losing defines your weakness and as for winning? It only postpones the inevitable; the magnitude of the inevitable depends on how long you’ve been losing.:D
  203. You're making me think Z4...., and how it hurts sooooo much

    I prefer:

    My weakness defines my losing..., rather the degree of my losing..., and to a lessor..., yet as important extent - the frequency of my losing

    Some losing is inevitable.., a fact of both trading..., and life

    Self induced losing however..., is wasteful..., and unnecessary


    As to winning postponing the inevitable:

    Well...., my inevitable is that

    One day I will die

    I would certainly like to prolong that day arriving..., as long as is possible while also enjoying a certain quality of life

    But in the end - I am worm dirt..., a memory..., and at some point - never thought of again

    Everything in-between now and then..., is my remaining journey here on earth

    I plan to enjoy every damn minute of it..., and..., raise a little hell along the way

    win.., lose..., or draw


  204. At the moment I'd prefer to stay with my own plan, but thanks anyway. I daytrade EUR/USD using an account with FXCM. Care is needed trading that as yesterday volatilty kicked in at about 1:30pm GMT, but there was nothing on the calendar to be aware of it in advance.
  205. No prob MN, and you are prob better off also, I have to stop these silly ideas entering my head, as we all know the only person that can really help you is yourself.

    I am glad you said no, as it shows you have what it takes, all you need do is keep at it, and as RN rightly says, always take your loss, otherwise you will just end up on the idiots list, which is 100% correct.

  206. MN, not sure if this might assist you, but I would be careful of curve fitting, no matter what market I trade.

    If you try and convince yourself you are seeing something, then this can lead to many bad trades, and I speak from experience.

    You are always better off to use a method that keeps you on the right side of the market, across all timeframes. You do this by using charts with different timeframes, the most common being 1, 5, 10, 30, 60, daily, weekly and monthly.

    Price will change direction when it does, and the 1 min chart will capture this more clearly, and if the line in the sand is taken out, then you go up 1 level and check next line, but always watching the 1 min for quick reversals.

    This can be applied to any duration of trading, as your duration will determine what stop you use, by what charts you use, but there is less risk by using the 1 min, which is obvious from moves in futures since last night.

  207. I will admit, I made a big mistake last night, in relation to prudent risk management, so RN can give me a good telling off:D

    Wanted to start getting back into trading futures outright, so done a few trades on NQ.

    First 2 went fine, then the programme came on tv, and for some silly reason I done a third trade, and decided to hold it overnight with no stop, something which I never ever do, only with Options or very small share size.

    What happened, yes, of course, futures plummeted:rolleyes:

    Oh well, what did I do this morning, I bought another contract!

    Been a while since I seen $500 coming and going in 30 seconds or so at times, and it was a very needed reminder of what tinkering with futures can do to your wallet, so I now had to call on my looking and gauge if they would run it back up, or not.

    I decided they would, and let's just say I was rewarded for bad trading this time, as it was bad trading, and rest assured, I will not be holding outright futures overnight again, as it is not worth the risk, unless you have loads of money and can withstand substantial drawdowns, which very few can.

    Of course, it is bad trading anyway, as you are tying up money that could be making you money, as when you are holding a losing position to recover, you could be using that money to trade in and out as price moves up and down!

  208. Trading is not a one-off gambling business. Rather, it is a business that seeks consistent low variance over the long haul.
  209. Nor is it art..., science.., or luck

    It is a skill set

    One must identify..., assimilate..., hone..., then put to use to exploit

  210. In my opinion MM is not the only skill set, cause if the trade is not timed right then you will get stopped out. Now if you are not stopped and use add ons and martingales then you are not a professional, you are a gambler, whatever it is it means you have timed it wrong. I would say that it is 65% MM and 35% timing. It is a skill.
    Now that is my opinion but this question has no right answer cause each trader has there own strengths and weaknesses and they structure the trades accordingly.
  211. There is absolutely nothing wrong with getting stopped out, once you don't sit there feeling sorry for yourself, and miss the next signal, for you must trade the signals as they manifest, otherwise you are not playing the odds correctly.

    Timing is everything, but no matter how good you get at timing, you can not be right the whole time, nor do you have to be.

    Making money is really easy, if one justs accepts the fact that anything can happen at any time, learn how to read charts, understand basic risk management, trade the signals when they appear, take your loss or profit, and as RN says...

    rinse repeat rinse repeat

    It really is that simple, ask RN:)

  212. I agree 100%, as long as know the odds are in your favor getting stopped out is part of the game and there is nothing wrong with it :thumbsup:
  213. We all know this is why so many fail, but most will not admit it, as it shows they have not mastered what is required.

    I have traded with some of the best there is, have seen things that very few see, and, unless you identify, and take your loss, when wrong, then it is all of no value what so ever.

    But, take your loss, when you know a bit about timing, and then it becomes as easy as picking apples off the ground.

    I will not belittle anyone, of course some ways are much better than others, but without taking losses, you are doomed to failure, and we have mentioned why.

  214. hi j smith, one question for you.
    are you a professional trader and if you are for how long have you been.
  215. It really is irrelevant what "title" any person has, how big their house is, or how much money they have.

    We all arrive here with no clothes on, and when we go, will eventually end up the same way.

    How easy, or how hard, we make it for ourselves during our dress up period, will be determined by several factors, but the most important factor is how we use the grey matter, as that determines all of the above.

    A "professional" means nothing to me, as I know many "professionals" who are as thick as 2 planks put together, and confuse their ability with circumstance, for, when you set rules and regulations it can transform an ugly frog into a charming prince, but he is still an ugly frog, no matter what!

    17 years, biggest fool ever born, knows absolutely nothing about anything, and a "gardener" :)

  216. Prudent risk management just made me some money for a nice breakfast, before I start pulling some weeds!



  217. Who knows, maybe I will get filled before, or just after the open?

    Either way, I am not too worried, as it is a lovely spring day out in the garden:)


  218. Forgot bout o bama day, was wondering why I wasn't filled:rolleyes:

    Oh well, will leave order in and see what happens.

  219. It not the only one - but it is the hardest (and most vital) to master imo

    Loser doesn't make one a loser..., nor does a winner make one a winner

    But it damn near impossible for many to separate their self from that illusion

    Society does a good job of perpetually proliferating the bullshit

  220. Ahhh - premkt prep - could have slept in another couple of hrs


  221. I was doing some weeding, and took my usual sit down time for market open, outside in the sun of course:), and when I did not see the usual movements at the open, I knew right away something was wrong, then I remembered o'bama day:rolleyes:

    Tomorrow will be back to normal, up and down like a fiddler's elbow:)

  222. And likely then some - pent up testosterone being what it is

  223. As per 2B's journal thread.

    Some time ago, I took a break from all trading, for about 3 years actually, and let's just say I was a real fool for that period, no more about that!

    I returned around Jul15, and boy it took me ages to get back into things, for I had forgotten all of my daytrading setups and what way I used to trade. As usual, I started to lose track of what I was actually trying to do, and was doing nothing but wasting time looking at new setups in excel (those in private thread will know what I am talking about).

    The main thing that was wrong, was that I was not actually trading, and was just talking rubbish on websites with others about silly things that had absolutely nothing to do with me making money.

    One night, I said to myself, OK, that's it, enough of the usual crap, time to get down to business. I opened up TWS, looked up some charts, and placed a trade on an ES call option, and did not care if it won or lost, I just wanted to start trading again.

    It won.

    I then looked at CL options, and started to place a good few trades on ES and CL options, losing on some, winning on some, but overall, I started to do what trading is all about, making some money.

    Within the first month I was down about $2K, but as I done more trades, things started to come back to me, and within 3 months I was up about $5K by being more selective, and only placing trades after doing some looking first!

    Recently I have done a few outright futures trades, made a few $K, but nearly made a big mistake of holding NQ overnight, which was down nearly $3K at one stage on following day, as I added another contract, but after looking, and taking an educated guess, I held out instead of closing and giving back some profits, and closed later on same day for $900 profit.

    Point is.

    It is very easy to get distracted, and distractions cost you money when trading. The only way to make money is to trade, talking will get you nowhere, and when you trade, unless you do your homework, for every trade, then the odds of you winning are very small, as you are already playing with the cards stacked against you, so, due diligence is a must in order to prevent you from being "sucked in".

    I do not need any documents to trade, as I know exactly what does and does not work, and, I know every time I do not do my work first, then my chance of losing is far greater than my chance of winning.

    Once I do my work first, and then trade, I can, and do, make money trading.

    Unless it is in your head, which takes years of losing and winning to get to that point, then, you need the likes of RN's A&M document, otherwise, you are just pissing against the wind, no matter what any other person tells you, for, the whole reason you are not making money, is because of what you are doing, or not doing, and that should be obvious, if not, then you are a fool, and you should not be throwing away your money to other people, better to keep it for your family and/or children.

  224. Trading setups, just like a beautiful painting, are best viewed from a ...

  225. It can all depend on what you are trying to achieve.

    Recently, as I do a lot of looking, I have come across something that requires very close up looking, and very quick actions, but, I am thinking it will be very useful for daytrading outside my normal US Open trading, namely, US Last 2 Hour Trading, and will be testing it live over the coming weeks, with small size, to validate its effectiveness.

    I have yet to confirm if it will require more than 1 timeframe to enable effectiveness, as my usual train of thought is MTF for all trading, but this time it may not, and just one chart (or 2 max) may well suffice.

    Only time will tell.

  226. Money management and psychology is what "gurus" bang on about to sell course because it is easy to define and give you a little video to watch or book to read about how if you only risk 2% you will never go bust and if you do its your own "psychology".. sign up to the next course to learn about psychology. Total B.S!

    Ive been in this industry my entire career and worked with guys clearing 100-200k a month in profits. Personally i havent had a down month in about 3 years and money management and psychology is the thing i work on least. If you can even call it work.

    I know what my account is and I know I have a worst case scenario where i will liquidate everything on a day if things get too bad. That probably happens once every 8-9 weeks. And all traders need to have this. But to be honest if you cant stick to that you shouldnt be anywhere near any form of financial speculation, whether it be trading or opening up a sandwich shop. Its not rocket science, its called not being an idiot!

    An edge is something entirely different. An edge isnt looking at a chart and buying because its a level. Or some indicator says buy. An edge is "knowing" the market is about to move. And im talking 80%+ accuracy. This is based on working with the brightest minds in the industry for years. Learning exactly why and when markets move. Understanding how algorithms enter and exit the market. How the main drivers of your market (central banks for bonds, pension portfolios for equities etc) price their entries. What time of day they enter etc etc.

    I dont mean to come across arrogant because I am not, i am only too aware of how uncertain this industry is and how you have to always be vigilant. But makes me so frustrated when i see new traders/frustrated traders marching off down the "oh if i only had a risk:reward ratio of this, and only risk x% a trade I would be ok". No you wont. If you dont have an egde money management just means you lose money slower.
  227. VG post, and it sounds like me talking to myself with most parts, but I can see a few flaws there.

    I do not agree with all, but the most important parts are there, as in pension funds for stocks.

    In relation to understanding what moves price, the recent looking I am talking about is based on what I believe to be mostly auto trading in the ES, and as Futures lead cash, it is a good idea to try and understand what moves ES at certain times.

    Your reference to time is bang on, as, I am an avid believer in Time = Money.

    We differ on risk management and liquidation, for, the only time you should be flat is when black swan arrives, and even this offers big opportunities for those with nerves of steel, but it is hard to control your risk during such times, even with options, as I have often seen the bid offers just disappear for option strikes during such times.

    Very good post overall.


    I meant flat for a period of days, as it is normal to be flat during the day for a very short period, as when price consolidates prior to moving again, but point is you should really be trading everyday to not miss the opportunity when it appears.
  228. http://m.futuresmag.com/2011/12/31/simple-money-management-wins-over-time
  229. I think TM"s point was that those who sell stuff, go for the same old textbook rubbish about risk management, etc.

