Hello, Still learning to trade support and resistances. I trade the /ES intraday on sim/paper money as I developing my own strategy. Some days (like today), I notice my resistance and support lines are very close together, and it makes my decision making tuff. In my plan states, if preparing for long trade: if resistance are next to each other and does not provide +3pts, wait for the next resistance to break provided the next resistance provides +3pts. I am thinking based on market conditions, I need to adjust this thinking and maybe scaled down to +2pts. Update the plan accordingly. Maybe this go back to take what the market gives you. But if I do this, it puts my R:R at bit below 1, and I like to keep R:R at 1 or above. So question: Do you always include R:R per trade on your decision making?
R:R? Couldn't care less. Here's a free lesson that should be worth "$1 Million+ to you over your lifetime" "Buy support. Sell resistance. Chase breakouts. Exercise stop discipline". Do all of that well, and you'll outperform 99% of market players. K.I.S.S. With stops.
Just an observation, but R:R in itself is only half the story. What matters is expectancy, and one has to take win-rate into account, too, to calculate that. I'd much rather have a win-rate of 75% with a R:R of 0.85 than have a R:R of 1.2 with a 55% win-rate. Wouldn't you? Of course, because my decision-making is based on expectancy, and average R:R per trade is part of that formula. But I wouldn't ever decide anything on the basis of R:R alone. And I especially wouldn't want my desire to maintain a minimum R:R of 1.0 to exclude profitable high-win-rate methods from my armoury, because high-win-rate methods are particularly easy from the position-sizing perspective, as bad losing runs are so few and far-between, and they produce a smoother equity-curve, which is always welcome to risk-averse traders like me.
Scataphagos, Thank you very much. Help me out. I respect what you saying, but isn't buying support and selling resistance consider counter-trend trading?Trading against the trend. I intraday trade, i try to jump on a trend.
You're asking about the "fine details", which are too specific to generalize. You'll have to figure out all of that for your own tolerance for risk and desire for gain... as do we all.
Thank you Xela, Help me out. Do you record your R:R per trade? Do you record your risk (price entry - stop price) and reward (profit) per trade and log for data? How often do you calculate your win rate? How do you compare your win-rate to R:R, do you use average R:R?
Expectancy. Not Win only. Not Ratio only. You want P(win) > Risk/(Reward + Risk). If you expect to fulfill this asymmetry, Then you got a long term advantage. Trade these setups, Do not hesitate. What matters is advantage =D Not Ratio nor P(Win) alone .. But this very asymmetry. Keep it Realistic ^^
I do record them, and update them at the end of each day (which only takes a couple of minutes, now that I have an established method for doing it). Mine are slightly complicated, because I trade five different set-ups (not quite as complicated as that sounds, though, because they're all short-ish intraday price action set-ups on the same instruments, and three of the five are very closely related). Three of them have a set target and a set stop-loss (both related to the current volatility, which I judge at a glance from the ATR). The other two involve "letting my last couple of lots/contracts run" after the trade's in profit overall, so with those I don't know the overall R:R until after the trade, really. But one can always work out (or know beforehand) the initial R:R, subject to the observation that it can change beneficially during the trade, but never deteriorate. Sorry, I've probably made it sound more complicated than it is. The point is (and this is the reason I replied to your observation above about not wanting to have a R:R less than 1.0) that I do include some trades with a (slightly) lower R:R than that, and overall those actually tend to be my most profitable trades, not only because of their high win-rate, but also because they're set-ups that arise much more frequently (as will often be the case with low-R:R trades). Difficult to answer, without seeing exactly what you're doing, but in general, the less experience you have, the easier it's going to be for you to do well with a high win-rate (for the reasons mentioned in my post above), and high win-rates go with lower R:R's. This is why I always instinctively wince when I see people posting in the forum advising aspiring traders "never to take trades with a R:R lower than 2.0 or even 3.0". I think it's terrible, oversimplified, misguided advice which in reality gives people extreme position-sizing and risk-management problems, and those are real problems when you're comparatively inexperienced. I often think that the fact that aspiring traders are aiming for high R:R's can set them up to be a trading a sensible method, with a real edge, and still lose money with it.