What do you mean by R:R greater than risk ? If I estimate the P(win) to be about 3/5, Then the R:R should be > 2/3 ? I more or less use kelly but more for swings. Scalping wise I focus on diminishing risk, Which is a tight entry against my SL. And going with the immediacy. If price goes against me I am about to close. Agree for the three variables, And that most of the time we won’t get them all. I more or less understand your dynamic approach, But if you could elaborate on this with chats (?) ? It’s great to update the situation on the fly, But sometimes emotions take over. But we definitely have to adjust real time. Either to min loss or max reward. Thanks.
I will post a chart showing two trades this morning in MES. These are an example of playing the outer edges of a range and using the traders equation. In both cases the equation was positive after plugging in the numbers. I assigned 60% probability then just let the trades run to see my actual risk as opposed to my initial risk of 2 points and then after seeing that just I just left it to take me to my PT without any dynamic adjustment on my PT or SL. Every trade is generally different in terms of the traders equation but can also be the same. In this case it was the same. Initial risk was 2 points to make 2 points with a 60% probability that price would hit my PT before it would hit my SL. Thus was basing that probability figure on the immediate and larger context. See, in both cases price trading within 1/4 of the outer limits. Generally in ranges you want to buy low and sell higher and sell higher and cover lower. How much depends on the dynamics..such as ..volatility...etc. Markets have inertia and what it has been doing it will likely keep doing for a bit more. Reward to risk i.e. R:R was on the first trade. 4:1 why? well take the actual risk i.e. what it went aginst me before it went in my favor (1 tick) then add a tick to that to make 2 ticks. Made 8 ticks so 8 divided by 2 =4. So in summary dynamically I risked 2 ticks to make 8 ticks. Is that mathematically a good R:R YES! In second trade dynamically I risked 1 tick to make 8 ticks so mathematically it was 8:1 reward to risk. This is how I scalp. This sort of opportunities abound all day long. I just don't worry about what happens after my exit. I can always enter again. If I have an edge "a mathematical advantage) then I need to follow it as edges are fleeting and math is relentless. This is why I have a high win rate. It is important to "see" or read the contexts, structure an entry based on a positive traders equation and then dynamically monitor adverse movement which becomes actual risk taken. Then exit when I have a decent R:R. It seems complicated but with practice it is done on the fly. An edge is a mathematical advantage. It is now 11:20 chicago time as I finish typing this. Will now I have to look and see if Price had a successful BO of the range after my last trade or if price went back into the range within 5 bars. Then look for another opportunity. 2 trades 2 winners 4 points. Now think size and time for Momma to go to Dillards. Or think small if trading small and time for breakfast at McDonalds then going fishing.... I gotta run but hope this chart helps with my previous explanations. I don't want to intrude anymore in your journal. There are ways to play the middle of a range but I don't have time right now to explain them and maybe will get around to doing so in my own journal. Little by little. I get tired and have to take a few weeks break every now and then. While I like explaining concepts it does take energy to explain it clearly in understandable terms. I only have so much. So from time to time I step back for 2 or 3 weeks or even a month.
And here is what happened while I was typing up the previous post. The BO south of the range failed and price within 5 bars started going back up in the range. This is an example live of the inertia of the markets. In a range (defined as 20 bars or more sideways movement) 80% of BO attempts top or bottom will fail within 5 bars. These high odds allows one to structure, using the traders equation, a scalp that gives high probability, but not necessarily large reward. Trading the outer edges of the range. Now in general the context is bullish still with that GAP up open. Odds favor a BO north of the range. Why? This sideways range is a bull flag on say a 15, 30, 60 minute chart. So, in the larger context odds (I would say 60% I am speaking here on the odds of the larger context not the traders equation for an individual trade) favor a continuation of the trend during the session today. Simply because of market inertia in a bull trend. The overall trend is bullish (gap up open) but we are in a sideways range (immediate context) So, odds favor a that a successful BO of the range will be north. But there is a also a 40% chance the market will break south.. closing the gap. If the latter happens then I would expect at least a MM down as a BO south is the "least likely event." The market can do anything. We assign probability to it but in the end we have to go with whatever it does. If there is a successful BO south I would then scalp for a MM and bigger reward than 2 points. I leave it at that as I won't be trading right now cause I have other things to do. Gotta go...Just watch and see what happens and play around on a SIM maybe structuring some trades around the outer edges of the range but remembering if you get caught on the wrong side of the market exit right away and double up in the opposite direction of your previous trade getting your loss back quickly. Odds drop when trading the middle of the range but sometimes it can work out well. Still good for scalping in the middle of the range but one has to know when and how. And structure the scalp with the traders equation. Gotta go again LOL......
Great post. But I’d have liked an exemple where you adjust your position dynamically, based on the trader’s formula (?). Agree for the inertia of market movements. Suckers tend to bet against or FOMO with too much risk. Agree. It’s often better to enter in the tails rather than in the middle. Do you think it’s a mistake to try to BE trades ? Let’s say your setup is 8 ticks risk vs 8 ticks reward, Let’s say the market goes against you 6 ticks (-2 ticks from SL). What would you do in this situation ? Thanks. Ps: This whole thing reminds me of the Monty Hall problem
Level up to Combine #2 Worst trade is I tried to buy the lower breakout The overall stats for combine #1
Out of the Pits: Traders and Technology from Chicago to London. Chapter 6 The Discipline of the speculator
Was looking for a book : The Prop Trader's Chronicles: Short-Term Proprietary Trading Strategies for Both Bull and Bear Markets But it's out of print. Here is a review https://whatheheckaboom.wordpress.c...rop-traders-chronicles-by-francis-james-chan/ Looking into high volume scalping
Really tight stop can be found, But I am still into the habit of recklessness. I want to buy so I do, Even though the risk is unlimited. The only reason to pull the trigger is ... The reward far outweigh the risk. If you’re right 90% of the time then fine, But you’ll still be wrong 10% of the time. Better keep your loss as small as possible. Then focus on the next opportunity. Risk has to be eliminated ... By setting up a stop loss ... By squizing the reward to risk ... By adjusting your exposure optimally I’ll take the habit to review my trades overnight.