    Years ago I though Van Tharp was a genius with his famous R- Multiple term, and I even done up an excel spreadsheet to automatically calculate my amount of shares per trade based on my % risk, and had it all worked out to the T.

    There was, however, one main problem, and that was I hadn't a clue what I was doing!

    I even joined Ken Calhoun private live trading 4 month session, where Ken used to say, "only pros take this trade":rolleyes:

    Now I look back and laugh at my foolishness, as you do not need the likes of VT or KC, for they are educators, not traders, and believe it or not, there is a big difference in what you can learn from an educator, and a real trader.

    No one is stupid enough to think that TM does not use risk management, for he does, in his own way, and that is the best way, for what works for TM, might not work for anyone else, as there is only one TM!

  230. So what happens when his 80% win rate edge seizes to exist and no other edge can be established? Tomo is correct in stating that lack of knowledge + MM = death by a thousand cuts. But knowledge + MM = overall positive expectancy. Have you read the whole article?
  231. I've had my edges die on me before. I go back to trading 1 lots and scale right back and regroup. I'm not saying MM isn't required. I just am saying it's common sense (at least to me).

    But it isn't an edge.

    I've seen guys make fortunes that take insane risks. Risking 10k to make 1k. But they're still going strong 10-20 years later and have enough money to never need to work again. All I'm saying is textbook learning is very different to reality. Money management is no edge.

    It's like saying the difference between a great racing driver and a mediocre one is his crash helmet. Yeah without a crash helmet you probably won't be around for long. But it's not going to decide whether you win races or not.
  232. You just come across as a person who has found something that works for you. Lets toast!
    But Gurus sell money management and psychology because its easy money and most people have problems with both or just one. If you don't have an edge, money management keeps you in the game until you find your edge. On an further note money management also give you more time to deal with your psychology issues. You've said it yourself money management means you just lose money slower and that deserves another Toast!

    Losing defines your weakness and as for winning? It only postpones the inevitable; the magnitude of the inevitable depends on how long you’ve been losing.
    (Its money management, psychology and Knowledge)
  233. Tomo, folks that achieve 80% win rate are in the minority. For the rest of folks that will never achieve that consistency only proper money management and of course knowledge of price action or whatever else they choose to look at will prevent from going completely broke (subject to etc.).
  234. "...That is the reason that most traders end up losers. They don’t allow for the possibility of a major string of losing trades." - extract from that article, spot on. Has, does and will happen to the vast majority in trading.
  236. NO----Gurus sell high win rates and sure things--not prudent risk management.
  237. NO---Money management IS the edge.
  238. Just as with Prudent Risk Management in trading, you do not have a full grasp of what is meant by Prudent Risk Management in racing.. A crash helmet is a very small portion of risk management. A stop is a very small portion of risk management.
  239. Your contention that gambling is an edge is rejected on it's face.
  240. Prudent Risk Management never dies.
  241. So what? Instead of losing your account in 6 months after your edge dies you lose it over the course of a year.

    Risk management is essential in trading. But it isnt an edge and will not give you a positive expectancy. Try playing roulette with a "prudent risk management system" you will end up the same place as the guy that comes in and bets big over a long enough time scale.

    Repeat.. i am not advocating people dont have risk. But if people spent half the time they do banging on about Van Tharp and R multiples and concentrated on finding an edge they would be far better off.
  242. Establishing a winning strategy, be it a low win rate or high win rate, is a part of PMM. Most research just one part of PMM, a system, ignoring all other parts of PMM, like accounting for a very possible run of losing trades, over committing/leveraging, not having enough bankroll, overtrading, revenge trading, etc. PMM is a complete plan of action, where a win rate forms just a part of.
  243. Exactly this. This is why risk management alone should have no positive expectancy by itself. Unless, you've got an edge to exploit (aka being "the bank" or "the moneyprinter").

    Definition of "prudent risk management":
    Legal obligation to act in a position of responsibility with the degree of care, diligence, and skill that a person of ordinary prudence would exercise in the same or similar circumstances.

    Nothing in this tells you how to win consistently.

    If someone want to re-define this, I urge them to point us to their complete definition, or shut up and start listening others. Reiterating the same flawed points doesn't make it any more true or understandable for others. The same for relying on vague magical arguments without any real substance.

    Granted, risk management is good for both avoiding great losses and taking profits, but that in itself is not enough to define a consistent edge.

    That people are unaware of their edge and anti-edges, is very common intellectual laziness though.
  244. A consistently high win rate system (most ET posters refer to it as being THE edge in trading) is yet to be seen to be believed. The are probably thousands of claims having an edge, but until this day there is no proof. We have heard all excuses under the sun why claimers don't wish to prove it. As far as I am concerned most can and will have periods where their method fires winner after winner, but the opposite is also true.
  245. You are not grasping the concept of Prudent Risk Management.
  246. Explained many times at ET. Stops are just a small portion of Prudent Risk Management.
  247. Right. So if i flip a coin. Heads I go long. Tails I go short and i employ "prudent risk management" will i make money? If the answer is no, it is NOT an edge
  248. Having made a decision to go long or short is just one step, surely the next step is to manage the risk by waiting for a low risk entry to occur.
  249. Of course you will make money, IF you implement PMM, you aren't limited to a 1:1 payout as you are in BJ, increasing your payout in trading forms part of PMM.
  250. Actually--yes you would make money and a lot of it because on the correct trades, you would exploit those for more profit. One doesn't need even 50% winners to be wildly successful. Most traders, especially newbies, chase high win percentage. Most traders lose money.
  251. But that isn't an edge.

    That's part of maximising an edge. But if you don't have a statistical advantage in the market no amount of discipline or money management will help you.
  252. It is the only edge.
  253. winning percentage has nothing to do with profitability. I can risk 100 ticks to make 1 or risk 1 tick to make 100 they both end up with the same result without a statistical edge.

    This has been my full time living for 10 years trading on prop desks and funds. If you are also making a full time living good for you. I encourage you to carry on your work. You have clearly developed an alternative approach.

    But if you are part time/still trying to make a successful full time career from it id urge you to focus your efforts into finding replicable patterns that exploit inefficiencies in market pricing
  254. Nonsense. So if I flip a coin and risk 100 to make 500 I will be profitable?

    Try it. I guarantee you will not make money after brokerage and slippage
  255. It's elementary math, you will make money at 5:1 payout at even odds, after slippage and commissions.

    Why do you think binary options are limiting payouts to 85% of the stake?
  256. Correct
  257. Correct
  258. No you won't. How will you make money at 'evens odds'?? Go and do it then show me the results.

    Risk 1 to make 1 you win about 50% of the time.

    Risk 1 to make 2 you win about 25% of the time and so on.

    Win rate and risk reward are linked in a zero edge scenario.

    If you risk 1 to make 5 flipping a coin (or another no edge method) you will win about 1 trade in 5 (NOT 50:50) and break even. Then add in brokerage and slippage and you are down.

    Trust me I have run thousands and thousands of backtests. It doesn't work.
  259. You gave example of coin tossing at 5:1, which is overall 50/50 outcome regardless.
  260. Exactly backwards. New traders should learn to control risk first before trying to discern patterns etc.
  261. Flip 1 Loser -100

    Flip 2 loser -100

    Flip 3 loser -100

    Flip 4 winner +500

    Net win 200 minus commissions

    and thats a 25% win percentage
  262. Fuzzy math B1

    j/k :D

  263. how so?
  264. 300.., then 200

    Just yanking yer chain Sir and joking with Ya

  265. without risk management black swans or 'off days'.. can lead to set backs. Even with extremely high W:L ratio, if you don't use objective risk management, you will be taken out of the game. The trade was in profit, instead of scalping it.. just left it alone.

    So wins: 66 losses: 1
  266. That's like saying 'winning the lottery is a 50/50 outcome you either win or lose'.

    You saying your odds of winning lottery is 50:50?

    Look, I'm trying to help you guys but you will believe what you want. Unfortunately it's ignoring basic mathematics. Best of luck to you
  267. We're trying to help you
  268. And what about when flip 5,6,7 and 8 are also -100's? You will not have a 25% win rate risking 1 to make 5 without an edge
  269. I have been making 6 figures a year solely from trading for almost 10 years. I'm happy enough with the experiences I have had guiding me
  270. Coin flipping is 50%
  271. Sigh... Yes! Because you can only go long or short. 2 options. 50/50.

    But that doesn't mean your odds of winning is 50/50
  272. I direct your attention to the poll above. It has a correlation with the widely publicized contention that most traders fail. Successful traders realize that PRM is the only true edge in trading. Anyone, I mean anyone can pick entries. Few can manage risk.
  273. But a successful trader doesn't even need 50% wins to be highly successful
  274. A run of 'bad luck' can happen to a high win system too, but what would happen to an inverted risk:reward strategy then? (you mentioned earlier that your acquaintances within the industry regularly risk 10 to gain 1).
  275. that's right Romy----Wonder what your win percentage would need to be with risk 10 to get 1

  276. Because the traders i cited risking 10 to make 1 have an edge and will typically win 20 or 30 times in a row for every loss.

    We're going in circles. Please by all means go and run a backtest on your strategies. I will bet you money right here right now it will not make money.

    You are assuming a 50-50 choice leads to a 50-50 outcome
  277. --or whether or not Phil Hellmuth would advocate putting 10 dollars into a 1 dollar pot
  278. Tommo, we aren't being argumentative for the sake of the argument, all a nice debate. Let's carry on.

    I think you made an irrelevant example with coin tossing to a degree, because it doesn't support your notion.
  279. If trading was as easy as you think we would all be millionaires.

    I have never had trouble with discipline. You show me a system where all i have to do is risk 1 to make 5 and follow it to make money and I will do it. You put up the money. I will follow it.
    If i dont follow the system once I will pay you double what you invested. Deal??
  280. I don't recall advocating 50% wins.
  281. Rather I suggested that successful traders don't need to win even 50% of the time.
  282. You have now come full circle and are in full agreement with us.
  283. Im telling you. I have done exactly what youre advocating.

    A strategy with zero edge with a fixed risk:reward whether that be risk 1 to make 5, or risk 10 to make 1, or risk 1 to make 1 etc etc will always breakeven. The win rates will change.

    Inversed risk reward will have higher win rates. Positive risk:reward lower win rates but will all be around breakeven until costs and slippage are added. Dont know what else to add. This is mathematical fact
  284. No, i am saying i am so certain you are wrong i will double any investment you put in if you can prove you are right
  285. Using PMM prevents one from ability to make huge returns due to risk controls, just like the best capital management firms average annual returns are a hellavelot less when compared to performances of individual best traders. A firm that has a top trader will only grant him a percentage of the firm's assets, again due to PMM.
  286. This is False.
  287. Not true again. Large firms are constrained by the strategies they can use with such huge capital bases. Smaller traders can be more nimble.

    I keep about £30k in my trading account and on a bad month will make £5-6k, on a good month £15k-£20k. I am at a prop firm so they give me added leverage but probably use about 100k in exchange margin at the most. So making between 5-20% a month. And have been pretty consistent for about 10 years.

    Are there even any prop traders on this forum? They will have similar stats.
  288. Go and run a back test
  289. I run forward tests.
  290. Hope it works out for you.
  291. It's ok if you don't agree. That's part of what makes a market. In time you will see that traders do much better controlling risk and not concentrating on high win percentage.
  292. I do control risk. That isnt what this debate is about. The premise of this thread is risk management is an edge and that alone will make you profitable. That is the definition of an edge. And it isnt.

