What perplexity said: Negative Skew Negative skew occurs when the distribution of returns has a longer tail on the left side16. This means: More frequent small gains Occasional large losses The mean is lower than the median and mode Now eliminate "occasional large losses" from the equation and see how that changes the skew. And then insert into the equation reversing direction when wrong and sizing up thus getting losses back quickly and determine if those two things things mitigate losses and make them less damaging. They just might change the entire picture. Here is an imperative. A scalper has to develop "outs" and train himself to execute them. What perplexity is doing IMO is using math to prove a point. The problem is the market cannot be contained, boxed in, nor explained by math. To be sure there are certain mathematical tendencies to market PA but there are simply too many variables; some known, some that that are unknown, and some that are unknowable and some yet to even be discovered. THE MARKET IS DYNAMIC and we can only see what it has done and try to extrapolate out of that what it may or likely will do and anticipate that by taking a position. Why does the following phenomena occur with backtesting but then going forward it works for a while then when some of these variables mentioned above get thrown into the mix suddenly the well backtested strategy no longer produces what is was hoped it would produce? There is always a way to make strategies appear to work mathematically on paper but when applied live they breakdown. For instance, scalping with a PT 4 points to risking 1 point sounds good and may backtest out but applying that in real trading live is like slicing a piece of your finger off and continuing doing so until nothing is left but a stub even with occasional 4 point gains. This happens because of the "perversity" of the markets. Just.when IT "should" go your way IT does the exact opposite. We have to have methods in place to mitigate such things as they WILL happen. On the other hand risking 10 points to gain 1 point if done in the right context is a high probability trade. It is more likely one's 1 point gain will be hit before one's 10 point loss is hit. So it is mathematically "upside down" but can work more often than not and render a profitable trade. A winner. So, the question becomes what about when that 10 point loss comes? The answer lies in NOT letting it come. When PA (usually through momentum or time ) proves your premise for entering the trade is no longer a valid premise then just GET OUT. And subsequently have a strategy in place to quickly recover the loss. If interested traders watch some of my SIM videos they will see these concepts in play live as PA is evolving. The market dances and writes on own script all session long. While there are some commonalities that go from session to session each trading session is unique and writes its own story. The intensity of its moves and the price levels it reaches differ from session to session. I HAVE SAID and continue to say it IS important where price goes but it is EQUALLY how it does what it does. As Linda Bradford Rascke says" the best I dictator of price is price itself" That one statement was a paradigm shift for me. IN SUMMARY to my notion it behooves a scalper to have a complete set of tools in his tool box to take advantage of "what" price does and "how" it does it in each trading session as it dances to its own tune and writes its own narrative. IMO a scalper cannot be a one open end wrench mechanic (read trader) and survive over time. And I might add just having a pre-written trading plan does nothing in terms of the market conforming to one's plan. I PREFER TO LET THE MARKET WRITE MY TRADING PLAN FOR ME AS IT IS DOING ITS PA AND I RESPOND WITH TOOLS FROM MY TOOLBOX. An open in wrench here. A pair of pliers here. A drill here. A hacksaw here. A torch here and so on ...ad nauseam.
Nothing wrong with riding the move south, pressing the trade AND scaling in short on rallies, ....compounding profits. Better than shorting at the top and holding with a trailing SL till the bottom is reached or the SL is hit. And consider that also there will be quick long opportunities too as the bigger move south continues. READ ALL ABOUT IT..... J.M. HURST. J.M. HURST!
While you are experimenting, since (I believe) you have a strategy with a 60% win rate, using an R:R of 1:1, if averaging in on the same trade is a bit too stressful, try allowing yourself to be stopped out, take the loss, and average in on the next trade. That is the essence of a negative progression system. It's not technically averaging in, but somewhat similar.
Nice - adding in one from PTJ that is my favorite - in fact it drives my entire trading operation. Paul is always looking for trades where he finds an asymmetric risk-reward of 5-to-1 where he is willing to risk 1 dollar to make 5. By focusing on a 5-to-1 ratio you can simply be wrong 20% of the times and you’ll still be able to make money. So even if you’re a complete imbecile (Paul words, not mine) you can be wrong 80% of the times and you’re still making a profit. If you combine it with good risk control you are guaranteed to become a successful trader and grow your account.