    If i showed you how to predict the next 4 ticks in the S&P with 80% accuracy you dont need a convoluted strict money management system to make money.
  293. Predicting the next 4 ticks in SP is not material. It is what you do if you buy the SP looking to make 4 ticks. Do you pull it at 3 pts, do you pull it at 2 pts. Do you scale in or out etc etc etc. Where is the stop etc etc etc. The only edge any trader has is prudent risk management.
  294. This would make you virtually an infant in this business. Nothing wrong with that, but you will learn over time.
  295. For me this is complete nonsense. Risking 10 to 1 means you need to be right +90% of your trades to make money, because in 1 trade you can lose 10 times more than you can win. That's indeed insane. Look up the definition of INSANE and you will understand that in short time things will go wrong. Because you do things that are insane.
    If you trade with insane risks you will never survive even 2 years. Insane means a risk that is completely out of proportion. The first thing a good trader has to do is watch the risk/reward ratio. If you risk 10 to win 1 it means you watch the ratio upside down.

    I know somebody personally who took insane risks. Started with 1 million, doubled it in 1 year, and lost in the next year TEN MILLION. He even did not survive the full second year. He lost everything he had, including his businesses. His wife left him too. But that might have been a positive thing.
  296. What would be reasonable odds at 5:1 in your view?

    Example being buying potential double bottom in ES or SPY (DAILY) where target is previous reaction high, as it's at 5:1 stop would be equal to (previous reaction high - previous reaction low)/5. Opposite for selling potential double top.
  297. It all depends how hard YOU flick it, and whether YOU let it fall to the ground and roll, or catch it in your hand!

    There are always variables in relation to any outcome, but most just never bother to stop and think about them!

  298. That is nothing:)

    Look up Sean Quinn Irish Billionaire, his net worth around 2005 was something like 4.2 billion Euro, after starting out with one cement lorry back in the late 70's I think, and by 2007 had his hands in many pots, covering bottling plants, food processing, cement mixing, health insurance, life and car insurance, and many property investments across Europe.

    He started to buy shares in Anglo Irish Bank round 2005, using leveraged CFD's, on advice from his "professional advisors", and by mid 2008, roughly, he had lost 4 billion Euro as the worldwide property bubble bust.

    So, a person can make heaps of money for most of his/her life, and still blow it all with one silly decision!

    I remember seeing a programme they done about him during the boom, and he was a very quiet and private man, set in his old ways, and would not even carry a mobile phone, which he is obviously very sorry he did not do now, as one simple phone call could have saved him, literally, a fortune!

  299. Hypothetical example would be selling ES today 1939 (previous reaction high) with a 27 point stop at 1966, (1939 - 1803)/5=27 points. Assuming probability @ 20% and 5:1 reward we could allocate 4% of trading account to each trade. Let's consider that being equal to 1 lot based on current range based target and stop distance.
  300. -4% wait for next setup
  301. L1927 sl1919 target 1967
    (paper trade).
  302. It's not even wrong. In the sense that it's far from being concrete, applied. So in theory that sounds good. But it is too abstract for being an edge. Theory without practice is worthless. I think it's bad to bet everything on one peace of a puzzle. I've done that before. Focusing on asymmetries and convexity. But I wasn't improving my trading. Because it's always gonna be as weak as the weakest link. So a good thing to do is to avoid being fooled. Exemple, in believing an edge is about one and only one thing. Especially when risk management rely on outside information, conditionals. It's not self sufficient.
  303. Makes no sense. Incoherent.
  304. 'Closed' paper trade @1967 +20%

    Tally -4% +20%

    Await next setup
  305. L1973 sl1965 target 2013

    Risk 4% paper trade
  306. This call travelled around 94% to target yesterday and broke down to 2 points from stop loss, today we are ringing the register with +20% @ 2013 ES.

    Tally: -4%, +20%, +20%
  307. Can lose 9 trades to be b/e b4 costs.
  308. I'd say ... Evaluate the P(G) of your system.
    And if the average R:R is less than 1/P(G)
    Then DO NOT trade your system.

    The ratio may be your only edge,
    But it's not the only variable that matters.
  309. Prudent risk management is perhaps not just about flipping coins or placing 5% stops and 10% targets. That could be a little more complex than that.
    I have few different brokers, just in case (remember MF Global, PFGBest, Alapari UK...) The 1st goal should be preserving capital. After few interesting backtests, I always paper trade ideas for months before risking any small percentage of my trading capital. My 2nd goal is to make money with consistency (no big DD). And I never have any home run. My 3rd goal is 0 losing month. I monitor my trades, losses, profits, DD, Equity curve, about everything that I can.
  310. Trading binary options is against prudent risk management, because the strategy is flawed. Risk 100 & win 80. I have been pestered recently by a broker (yeah right) from 24option, he kept telling me that binary option "investment" offers amazing ROI 80%! That's how they sell this crap nowadays, all they have to say to folks is amazing ROI of 80% and no mention that risk is 100%.
  311. This may also be psychological issue, but we must try to limit our downside on a losing day or after a losing trade plus once in a winning trade we have to have the patience for the trade to reach our profit target unless we set an unrealistic target.

    For example, let's say you take normally 1 winning trade in the morning then stop. If the next day you have a losing trade in the morning, and you then look for another trade to try to make back the loss, you have altered your normal trading pattern and increased the risk that of turning a losing day into larger loss than you normal winning days.

    On the other hand, let's say you just had a winning trade, you could then wait a bit for another setup, and take another trade. If this trade is a win, you could based on your trading plan then quit the day with 2 winning trades but if the 1st trade was a loss just quit the day. So then that prevents 2 losing trade and instead you have the possibility of 2 winning trades. Now if the 2nd trade is a loss, you will instead have just a break even day for that day. Yes you gave back you win for the 1st trade but your goal was 2 winning trades which is very possible if your statistical win % is say 65% or higher on equal risk vs reward when you follow your rules and wait for a valid trade setup.

    Obviously, some of you are also able to just take every valid trade setup that occurs either through being very good at recognizing them or having programmed the trade setups to activate automatically. I would say this is harder for me especially after a losing trade so I am trying to use a trading plan that would prevent me from taking a big loss for the day compared to my winning days.

    Now once you are seeing positive results in your trading, you can choose to scale in one of 2 possible ways. Either do more contracts each trade with an equal risk vs reward, or have 1 contract set to go for a higher amount of profit. Today looking at the charts it would be better if I just did more contracts with equal risk vs reward. Now a higher win % means you are looking for an equal risk vs reward. A lower win % closer to 50% means you need to have a greater target than stop. The benefit of a higher win % is of course lower commission cost.
  312. What is the benefit of having an edge if you cannot trade it? Personally, Edge and prudent risk Management are all equally important.
  313. The problem is not trading the edge, the problem is having the patience to wait for a profitable setup rather than getting bored and taking a non edge setup. An edge is just a trade setup that you have written down in your rules of trading document not to be confused with a trading journal.

    For example, it may as simple as the stoch or rsi turning up from the bottom or based on an engulfing green candle giving you a signal to go long. It could be a break of a downward channel leading you to determine that the trend has reversed.

    Prudent risk management is then how you manage the trade. For example, say a break of a channel, your stop could be at a candle support under the original break. The target could be equal to your stop amount or it could be set to reach the next resistance level.

    The reason why some of these trades work is that price begins to hit trailing stops of the shorts that were following the previous downward channel and get stopped out creating more momentum to the upside.

    Many times instead of reading news stories on why the market is going up or down, or what it will do in the future, just examine the price action as it relates to the time of day and time frame that you choose to trade.

    If you don't find a profitable setup ie an edge then yes, you should not trade since just using prudent risk management will not make you profitable. Risk management is to prevent a losing trade from creating a big loss.

  314. Here is what happens-- The trader uses high margin compared to their TLNW. They have a few wins and begin trading more contracts as they win. Then , catastrophe strikes and they are wiped out. However, the trader who manages risk effectively by looking at the full picture stays in the game during the down event, loses a smaller percentage and starts winning again. In addition, the trader utilizing analysis of full contract value in calculations, is less inclined to get anxious and make desperate or stupid moves. The only edge a trader has is risk management. Every entry /exit method is known to all traders---it is just the ability to manage those entries and exits prudently that is an edge to a trade
  315. I don't find this to be true. It's recognizing hidden areas of S/R that seperates the best traders from mediocre ones. Non-conventional wisdom will put you ahead of the crowd.
  316. I find this to not to be true, our brains are not a Roulette wheel unless you on some type of drugs, brains are trained by itself and always looking for patterns. For what you believe are hidden, other have identified them and they are just waiting for them to develop. For every single pattern there is, I have well defined rules. When you have a "Pivot high", how many rules do you have for it to be a Pivot High? And if you can't have well defined instructions on a Pivot high-you can't program it.

    There is profitable traders which I am glad is much smaller amount to losing trading which is huge amount. Think is terms of general population of being sheep, they follow each other, bell rings and like hundreds of times before they walk to ringing bell to get feed, just like so many traders who read books or even worse youtube and think that is how it is done, it is not. Books and youtubes have an end, they didn't add the extra chapters to show how to profit, if most authors knew how to trade, they would not be writing books or wasting time doing youtubes.

    Profitable traders just gone beyond and always have an open mind, whatever general population of traders think is dumb way to do something or it too small amount to trade or staying in a position for years or seconds, they mostly likely always be sheep. People bitch about HFT or automation traders, Scalpers or program trading or arbing, remember these are adding to liquidity to markets and they are providing most of the volume to the markets, small traders are small and will stay small with their small thinking.

    When I started trading I wiped out dozen of small accounts, I learned how to program, tossed almost all the books into storage, kept S/R and pattern books, then backtest my weekends away. I learned from my profitable trades the most, don't care much about losing trades, time is one of many "edges", and learn to risk as close to free as possible, learn to enjoy many plus one tick trades. Growing up American is not to make the most you can on each trade, it is to make money each day or close to it even if it is just five bucks. You fight to get to breakeven, a day is like hourglass, if in the hole in morning, half day goes by and you come back to even, stop and pat yourself on the back, you concentrate on your capital, this is a business.
  317. How can you gain experience if you can't control your spending? Prudent risk management is just one piece of the edge.
  318. What do you consider to be an edge?
  319. When you overlay sound risk management with the highest probability trades you chances of success are real good. It's basic game theory. If your winners are three times of more larger than your losers and your bets are no greater than 2% of your capital you should be making money over a long enough sampling rate and be able to bounce back from even the worst losing streaks.
  320. If you take 100 people into a room and show them the marbles game in relation to risking money in the markets, the results will more than likely be that over 80% of them will lose most or all of their allotted money.

    Will any of them learn from the experience. The chances are about 1%.

    The big question is why most who try are just unable to comprehend the real truth in what you have posted?
  321. My answer to the poll is No.

    Prudent risk management is a necessity for successful trading, it is not an edge.

    An edge is something like understanding what it is you are doing, why you are doing it, why the results you achieve are so, and then working on this information to improve on what you are doing and your results.

    Thinking that an understanding of certain TA or specific chart reading methods is not a real edge, as the underlying reasons as to why the TA or chart reading methods work can not be identified. In other words, this means that they only work some of the time and not most of the time.

    A true edge is something like understanding the relationship between certain markets, also known as inter-market relationships. The underlying reasons as to why certain markets exhibit certain relationships can be identified, and this means they can work most of the time and not just some of the time.
  322. The reason that the vast majority of traders lose their funds is the inability to exercise Prudent Risk Management. On the other hand, the ability to implement it is what sets winning traders apart from the rest of the pack. ---Prudent Risk Management is not just a necessity---It IS the edge.
  323. PRM should be a beer. If your strategy sucks, PRM will still lose your funds, it just going to take longer...
  324. It's an important one and not sure you can make a long term career without it, but it's definitely not the only edge.
  325. All you need to establish is macro bias of a XYZ that you are considering to trade, a simple moving average will do, hardly an edge on it's own according to most on ET. The rest is taken care of by PRM. Buy1Sell2 is spot on.
  326. Not really, as without sound judgement based on skill and experience prudent risk management will not be of much use and the trader will just bleed dry more slowly. It is a necessity that allows you stay in the game long enough so that you can learn the skill and use sound judgement based on solid facts.

    Ask a newbie to trade the ES or NQ with tight stops of 2 to 4 ticks (perceived prudent risk management) and he will more than likely do it as he has no real experience.

    Ask an experienced daytrader to trade the ES or NQ with the same tight stops, and he will more than likely tell you to get lost as he does not like throwing away money.
  327. Setting stops is only a small portion of Prudent Risk Management. You don't understand the concept --sadly.
  328. If you really think that prudent risk management "is the edge" then you really do not know much about trading --sadly.
  329. Please reread thread.
  330. This is my post from another thread. I believe it backs the notion that PRM is key: - Edge in trading, to me, is when you make your own odds in such a way that your future bad runs will be offset by the gains. If you're looking to buy XYZ you really ought to do so as close as possible to the get out zone. If you're a price action trader then double/treble bottoms/tops can be the only patterns in your arsenal. Anticipation of their occurrence is a skill to develop. Make your own odds.
  331. Listening to other people talk about trading can cost you a lot of money if you are easily led and influenced by others. If you are this type of person, then it is best to keep away from the financial markets and hold on to your money.
  332. Prudent risk management can mean different things to different people, but when it comes to trading the understanding of what it really means is not really grasped by most who dabble.

    It has been proven to most people on this site who have tried, that risk management by itself will not guarantee success (success meaning the ability to make consistent money when trading or investing). Without the proper understanding of why you will lose money when trading or investing, then it will be very hard to make money when you try. This might sound simple, because it is simple. Most people can not understand simple things, and seek out complications for reasons that are not really known, for if they were known then one would not continue to complicate matters.

    Trading or investing (successfully) is not simple. It is one the hardest things in the world to master. It can be mastered by any individual who has a thorough understanding of the market/instrument they pick, whilst using proper risk management techniques to avoid over-trading and balancing the closing of winning positions with account value.

    It is a hard and tough game to play, and is not for those who are easily led and influenced by other people. Your "true edge" in trading is your ability to understand your capabilities and your short comings, and using both to make sound and proper judgements in relation to placing and exiting trades in the chosen market/instrument. The better you get at understanding, the better your results (and vice versa of course).

    The only thing worse than not knowing, is not knowing that you do not know
  333. I don't think he said about risk management is the edge :) The question is in what is risk management itself and that it's not just settinf stops
  334. You have to be experienced to even comprehend term "prudent risk management". It entails much more than just how much to risk which should be based on profitable trades and not necessary what is logical. For those who needs pats on the back regarding R to R, I have to laugh, cause risk is limited to how much you can borrow, some gambler who doing 10 lot on $5,000 in ES, if something awful happened and they were long and market just closed unexpectedly, one-two weeks later markets resume $10k down each lot, there shoots the 2% risk. Whether you trade with 2-4 ticks or points depends on time and back testing which builds experience. Anyone who thinks they going to walk into trading and pulling out money within a year is either dreamer or beyond genius. To become experienced, it is generally all OJT and many years. And as years pass, "Edge" might change within you of what you think it is, but bottom line, more experience you attain, should make you better, better entries, perhaps tighter stops, better exits, AND start enjoying more of what you are doing.
  335. "Necessary but not sufficient"
  336. It is clear that you do not have a full grasp of what is meant by PRM. Once you do, you'll realize that it's the only edge in successful trading.
  337. I will try and keep this short and sweet.

    Trading or investing successfully requires an awful lot of things to line up. The better you understand how finance works then the better you get at understanding why most of what is out there is useless when it comes to making money trading or investing.

    Being careful about how much you risk on each trade, how fast you get out of losing and winning positions, or how much you scale in and scale out of positions, will not provide you with any guarantee of success. In order to be successful (make consistent profits) then you must be prepared to learn the basics of finance, and then move on to the particular facets of the market(s)/instrument(s) you have chosen to trade.

    Those who embark on the journey to fast and easy money by means of TA, PA, FA are not seeing the big picture, and the reasons why can be clearly understood once the basics of finance are studied and recognized.

    Many laughed and ridiculed Donal Rumsfeld when he said..

    Only a small few (in comparison) knew exactly what he was speaking about. He might have made some very bad decisions in his days, but this statement by him showed that he is in fact a very clever man.
  338. Of course not

    Prudent risk management will lose you money if you do not have a positive expectation on your bets

    (Try using risk manage on a roulette wheel. in the longrun, you will lose roughly the house advantage spread over all your bets, no matter how you manage the bets and your bankroll)

    Successful traders and gamblers weave expectation, varience and volume into a livelihood- or more!

    Find a worthwhile edge, exploit your edge, and "stay in the game"
  339. Prudent Risk Management GIVES you positive expectancy.
  340. FALSE

  341. You do not understand the standard definition of "positive expectancy". The definition that is used by mathematicians, hedge funds, casinos , pro gamblers, etc

    This term is independent of money management and refers to your advantage or disadvantage on your bets.

    IE- if every dollar wagered is worth 1.20 ( in the long run ) that is positive expectancy. If every dollars is worth 95 cents in the long run that is negative expectancy.

    Betting on a fair coin flip at even money would have neutral expectancy.

    Betting heads on a coin rigged to flip heads 60 percent of the time gives you positive expectancy and gives your opponent negative expectancy.

    Anothet example: the house edge on the standard double zero roulette game is 5.26%. So in the long run you are losing roughly 5 dollars and 26 cents for every 100 dollars you bet if you play this game.

    There is no prudent money management scheme that will make you a winner in the above mentioned coin flipping game or in the roulette game.


    However, yes, without reasonable money management a trader will probably lose his account even if he has an advantage.

    If his money management is horrendous, he will definitely lose his account if he keeps trading.

    There is no money management scheme that beats a negative expectancy game like trading badly over and over, like if your entries were based on coin flips and held to the days end (slippage and commissions)

    What is needed is both:

    1. A worthwhile advantage on your trades

    2. Reasonable money management

    ... this is how top traders, hedge funds, casinos, pro gamblers do it.

    I agree with the spirit of your nod to the importance of good risk management.

    However, in point of fact though, your post is not correct because "positive expectancy" has an exact and technical meaning.
  343. It is only false when you do not understand it.

    Again, prudent risk management is a fundamental requirement for successful trading or investing (making money consistently), it is not an edge. No matter what you think or say will not change this fact. If you do not accept the fact, then I doubt your ability to trade or invest successfully.

    You can of course prove me wrong at any stage if you like, for all you need do is back up your words with proof in relation to Prudent Risk Management Is The Only True Edge In TRADING
  344. 3 x 7 = 21

    Only a person with no experience will trade or invest without stops. Stops are your way to prevent you losing too much of your capital on a small number of trades. Averaging down is not the way to make money trading or investing (it might work some times but will eventually catch you out, and it will be when you do not expect it, wiping out months of hard work in a few seconds, minutes, hours or days (depending on your style). Any person who supports averaging down is showing their ignorance, even though they might not be aware of it.

    As you rightly say, in order to make money consistently (success) trading or investing, it is a requirement to use proper risk management and sound trading or investing techniques. The plethora of techniques that are easily offered to those who want to partake in the financial markets are not worth very much in relation to success. Understanding why is the first step to achieving any meaningful success, and like all successful businesses, success breeds success.

    One does not have to be that smart to see what the biggest obstacle is, and the "smarter" you think you are the greater the time it will take to see any success worth talking about, if any at all.
  345. Now, I am a big fan of Van Tharpe's teaching and PRM but any trading system still needs a positive expectancy to make money. I know this is a long post but please read in its entirety. Or if you think I am full of it just ignore me.

    PRM actually is to eliminate or minimize chance of ruin and maximize gains while keeping downside to a minimum or acceptable level based on the trader's view of acceptable drawdown. It in and of itself does NOT make you a profitable trader.

    Lets take a system that is 50% win and 50% losses. If this system only made on average $1 reward for every $1 risked average (a TRULY 50:50 Coin Flip system) you would STILL be a loser. Commissions would eat up your funds not to mention NO ONE trades exactly perfectly every trade. So your exactly perfectly average coin flip 50:50 system is not likely to be traded perfectly and result in more losses How are you going to apply PRM to that system and get a positive expectancy as you said "PRM GIVES you Positive Expectancy"? Dont say "I let the winners run" because then THAT SYSTEM is completely different and is now a positive expectancy system by making the $1 loss smaller than the $2 gain you made by letting the winner run. So this 50:50 coin flip system now with positive expectancy keeps losses small and winners larger so you are profitable. But if the system was truly even in terms of $$ ($1 Risk:$1 Reward) you would lose in the long run. You can NOT adjust your risk with PRM to minimize losses because you are also minimizing wins if every $1 risk makes $1 in 50:50 system. It does not matter if you lower your risk to say $.50 to keep the risk smaller because your winners are also $.50 in this perfect coin flip system. Letting "winners run" (making $2 for $1 risked) and "cutting losses short" by definition is a positive expectancy system. PRM did not give you that. Letting winners run gave you that positive expectancy.

    PRM simply MINIMIZES DRAWDOWN. It does not give you the "edge". If you have a perfect coin flip in 10,000 flips of the coin you can have as many as 19 losers in a row. Any Monte Carlo analysis will show this. PRM minimizes your drawdown during these streaks so that you can survive long enough to make money when the table turns in your favor again with a winner. If you risk 2% per trade and have 19 losers in a row you now have lost 38% of your capital. If you risk 0.75% of your account per trade you have lost only 14.25% of your capital. On a $100k account you would have $62k and $85,750 left respectively. In the 1st case you need 61% return to get back to even and the other PRM scenario you need a 17% return to get back to even. PRM minimizes DRAWDOWN. Letting winners run gives positive expectancy to a system that has PRM to minimize drawdown.

    Lets look at a 75%:25% win rate. In that case a $1 win for every $1 risked makes you profitable because you have on average 3x as many wins as losses. Now if you let that system run with "letting winners run" and make $2 on wins and lose $1 on losers then now you have a VERY NICE system that makes on average $6 for every $1 lost. In fact this 75:25 system could even have a $.50 win for every $1 risked because you would be up $1.50 on average (3 wins for every 1 loss). But again this is a positive expectancy system. PRM makes sure that you dont lose everything when you lose. If in the extreme you risked 50% capital per trade you would get wiped out after a couple losers. But this positive expectancy system lets you now risk more than 1% because you have a higher win rate (and fewer losers in a row) so your drawdown will be less than a 50:50 system. PRM here MAXIMIZES your profit by allowing you to adjust your % of capital at risk UP from the typical 1% rule yet still keeping your drawdown to a manageable level since you have more winners than loser.

    Lets take one last extreme example. Lets say you have a LOTTERY system you have developed and you win 1:400 million trades but it takes 1 million trades a day. But when you win you win $50 BILLION for every $1 risked. This is a true lottery type of system that has a HUGE Positive Expectancy. PRM keeps you in the game when you have all those losers. If you have a $400 million hedge fund lets say and risk $1 per trade you should make $49.6 BILLION after 400 trading days on average, Right? Does risking the entire account to win the lottery sound prudent? NO of course not. Why? because you have a TON of losers before you win big and drawdown would be HUGE here and your clients would likely close out the fund withdrawing their money in droves. BUT,....PRM means you could risk ONLY $0.01 per trade. After 400 million trades you have lost $4 Million dollars (Max of only 1% DRAWDOWN ON AVERAGE but you could have millions of more losers in a row before you actually win the lottery because the win rate is so low). NOW that winner comes and you make $496 MILLION on your $0.01 trade. PRM made sure you were still alive to take that trade. PRM MINIMIZES DRAWDOWN. KNOWING how to apply PRM maximizes whatever edge you have.

    I hope this helps someone out there.
  346. The Big, Fat Turd vs The Grey, Dull Rock

    Let's say your trading system provides you a long-term expectancy equivalent to a big, fat turd.
    Does it matter how many times you slice up that turd (minimizing losses)? As long as your rules yields poop, it won't really matter how you choose to slice it up, or however much more you produce (maximizing returns).

    So to improve, one must recognize poop for poop, and start appreciating something else entirely, those grey, dull rocks for instance. Just because some particular poop always seems to shine apparently, one must strive to learn its true value. For, if it was truly valuable, someone else would've snatched it up already!

    So it is with life. Over time, those grey, dull rocks accumulate, becoming an unstoppable force. Luckily, most people hate boredom and are drawn to big shiny.
  347. I didn't understand why did you exclude 'making winners run' from the concept of PRM when it's the foundation of PRM. Who said that applying PRM must have payout equal to risk? You aren't in a casino, you make your own odds by making sure you participate in bigger oscillations ie if envisaged move is 100 points you don't set your stop to be 100 points.

    Why setting a stop at 10 points whilst keeping target at 100 points isn't part of PRM?
  348. Because you can set your target at infinity if you want. You dont MAKE your own odds. IF i did o would make my odds 100% that I make $1000. It isnt an ATM that you just withdraw money out of the market. I frequently have trades that have a R:R of 1:6 when I initiate the trade. I don't know about you but I usually get stopped out with a trailing stop before I reach that target. Then there is a retracement and I reload and off we go again. As it gets closer to that target price the trade starts to have less reward. Some may say "see that was poor risk management because you should let the winner run". I would say that was PRM because I cut my losses short maximizing profit on the trade. So by cutting this loss short I allow for a retracement and I reload on the trade. This actually gives me an ability to Make MORE than the move on the trade. As a price retraces on you you are "RISKING" all your profits. As the old saying "No one ever went bankrupt taking a profit". What if you are wrong and the target price is never hit and a reversal happens and you suddenly lost all you profits. now you turned a winner into a loser. PRM is BOTH letting winners run and cutting losers short but this saying goes FOR THE DURATION of the trade, not just at trade entry. Throughout the trade you are RISKING profits every penny that goes against you after you have a paper profit. PRM helps you MINIMIZE LOSSES of PROFIT too.

    Also you CAN set a stop 100 points below and have a 100 points target IF you WIN RATE is high enough. If you risk $100 every trade and make ON AVERAGE $100 per trade you can make money as long as you win more than you lose. If 70% win rate you have 7/10 winners. I just made $100 × 7 = $700 and lost $100 × 3 =$300....For NET PROFIT of $400...a POSITIVE EXPECTANCY.

    It is that your own statistics of you trade record determines what your average win rate and what expectancy is per trade. Win Rate is how many win % you have. You can have a 20% win rate and still make money as long as you have Positive Expectancy (Your TOTAL WINNING PROFIT is GREATER than the TOTAL LOSING AMOUNT) over the course of your statistics.

    There is no such thing as a negative Expectancy system that is still profitable

    People are confusing what positive Expectancy is.
    Expectancy takes into account the win rate.

    Expectancy = (Probability of WINNING × AVERAGE $WIN) - (Probability LOSING × AVERAGE $LOSS)

    So if you average loss is $5000 but you only lose 1% of the time and your average win is $1 yet you win 99% of the time you STILL have a NEGATIVE EXPECTANCY....a LOSING SYSTEM. NO amount of management of risk will change that. Your own statistics determine that. That $5000 loss could have occured on bad news where a stock or trade GAPS lower suddenly. Maybe it blew through his tight stop loss. Changing target price and setting your initial stop loss tighter and tighter is not going to change that $5000 loss. Your own trade records determine these stats.
  349. Eganon - You dont MAKE your own odds.

    I disagree. I always make my own odds by evaluating potential expansion range and setting my stop accordingly. Just because it doesn't always work out in my favour doesn't change the fact that I expect minimum odds of 2/1 (fractions) 3 (decimal). If I am going for a bigger move than I aim for much better odds.

    Did you not hear Jack Schwager say that after having interviewed various top successful traders his research established that as far as they were concerned risk management played a bigger part than methodology? It's not about being right more often than not, that's always a random outcome (streaks come and go). It's about correct position sizing, management and realistic reward expectations, that's the main reason majority do fail, because they ignore that part almost completely whilst concentrating almost completely on win rate and you know what, that's absolutely normal, there was a survey carried out that established that vast majority of people simply couldn't tolerate low win rate - they would simply quit if presented with it. I say it's way easier to establish a low win rate by implementing PRM than to establish a consistently high win method/strategy. Most that tried have failed, gave many years of their lives looking for the holy grail (high win rate edge).
  350. Look at sports betting tipster world, vast majority of football tipsters (in UK) tip at very low odds of 1.2-1.5, the best ones have a win rate of around 80% running average, yet the best performance that I have observed came from higher odd tipsters that had a much smaller following due to being inconsistent, their odds were around 4-5 (decimal). But at the end their Tally generated higher point count.
  351. I don't study football stats, so I don't know who has better chance of winning, etc. What I do know is that both teams will try to score at least 1 goal, just for fun, I've just placed 10 treble accumulator bets on BOTH TEAMS TO SCORE, my overall loss is limited to £10 and average odds are around 7 (decimal). I'll let you know how I got on :)
  352. I think you and I are saying the same things. Just in different ways perhaps. But a Holy Grail system is not one with a High Win Rate. Nor is it one with the Highest Positive Expectancy. Its the one that had BOTH and then you maximize it with PRM. Most systems have a blend of win rate and Expectancy and are acceptable systems. Yes absolutely PRM is critical. My point is simply that PRM IN AND OF ITSELF is NOT going to make you profitable. You MUST have a Positive Expectancy and THEN AND ONLY THEN will PRM help you MAXIMIZE the results of your system for maximum profit with acceptable drawdown. I think a better trading proverb would be "Limit Losses and the Winners will take care of themselves Assuming you have a Positive Expectancy"

    You need BOTH a Positive Expectancy AND PRM. Either one alone is not enough. But the "Edge" is what gets you the Positive Expectancy (Profitable system) and PRM maximizes the expectancy.

    For further reference read Van Tharpe's books like "Trade You Way to Financial Freedom" or "The Definitive Guide to Position Sizing". They are very good in my opinion.
  353. You say 'positive expectancy', could you possibly explain what does that mean to you, what is it based on.
  354. Think of Expectancy as your profit in a business.

    Expectancy = (Probability of WINNING × AVERAGE $WIN) - (Probability LOSING × AVERAGE $LOSS)

    This number has to be Positive.

    1) If Win Rate is 70% and Average Win is $50 and Average Loss is $100 then

    Expectancy = [(.70 * $50) - (0.3 * $100)] = $35-$30 = $5 = POSITIVE

    This system is a winner but not a great one.

    2) If Win Rate is 50% and Avg Win is $100 and Average Loss is $100 (PERFECT Coin Flip System)

    Expectancy = [(0.5 * $100) - (0.5 * $100)] = $50-$50 = ZERO

    This system is a loser because no one trades 100% perfectly every trade and this does not likely account for commisions. This system has ZERO hope of being Profitable no matter what PRM you want to emplore.

    If Win Rate is 50% and Avg Win is $130 and Avg Loss is $95

    Expectancy = [(0.50 * $130) - (0.50 * $95)] = $65 - $42.75 = $22.75 = POSITIVE

    - If Win Rate is 40% and Avg Win is $200 and Avg Loss is $95

    Expectancy = $23 = POSITIVE

    Notice these last 2 systems were SIMILAR POSITIVE Expectancy even though win rate was different. The better of the 2 systems is likely the 50% win rate one because you will have smaller losing streaks (higher win rate) and less drawdown of your capital so you can risk a bit more than the guy using the 40% win rate system.

    4) If Win Rate is 60% and Avg Win is $80 and Avg Loss is $95

    Expectancy = $10 POSITIVE

    - If Win Rate is 55% and Avg Win is $75 and Avg Loss is $95

    Expectancy = -$1.50 = NEGATIVE

    Notice these last 2 systems were similar win rate and average win amount but one is a failing system and the other is at least positive but probably a marginal system. PRM will help the 1st of these to maximize his gain and the 2nd of these is a loser no matter what.

    You need BOTH Positive Expectancy AND PRM to maximize a system and be as profitable as possible with as little drawdown as you can reasonably accept.
  355. OK. PE is part of PRM (to me). Establishing historical range expansion, stop requirement and historical win rate based on the above criteria are all part of PRM.
  356. Positive expectancy is the ability to have a winning system , it does not apply to a singular trade. PRM gives you the positive expectancy over the long haul because it cuts you out of big losses and keeps you in big winners. Ask an unsuccessful trader if they had ability to pick direction and they will say yes. Then , ask that same trader why they weren't successful and they will tell you that they took losses that were bigger than their gains and that they pulled out of winning trades only to watch them move farther in the direction they had initially wanted envisioned.
  357. Thus it can be easily seen that successful traders have a certain edge over other traders and that is the ability to implement PRM. ---There is no other edge available to the trader.
  358. Most people who trade do not understand what positive expectancy is.
  359. False
  360. OK. 1 accumulator still playing out, but in the black already. Out of 10 accumulators 2 came through providing over 40% return 2 out of 9 played, appropriate odds enabled to beat the bookie. I don't know much about sports statistics, all matches were randomly chosen, the only thing I looked for is similar odds to win, which suggested equal opportunity to score.


  361. It's ok if you don't wish to acknowledge that PRM is the true edge. It doesn't affect my TLNW. --However, you would be better served to incorporate this most exclusively.
  362. What is TLNW? You use allot of acronyms that aren't clear.
  363. Total Liquid Net Worth.
  364. I incorporate both risk management AND slight entry edge.
  365. I used to track performance of this one tipster, he was very consistent predicting results of a single match, average return was 1.8, so 80% of stake. His Both Teams To Score accumulators had a much lower strike rate, yet average payout was at odds of around 6 (500% return on staked amount, so very consistent 80% vs quite inconsistent 500%. Then one month his win rate nose dived in singles, the rest is self explanatory.




  366. Tons of folks know about and are using your entry style. Very very few can exercise management of that entry.
  367. I doubt anybody is using my entry style, I have 6 conditions that have to line up and then have over 10 exit conditions.
  368. Believe me, your style is being used by numerous people whether you or they know it or not.
  369. 3rd Accumulator wins at odds of 6.5, 3 out of 10 hit rate (low), 100% return.

  370. There is nothing new under the sun.
  371. False

    Im using non standard bar types and non standard indicators. When you combine that with multiple conditions for entry, it's highly unlikely.
  372. Geez, the amount of people who think they know everything is making me want to vomit.
  373. Yes, of course.

    It is better to have a 100% edge on a 50/50 shot like betting on a coin with two heads, than a 100 percent edge on a 100 to 1 shot where you would win only a small percentage of the time.
  374. Why do you persist as if you are right. Is your trading the same?

    The ability to not risk too much per trade, use stops, take profits at pre-defined levels and scale in an out of positions does not guarantee success (consistent profits).

    Success is when your winners and losers are added up and the end result is a profit. The amount of trading you do is determined by your circumstances, available capital, understanding of the chosen markets/instruments and last but not least, your experience.

    Prudent risk management is a fundamental requirement (which most fail to recognize), it is not "an edge". An edge is something like using your accumulated experiences to make good judgement calls in relation to placing and exiting trades. Daytrading the ES is not the same as taking a position in INTC for 3 to 6 months.

    The worst thing any person starting out can do is take seriously what people post on the internet. Venturing into any new business without covering the proper fundamentals is a foolish endeavor. The financial industry is like a big circus, full of clowns who make people laugh (whilst picking their pockets at the same time).

    It is not an edge, why can you not understand this simple fact?
  375. Does that mean we are to ignore your post?
  376. Honestly 90%+ of everything on here should be ignored...including most of what I post :)
  377. Because I am
  378. These are not part of PRM.
  379. Could you define what you consider PRM?
  380. and you fully made the point for me with your own words. You are in full agreement with the premise.
  381. In order to be successful in trading, it doesn't matter whether you are right or wrong when placing a trade. What does matter is that when you are wrong, you lose a little bit and when you are right, you maximize your gains. Why do most traders (especially day traders) lose? They don't have prudent risk management skills. End of Story. Now, a lot of folks may say, "but the newbie trader doesn't know how to pick entries and exits". While that may be true for some, the real issue is that when they are wrong, they stay married to a position, or add to a position in order to not admit failure. Your best bet would be to learn to embrace failure, learn to shrug it off, learn to admit when wrong and learn to stay in trades that are winners. You see, Prudent Risk Management is not just about placing an initial stop---it's also about managing a winning trade. Remove the focus from high winning percentage. Retrain focus on losing a little and making a lot.
  382. BOOM!

  383. Yes, unless I am making sense to you and explaining that trading or investing is not easy if you take the path that most choose. You only take heed of any information that will help save you money, not cost you money. It is very clear if someone knows what they are talking about, but only if the reader has adequate experience to relate to the information that is being put forward. People do the most ridiculous and unbelievable things when it comes to trading and investing, as why would any person in their right mind throw away money so easily without even asking "why is this happening to me"?
  384. You are coming across as a text book repeater. Take no heed of Van Tharpe and the many other Gurus who profess to have the information that you require in order to make consistent profits, for, they are all just a part of the big data industry that is now an integral part of the financial markets.

    Your words mean nothing to anyone who is trying to make consistent profits, and they are no better than Van Tharpe's expectancy explanation.

    Traders and Investors need to understand why they lose and make money trading, and it is not just because price moves, as it is far more complicated than that. To say you must use stops to prevent big losses when wrong, and maximize gains when right, is text book talk.

    What you should be asking of people who try is why did you lose, why did you win, why did you lose more, why did you win more, WHY, WHY, WHY.

    You can answer the WHY if you like?
  385. Real edges are fleeting with a short lifespan. The market will change to knock out any edge, therefore money management is the only true consistent edge. We need to be constantky finding new edges and use money management to stay in the game.

    A true tell to 'book smart. All hat no cattle" traders is when they tell you. Just look at smy chart from 25 plus years ago, it looks just like todays so my method never stopped working. Anyone who says such a thing never really traded or is trying to fool you.

  386. Be careful, as you are nearly correct. It is not an edge, it is a fundamental requirement to keep you in the game. There is a big difference.

    I might have said this already, but I will repeat it now. A real edge is something like understanding the difference between inter-market analysis and intra-market analysis, and using this understanding to pick low risk markets/instruments for a certain type of trading. This might sound simple, but it is far from it, and most will shy away from the mere thought of doing some hard work to try and understand WHY the trades SHOULD be low risk.
  387. yes, you are correct in definitions. However, remember, there is no edge to watching patterns or candlesticks form on a chart and hoping the pattern will repeat next time--this is how 98% of retail trades-- sure they can make money if the market cooperates, and the have good risk management.

    If you have any doubts, just look at the sponsor above https://trade.collective2.com/ 17k traders, 54k strategies--- think any actually make money long term? NO WAY, because the market changes all the time. Hamp
  388. You really know allot, please bless us with your wisdom.
  389. TA, PA and FA are flawed, meaning that any person who will try and make money by using just these things will fail dismally, which of course is a fact that most are aware of.

    However, depending on your circumstances and your chosen market/instrument/time-frame, they should not be ignored. Here is a typical example. The US market opens at 09:30 and the ES will exhibit certain volatility in the first 30 min. Depending on what "news" is about can affect the level of volatility, but, the volatility during this time-frame is usually different to other times. This means that there is a difference, and a difference is not to be confused with a pattern. So, the text book trader will look for patterns, whereas the person who knows they do not know will look for a difference. The difference can make all the difference between making and losing money during this time-frame.

    As I said, you are just there, just watch the wording, as prudent risk management is not an edge, it is a fundamental requirement, and there is a BIG difference.
  390. None of this makes any sense. ZERO

    And nice assertion that price action, technical analysis, AND fund analysis all don't work. Have to laugh I've never seen this statement. THE SKY IS FALLLING NOTHING WORKS.
  391. Thank you. It is great to see another "real" market player on this site. Welcome!
  392. It only doesn't make sense if you have no real experience in the markets. Scalper is 100% correct, I would reccomend listening to him rather than acting like an expert in a field where your own words reveal you clearly a noob.

  393. You have no idea my experience. You are clearly surf reincarnate.
  394. :vomit:
  395. I wouldn't know your experience or lack of same unless your revealed it yourself, your own words make it clear you either lack experience, or are a life time loser in the financial markets. I hope its the lack of experience, life time losers make me sad.

    I use to like to surf. But I am a very old man, way too old for young people sports like surfing- can't risk getting hurt at my old age.

  396. Which words show that to you?
  397. See above.

  398. Doesn't make sense, what posts of mine give you that impression?
  399. Yes, I have a lot of experiences in relation to making and losing money in the big bad world of financial wizardry, most of which I am delighted to have behind me.

    You see, knowing is only of any real use once you understand. Most people will go for years and years without understanding, until one day, Eureka, one simple event will suddenly make the person stop dead in their tracks and say, "What a dumb ass trader I have been for all these years, as I have been trying to make money without understanding what it is I am doing, I have to stop this right away and start keeping the money I make. Now, what is the best way for me to do that"

    The OP is not to be blamed for his way of thinking, as it is all the text book crap that is spewed out by the Gurus and self professed Experts. The reality is that these people just stop you from learning and doing what it is you need to know and do.

    1. Price
    2. Time
    3. Volatility

    4. Differentiate between Price & Value.

    "To Be, or not to To Be, that is the question"
  400. Price, time, and vol are all on a chart, throw in market profile overlay (which I don't use) you have value difference. What you have "discovered" isn't a discovery, you're likely just applying a different filter to what everybody else is already seeing.
  401. I'm a very successful trader with a ton of experience
  402. Reader, this is false in it's entirety.
  403. We've got an individual with 2 monikers talking to themselves here.
  404. Rhetorical question: why care what 98% of traders do when it's not helpful in our own searches? I recognize why u care + why it's helpful to you perhaps better than u do yourself but I must avoid that and try to keep this short. Btw I appreciate how strongly you've vocalized your position on this matter because it's been a constant factor (among many other unrelated factors) which have and continue to drive me ...to see things in my charts.

    I'm not interested in looking up the definition of sentiment or polluting my mind with what it means to other traders, mainly out of fear it will prevent me from defining new concepts that don't fit the traditional definitions. Tho sometimes I do the opposite, look up the definitions + obsess on precisely the opposite approach... finding out as much as I can about the commonly known wisdoms.

    The term 'difference' was mentioned a few posts back. Thank you to the nick who mentioned it. Say things like that again and I will make a point of remembering your name.

    Hamp...these patterns u describe aren't necessarily capturing sentiment or the ever changing dynamic direction that persists and is timeless without needing to maintain a precise pattern from 25 your old charts. Tho I assure u correctly formulated directional measures that work today also worked 25 years ago. Changing markets can't violate physical properties that exist but are beyond my ability + desire to describe but I will try anyway, with weak words instead of strong illustrations...and then I will have the closure I've needed on this topic for quite some time. Charts rule the markets in my world but I'm fine with u believing anything u want and promoting those views.

    What follows is a lame attempt at closing this door as to whether chart patterns exist and are viable. It works for me, so if u don't get any benefit from the concept I describe that's ok. I prefer no one understand this.

    Sentiment forms repeating patterns because it's a quality that has physically measurable properties. Tho maybe it's not a quality and it would be more grammatically correct with a better word that represents a noun, verb adjective or adverb but I will continue to view it my way because it works.

    Where u see rigid patterns I see fluid ebbing... Sentiment.

    I have what I consider my most truest form of sentiment and I have a surrogate. My surrogate is currently giving me a 'different' reading than it's parent. Both are technically only estimates of sentiment. The surrogate sucks at times but other times it leads so the issue I and many others (even yourself should u ever choose this path for yourself) have to resolve is how to determine when it's safe to ignore a fluid but yet repeating dynamic pattern because it has known flaws.

    fwiw, in my experience, there's so many of these differences, it would be impossible not to find them if you will only try hard enough and persist until you do. It's always been that way. Each of us must find our own truth. Someone will always be here denouncing charts saying they're worthless so carry on because long after you move on there will be others who are motivated to discourage those who want to try.
  405. Regarding Collective2 portal comment, FYI I can't make a critical review as I haven't researched the results. If I was to comment why I believe no system on that site can continuously and systematically sustain profitability I'd not be able to provide a scientific answer. All I can say is that IMHO most mechanical systems fail in their pre-programmed ability to ascertain current market conditions as well as an experienced human brain is able to interpret. I have never been involved in design or implementation of code into trading activities, so my comment has little scientific evidence, just an opinion.
  406. I'm really envious of everyone on here who has an edge in the market. I myself have no edge, but have made substantial money over 20 years in the markets.
  407. If you can explain how MP can show you the difference between price and value, then go ahead. The value area is not the "real value", and I might expand on this some more later, depending on the replies.

    If you can not, then maybe you should think again about what it is you think you might know and what you do not know.

    So far, apart from Hamp's comments and related replies, it is all "the usual" text book stuff, which is absolutely no use to anyone interested in successful (consistent profits) trading or investing.
  408. If you can do as you say, you have the ultimate edge.
  409. Can u post the article...cannot access it.
  410. JP Morgan, Crédit Agricole and HSBC fined €485m over Euribor cartel

    JP Morgan, Crédit Agricole and HSBC have been fined just shy of €500 million for their alleged roles in a "cartel" that manipulated the Euribor benchmark.

    JP Morgan incurred the largest penalty of the three banks

    The European Commission said in a December 7 statement that the banks "colluded instead of competing with each other on the euro derivatives market" between September 2005 and May 2008.

    The banks are alleged to have colluded on euro interest-rate derivative pricing elements and exchanged sensitive information, in breach of EU antitrust rules, the Commission said.

    It has fined JP Morgan €337.2 million, the largest penalty, with Crédit Agricole fined €114.7 million and HSBC €33.6 million.

    The penalties – which follow a settlement reached with Barclays, Deutsche Bank, Royal Bank of Scotland and Societe Generale over the alleged cartel in December 2013 – come after a five-year investigation into alleged rigging of Euribor, a measure of the cost of interbank lending in euros.

    Commissioner Margrethe Vestager said: “A sound and competitive financial sector is essential for investment and growth. Banks have to respect EU competition rules just like any other company operating in the single market."

    A JP Morgan spokeswoman said: “We have cooperated fully with the European Commission throughout its five year investigation. We did not engage in any wrongdoing with respect to the Euribor benchmark. We will continue to vigorously defend our position against these allegations, including through possible appeals to the European courts.”

    An HSBC spokeswoman said: "The European Commission’s decision relates to allegations of Euribor manipulation and related purported conduct during the course of one month in early 2007. We believe we did not participate in an anti-competitive cartel. We are reviewing the European Commission’s decision and considering our legal options."

    Crédit Agricole said in a statement that it "firmly believes that it did not infringe competition law. Accordingly, it will appeal the Commission’s decision before the European courts".
  412. ---And there you be---- Reader--Do you understand now?
  413. Accumulators backing favourites at home paying at least x20 paired with insurance like EDGE (if 1 loses) is 100% PRM, small risk, big gain, whilst keeping it real (as in don't back unrealistic odds like x50+).


  414. 6/1 PRM? Oh yes it is when Italians need a goal!

  415. 5/1 PRM? Oh yes it is whenever Sheilas aren't taking any prisoners and a draw just isn't acceptable.

  416. This is a great thread. All newbs and veterans alike ought to go back and reread the OP's post and contributions. Truer words never been spoken, when it comes to the markets...
  417. Re-posting of original posting for you, the new reader:

    This is a fact. In order to be successful in trading, it doesn't matter whether you are right or wrong when placing a trade. What does matter is that when you are wrong, you lose a little bit and when you are right, you maximize your gains. Why do most traders (especially day traders) lose? They don't have prudent risk management skills. End of Story. Now, a lot of folks may say, "but the newbie trader doesn't know how to pick entries and exits". While that may be true for some, the real issue is that when they are wrong, they stay married to a position, or add to a position in order to not admit failure. Your best bet would be to learn to embrace failure, learn to shrug it off, learn to admit when wrong and learn to stay in trades that are winners. You see, Prudent Risk Management is not just about placing an initial stop---it's also about managing a winning trade. Remove the focus from high winning percentage. Retrain focus on losing a little and making a lot.
  418. Amen and amen except to last sentence!
  419. Yes, Yes! Yes! Yes! Timing will let you know VERY soon if you are right OR wrong. Hope will keep you in a loser. Greed will keep you in a winner that soon becomes a loser. Bite the bullet. Take the loss. Bite the bullet take the winner. If you have a sound mathematical basis for entry..risk..exit..profit target..win rate..stop loss..average win..average loss..then math, which is relentless, will ALWAYS be on your side. You then only have to have the timing right and have discipline and some $$ to trade with. Timing will very very soon manifest itself as right or wrong. I define discipline as being responsible (regardless of how you feel) to do WHAT you are supposed to do, WHEN you are supposed to do it, and HOW you are supposed to do it and pay ATTENTION to detail.
  420. This whole thread has turned into a pile of horseshit. Great success (hedge funds, algo shops, independents) in this industry revolves around the ability to separate signal from noise, which means timing and entry. Many ways to do it, but not easy to do. After that, a risk management scheme could be structured by a sixth grader. That's the easy part.
  421. Successful trading is 95% this^.
  422. So wrong. If that was the case every mathematician would be filthy rich by designing elaborate risk management models around blind bets.
  423. Yep agree with this.
  424. Exactly
  425. Believe whatever you like guys. We're just talking with >12 years experience each. Hbu?

    btw, most hedge funds are just mathematicians, statisticians and programmers, anyway.
  426. Yes, but you forgot to tell for whom it is: those who have no clue about trading and are just gambling.
  427. Prudent risk management is the ONLY TRUE EDGE? How many of you that actually believe this, can make a living trading random entries...or believe you could make a living with random entries if you had to? If you don't...why not? Why do you use charts, indicators, math...etc. Please don't say "to find that extra edge", because it appears that believers of this concept don't need an extra edge...they've already got all the edge they need...prudent risk management...right!!!!! Why do you need anything else?
  428. I used to think that about risk management, but now I'm thinking that's part bullshit. the debate should be about what part, does risk management play in a traders edge. No one in there right mind would pick a random point and just employ risk management, except maybe someone that trades customer funds. It would work but why bother to take on unnecessary heat? Why not look for value? A true edge requires specific rules for specific conditions.
  429. Exactly...it is quite dipstickish to think that risk management is the only edge. It isn't even AN EDGE. It a part of the process but it will not and cannot be the sole reason for being a successful trader. If all one would have to do is to become an expert at prudent risk management then it would be quite easy for most traders to become wealthy.
  430. It's actually as easy as you say.
  431. I can't see how anyone in their right mind can confidently execute a trading plan without some kind of a forecasting model.

    Why drive without headlights unless you have to?
  432. Your forecasts always right?
  433. Correct
  434. It IS the only reason
  435. I think this is all semantics. Entries, exits, and sizing are calculated based on risk, no? It's all the same.
  436. Correct. Most traders will not become experts at PRM. It's just not sexy. It is however the mother's milk of trading. --and most will never drink.
  437. Most traders ignore risk. Most traders lose. You're in the vicinity of the point.
  438. Then why don't you forget charts and indicators ..pull a random price out of a hat and get really rich with just PRM. You don't need charts..indicators..etc. Why do you use them?
  439. So, why was the RSI and how you used it so important to your trading in the past?
  440. One cannot run a business without Risk management. Biggest problem here I see, is that the majority of ET'ers don't run there trading as a real business.
  441. One cannot run a business with just risk management...how about a niche? Agree that most traders don't use risk management optimally.
  443. Doesn't "expert" imply a special skill or unique approach? Special skills and unique approaches are not simple or straight forward. If you have an edge built in to your "money management" because of some creative sequence or filter, then you shouldn't say money management is the absolute edge, because it's your own personal edge. Why do you imply money management is easy and makes easy profits, yet it takes expertise to accomplish? There can only be so many "experts" at anything!!!! P.S. I know you use the RSI frequently in your trading.:wtf:
  444. Because the trend is your friend?
  445. Of course not
  446. No
  447. RSI is used along with other indicators and price to determine entry and exit. There is no edge in that. Everyone is able to pick good entries and exits.
  448. That's how you pick entries and exits. There is no edge in that. Everyone is able to do so.
  449. Ask a losing trader ( the more than 95%) and you will find that they all picked price well, but stayed in positions too long on the wrong side and pulled profits too soon on the right side. The edge in trading is trade management, not picking entries and exits.
  450. Recent ET profitablity polls show ET traders are 90% profitable...thoughts?
  451. How many are posting with real time calls?
  452. Not many if any
  453. Like I said, this all feels like semantics. What is the accepted definition of risk management?

    I can call a calculated investment in materials and workers risk management. I am staking an investment with a timeframe and a profit target.

    Walking down the street to the deli for a sandwich is risk management. I'm investing my time and energy for a payoff. If the deli is closed, my sandwich is out, the risk.
  454. People who post realtime can proof they are profitable. If they don't post they are not profitable? What's the logic?The second reflection is not correct.
    I don't know of any successful trader from the books "Market Wizards" that made realtime postings. Although it is clear that many of them were successful. But as they don't post realtime you consider them as losers?
    Traders don't post realtime trades, idiots do.
  455. Why do you have to "pick" entries? If there's no edge to it, just do random entry...would that work for you? Have you ever done this before?
  456. I think many traders on ET would disagree that "everyone" is able to pick good entries and exits. If you have to use indicators to construct a setup, then it sounds like you would be blind without them? They must have some sort of edge to your setup or "necessity" to it.
  457. So you must have a different definition for the word edge? :rolleyes:
  458. The only way I would call money management an edge in my trading is if I had some creative or unique way to adjust my exits/stops in real time that increases the probability that I maximize profits and minimizes losses...but I would never say "money management is ABSOLUTELY the only true edge". Why? Because my personal skill created this edge only for me. No one else has this edge (in theory). How could I proclaim this is the only edge for everyone else too when I'm the only inventor of this creation? He did say you have to be an "expert". It doesn't make sense. He's being too vague.
  460. I haven't found one yet, but I'm still looking:D
  461. ROFLMAO ....well anybody can pick an entry and an exit but that doesn't mean it is a good entry or good exit. How about showing live how you pick entries and exits ..BETTER YET do it shall we say randomly...since the only edge per your theory is risk management..and manage the risk so we can see how you do...instead of just spouting off such nonsense. Just go in at the market with no indicators..no vol..nothing and manage say 20 trades with say 14 winners and end up with a handsome profit then and perhaps only then will your gibberish perhaps have some meaning. Or have 5 winners but have a handsome profit.. LOL....oh me! LOL LOL
  462. IMO no retail trader has an actual edge over other market participants. All we really need to establish is whether an instrument is more likely to go up or down (overbought/oversold), is there a predominant uptrend or downtrend. You don't want to be trading against professional trading entities. So considering the above, if you agree that you don't actually have an edge over anyone, why bother spending years to seek one out? When you could just try and develop a feel for a market you wish to trade and employ PRM - position correctly & always have your target a multiple of your stop loss (at least three times). Some days/weeks you'll have more winners, other times you'll have way more losing trades, being in control of your own payout schedule vs the loss is key, whether you're right or wrong only this will create an edge over losing traders. I have observed tons of real time calls on ET & other portals - win rate ALWAYS fluctuates, if a target is equal to a stop loss there is no edge, a temporal edge maybe, but nothing that will survive the test of time (especially in short term trading). Peace!
  463. One of the smartest posts i've read here. Just want to add, with a blind entry, it's much harder to tell if you're trading against a professional entity, so there is definitely an advantage to doing some visual and statistical analysis. Some see it as an edge (I sure do), some don't.
  464. CORRECT
  465. Thank you-- I suspected just the same.
  466. Edge would be what puts you ahead of other traders. Implementation of PRM is what does that
  467. Buy1Sell2...You mean "expert" implementation of PRM...correct? It takes more than implementation, it takes "expert" implementation...correct? These are your words!
  468. JSSPMK...have you considered there are scalpers out there who do very well. These scalpers need a unique advantage over other traders because their risk to reward ratio is frequently equal or even NEGATIVE (as in my case). I would never survive with a 1:3 or 1:2 ratio. Why don't I prove this with live calls? Scalping and live calls seems very difficult, difficult enough to to possibly screw up my trading results, although I've been considering for some time on how to figure out a way. Effective scalping has taken many years to accomplish, but I agree that changes in market conditions prove many edges a short life span. Accessing market conditions and volatility changes is very important in my methodology. Some of my setups only show up when volatility is high, others when volatility is medium or extremely slow (like summer). I always like to add...I never scalp ES (S&P). I specialize in the 30yr. bond and gold futures. From what I remember, HANDAL 123 has successful scalping setups too.:)
  469. I have to ask any losing trader out there or any traders that use to lose at one time, did you ever feel like you "picked price well" CONSISTENTLY OVER A LONG PERIOD OF TIME, but you screwed it all up consistently because of bad money management? I usually find traders that have bad money management techniques/discipline is because traders believe their NOT PICKING PRICE WELL! I don't see how Buy1Sell2 continues to believe losing traders pick price so well all the time.:confused:
  470. Because he doesn't actually trade. It's all a fantasy story, like most here.
  471. Do institutions have an edge over retail traders? If so, what is it? Also why do so few retail traders end up being successful? Is it because the successful ones are the only ones that employ expert PRM?
  472. The skill to do that effectively and consistently is within itself an edge is it not? Most traders cannot do what you just stated. Why?

    Stretch it a little further. THE ABOVE NOT EVEN NECESSARY. Market is 100% random so no need to determine if it is likely to go up or down because that cannot be determined. JUST TAKE A POSITION anywhere, at any price level, at any time, and let PRM do its magic........Hogwash!
  473. Yes. They generally have more intel, tools, education, risk management, OPM.
  474. I don't believe anyone stated that there is no place for research & experience, but it's the effective implementation of PRM that will transfer a trader that possesses those two skills from unprofitable into at least a breakeven trader. Without PRM those two skills are meaningless to the extent they won't make you money long term.

  475. I once knew a person that was dealing in imports of paintings (value ones, unknown artists) from EE block to the West. He had understanding of what MAY be a sellable painting (cute children vs nudes, etc), basically he did his market research. Over the long term that he had that business he must have purchased few thousand works of art, sometimes buying wholesale from the family of a deceased unknown artist, shipped them to the West and straight to the auctions. I remember he told me that he did lose on some paintings, because they never sold, but he made a killing on the ones that did. So what was his 'edge'? Market research paired with PRM & of course luck contributed to certain paintings selling for x100+ the premium.
  476. I will believe it when I see it, at the same time I don't deny possibility of someone's ability to do so profitably over a long sample range. Most likely it's going to be the case of being few and far between, like great magicians, great poker players, great rally racers. The vast majority will never be able to find the 'holy grail' (very high win rate) and/or will eventually fail.
  477. Honestly...I thought his "understanding" of what could sell was his unique edge that would be most difficult to duplicate for someone else...the ART of the trade...so to speak.
  478. Just good idea at the right time, EE visual art was a novelty at the time in the West (non-Sothebys level obviously).
  479. I agree that the vast majority will not be able to find a high win rate. That is also why I think the majority has to settle for more of a practical edge (much easier) like money management or trend following (whether it really works for them or not)...two concepts that are discussed in the "trading public" often. This gives the trader a sense of reinforcement...doing what OTHERS are also doing. I feel I have my personal holy grail, BUT it's not the "HOLY GRAIL" that most people are referring to...I wish!
  480. I suspect that the actual percentage of ET profitability lies somewhat in line with the poll results in this thread. --26.7 percent--It is possible that the members of ET are more profitable than the vast majority of traders out there. However, it certainly is not the 90 percent that has been postulated heretofore within these margins.
  481. EXPERT prudent risk management can/should be part of an edge.
  482. Risk management (prudent or not) is not an edge, but it is a requirement. Do you know the difference between the 2?

    R.M = sensible action to reduce risk to capital.

    Edge = acquired trait than allows for a good R.R ratio per set no. of trades.

    R.R = Risk v.s Reward or Reward v.s Risk (which ever way you prefer, but exactly the same thing when you have ample data to work it out).

    Please be more specific when you post and do not leave yourself open to "vagueness".
  483. Incorrect.
  484. I don't know where I said risk management is an edge...because I didn't say it was an edge...right? Didn't I say risk management CAN or SHOULD be PART of an EDGE...which I would qualify as...it depends on the trader. Yes, that's what I said! Anyway, my post was sort of a "dig" towards Buy1Sell2, who feels prudent risk management is the only edge that EXISTS in the entire universe...I don't agree with this. My methodology entails high probability setups that I've acquired over a 20 year history of trading. I believe strongly in high probable entries more than anything, but exits and risk control are very necessary too...all three equal edge or consistent profits. I consider myself a kind of "swing scalper"...your title implies something similar? Apparently you didn't read the entire thread or you would've known I'm the wrong guy to "preach" to about an edge qualification, because we seem to agree. Do me a favor, preach to Buy1Sell2 and let him know your perspective...good luck with that! Please respond to this post...or any of his.
  485. %%
    Exactly, bulls-eye, bears eye, so to speak....
  486. I've always found it odd that certain traders are so incredulous and reflexive towards risk management.

    It's a bit more palatable to the ruffians to substitute the term "position management" for risk management. Somehow, it's more digestible.
  487. That is a better reply as it is not as vague.

    You are correct in saying and thinking that PRM is not an edge.

    Buy1Sell2 can think and say what he likes, but that will not change the fact that unless one starts out with good risk management to preserve capital, then the chances of one succeeding is very slim indeed. Hence, it is a requirement, not an edge.

    I am sure you have heard of the expression "the blind leading the blind".
  488. Many traders think they have found the "edge" ie they have found an entry/exit criteria or speed of service etc that the rest of the market doesn't have. Nothing could be further from the truth. Any edge these folks think they have is already being seen and used by many many other traders. --However what most traders don't have is the ability to prudently manage risk and those that do , have the edge in this business. The inability to manage risk is what causes downfalls or if profitable, reduced gains. ---
  489. Then why the hell do you ride the markets up and down...down and up...like a termite in a yo yo not taking your profits when the market gives them to you. And who knows..you may not be taking your SL's??? I mean if you can't take your profits you may not be able to take your losses? Maybe you should put on your profit management britches and your risk management shirt! ROFLMAO

    PS. Price action is an edge that will NEVER expire until the markets EXPIRE FOR GOOD. Learn it and learn it well.

    Sorry didn't mean to be so mean. I just got tickled.
  491. When a person dwells on a subject so much, the odds are very high that the person is speaking from first hand experiences.
  492. Yes, I am very surprised also, as I never heard of this guy. I replied to his post on the other thread, but it has now being deleted by the mods.

    What is all this about?
  493. Trading is gambling with casino house edge equivalent to the commission and interest payments. Minimizing and overcoming the "casino house edge" will enhance the trader's statistical chance. Like a game of Blackjack, there are rules that can enhance the player's chance, but only when all these rules are applied and played with optimal strategy can a player stand a chance to beat the casino. In trading, prudent risk management is one of the rules that can significantly enhance the trader's chance, but it is when all the favourable rules are applied then you will have an edge.

    To identify and fully understand the theory behind all the favourable rules, that is another major journey.

    Pension Admin
  494. %%
    I had a gambler friend from Nevada, loan me his expensive shotgun , in Argentina dove hunt/harvest. His gamble paid off, PA. LOL
    BUT A BIG difference between gambling + stock market; your broker likes it when you win /trade. Mr Thorpe's[blackjack cardcounter] car had the brakes tampered with almost lost his life + got kicked out of blackjack tables.......................................... So never forget that. Thanks ; Blair Hull went from black jack to trading-investing , not the other way around...... I see your points,PA.
  495. Then stop using the RSI and see if your results change. Could you eliminate the RSI and just use random entries? BE HONEST...do you think your results would really be the same either way?
  496. Buy double bottoms at the low and sell DTs resistance at the high, payout at x3 risk, risk stops 1/3 of payout in % above entry. Some you lose, some you win.
  497. Edge does not mean edge over myself.
  498. Are you not leaving out the important bit :)
  499. True edge is all about mastering self, and not in the way the looney tunes write about it.

    RSI, MA, FIBS, etc, etc, are all secondary.

    Stop and think about it!

    How can all the different TA work for different people!

    There is one common thing.

    Guess what it might be?
  500. Successful trading is about one thing and one thing only----Prudent Risk Management.
  501. Then why do traders that are already PROFITABLE with ONLY PRUDENT RISK MANAGEMENT, continue to seek a higher win rate away from just RM? All the traders on ET that agree with you that "risk management" is the only "true edge" are probably looking (stealthily) for a higher win rate in their entries in their back testing. Why is this? Because if they accomplish a higher win rate with their already established/profitable risk managed method...profitability would increase substantially! How could they deny such a golden carrot? You can't tell me that no trader in the history of mankind hasn't found a better entry for their risk managed based method. If they follow your wisdom strictly...their just denying POTENTIAL PROFITS!
  502. You are wasting your time, as he is a typical "trader" who can not let go, and we all know where not letting go gets you in trading !
  503. Let's look at an extreme example of why chasing win-rate is the wrong way to approach trading. --A trader develops a system that will take profits at a 90 percent win rate and will obtain 2 ticks profit. This trader sets their stop level at 25 ticks.
  504. Thus---this trader has no edge. However if the stop level were only slightly lowered, the trader would be a winning trader. Prudent Risk Management is the only true edge in trading.
  505. LOFL..are you serious, or are you just pure thick :)
  506. Sorry to ask again. Can you run it by me one more time: What exactly is Prudent Risk Management. I never understood what it was and how to execute.

    Thanks again.
  507. In order to be successful in trading, it doesn't matter whether you are right or wrong when placing a trade. What does matter is that when you are wrong, you lose a little bit and when you are right, you maximize your gains. Why do most traders (especially day traders) lose? They don't have prudent risk management skills. End of Story. Now, a lot of folks may say, "but the newbie trader doesn't know how to pick entries and exits". While that may be true for some, the real issue is that when they are wrong, they stay married to a position, or add to a position in order to not admit failure. Your best bet would be to learn to embrace failure, learn to shrug it off, learn to admit when wrong and learn to stay in trades that are winners. You see, Prudent Risk Management is not just about placing an initial stop---it's also about managing a winning trade. Remove the focus from high winning percentage. Retrain focus on losing a little and making a lot.
  508. How many accounts have you had access to, for to come up with this opinion, or are you just going on what you read on the internet :)
  509. Not trying to argue or contradict you, I just want to get a better grip:

    So is your definition of risk management simply put a tight stop loss on all your trades? How tight is the stop? 1%? Also when and how do you take profit for if you "let profit run" and coupled with tight stops could most of your trades eventually turn into losses and become death by a thousand cuts?

    Thank you.
  510. Regardless how you feel about b1...this post makes a ton of sense.
  511. No
  512. Never risk more than 2% of Total Liquid Net Worth (TLNW) on any one trade/idea.
  513. Stops are trailed outside noise. Take profit when there is an opposite signal or when stopped out. Your wins will greatly outstrip your losses.
  514. I'll give you an analogy that also makes a "ton of sense" (I hope:D). If B1S2 were an investor he'd be a buy and hold investor like my father. My father made large investments in the 1980's and is still holding these positions to this day. He's made a fortune even though he's held through many market crashes. My dad is following the concepts "the market goes up over time" and "it's how much time you're in the market that counts"...very sensible indeed. He believed nobody can beat the market and anyone that tries is a fool (market timing). My dad thinks in absolutes and so does B1S2.

    B1S2 thinks PRM is the only concept that works in the universe and anyone who bases their methodology on high probability entries is a fool and is attempting an impossible endeavor. My dad didn't think it's possible for anyone to have a more effective way to invest in the market than his...just like B1S2 with trading. My dad didn't believe anyone could have a formula that gets people out at market tops and allows them to buy back in at market bottoms, but I eventually showed him a methodology that does accomplish such a goal (although not perfect). It's based on inflation, PE's, and commodities combined with a scaling in/out technique (beat the market 9 of 10 yrs.). He thinks I'm a genius now, but I try to tell him there's plenty of smart people out there that have created savvy formulas (Jim Simons).

    So why doesn't Simons, or the "Turtles", or Soros, or any of the "studs of trading/investing" just do BUY AND HOLD like my dad...which would be investing with a lot of sense? It's because other more effective methods exist...in trading and in investing. These guys don't want to hold through market crashes if they don't have to. Some of us traders don't want a lot of loses or large draw downs if we don't have to either!

    I'm sure there are plenty of investors on this site who don't do buy and hold, even though it's more practical and sensible than what their currently doing (maybe more profitable), but to say there's not a more effective way than buy/hold is ridiculous! B1S2 saying his way (PRM) is the only way that works and everything else is wrong is just flat out ridiculous too! Just because B1S2 couldn't find a way to solve the high probability entry equation, he has to claim it's existence as pure fantasy. I made made money in the past with a risk management based method, but I couldn't quit my job and trade full time...I needed more...and got it!
  515. Yep I agree with you as well. I think b1 is correct on allot of the stuff he says but I also believe he is wrong in his opinion there is only one edge. There are many ways to skin a cat as the saying goes. I go by the philosophy, everything works and nothing works, depending on the person.
  516. There are many ways to pick entries and exits. All are known. There is no edge in picking entries and exits. The edge is in how trades are managed.
  517. Buy and hold mutual funds/indexes with a long time frame (20 years or more) is the only 100 percent winning strategy there is. That being said, I don't recall suggesting in this thread that one should buy and hold for 20 to 30 years. That is actually mismanagement of risk.
  518. Buy and hold mutual funds/indexes with a long time frame (20 years or more) is the only 100 percent winning strategy there is. That being said, I don't recall suggesting in this thread that one should buy and hold for 20 to 30 years. That is actually mismanagement of risk.
  519. In your posting describing your father, you have basically made the point that PRM is the only edge in trading. The man traded a 100 percent winning strategy and made money, however did not maximimize these gains because he did not observe PRM. ---ie he held through crashes etc. ---