interesting time to take a break right after a day that would crush anyone who averages down over and over
This is really devolving into some first class trolling ON, which is why folks block you. tradingismybidness also very troll-like in it's short time here (registered on Friday), and has quickly earned a spot on my block list. You ought to absent yourself from this particular journal, ON. You are not doing yourself any good here.
Ignorance. There is a big difference between adding to losers to avoid a loss and a defined trade plan which allows for adding at different pre-defined levels. A good trader can trade such a plan with appropriate loss limits and do well. I believe volpri is one of those.
In trading an “edge” is a mathematical advantage. It basically means that if a trader takes enough trades of a certain type that he will, over a period of time, he will be profitable. Traders have to learn to structure their trades in ways that give them an edge; a mathematical advantage, if they want to be consistently profitable over time. The problem is edges can fleeting and are small. And edges need to be based on math which some call an “exact science”. Others say it is not an exact science. Nevertheless, at the bare minimum math seeks to use logic to understand and prove logic between quantities and objects. The problem in applying math to the market is that the market is not exact and it is full of uncertainty. Hence, a mathematical advantage is always going to be small. And it can be fleeting. That is, it happens quickly and can disappear quickly. But the good news is that is all that is needed to be profitable. So traders have to structure their trades with scenarios or setups that involve entries, initial SL’s, initial PT’s based upon an edge they have found or discovered and employ. But that is not the end of the story. They now have “manage” the trade for a mathematical advantage which involves execution, on the fly adjustments of SL’s and PT’s within the dynamics of the trade as it unfolds. Since the market is filled with uncertainty no SL’s or PT should be set in stone. They all need to be adjustable but also have a mathematical logic, behind the initial setting of SL’s and PT’s, and any subsequent adjustment that is based upon “how” (i.e. the dynamics) the market is unfolding, in respect to the trade taken. If you follow my journal I structure averaging down to give me a mathematical advantage. An edge. Even though the gurus “choke on their spittle” over the concept. I also take what I call straight scalps, long or short, with no averaging down. When in this “structuring moment” of the trade it is only the INITIAL structure, based upon a mathematical logic. And is for SETTING the entry, initial SL’s, and initial PT. All those things are subject to adjustment as the trade unfolds (i.e. the dynamics or the “how” price is being made) EXCEPT my entry. You have doubtless heard (from the guru’s lol) that the only thing you can control is your SL and some might say your profit target, or PT for abrev. I would beg to differ. The only thing you can control is your entry! The market controls all else. It determines, by it’s dynamics, if your SL and or PT was or is appropriate. Therefore, I will adjust my SL and or PT based upon the dynamics as the trade unfolds. I CANNOT adjust my entry as it is already made and has become a reality in my original structure once I take it. I am “in” the market so to speak. That fact, I cannot change. It has happened. I can only do two things as concerns that fact. Exit or add to it. If I do the latter it needs to have a mathematical basis within the immediate and larger context AND within the present dynamics taking place. However, in the example below I discuss straight short and long scalps with no averaging down or scaling in as some prefer to call it LOL. Allow me to give an example: Price is in a range (defined as 20 or more bars of sideways PA). The larger Context is a gap down open from a previous bear channel. In other words, weakness is in the distant past (from a 5 min ...15..min perspective). The fact that we are now in a sideways range indicates the bulls are trying to reverse that weakness and they want a reversal up. But the fact we are staying in the range indicates the bears want the range to just become a bear flag. The bears want a downside BO. Remember, in a larger context a bear channel i.e. a downtrend, a 20 bar TR on a 5 min chart is like a 7 bar bear flag on a 15 min chart and a 3 bar bear flag on a 30 min chart. So, the tug of war between the bulls and bears continue until we get a successful (read my journal for def of a successful BO) and one side wins (for a while). Now, in that struggle the TR by it’s nature reveals that both are about even (thus creating the range or there would be no range created...let than one sink in as it applies to ALL price patterns even though some would say price patterns are hogwash LOL). One tactic or technique I use in such an environment is fading the outer limits of the range (both bottom and top). There is a 70% to 80% chance any BO attempt, bottom or top, will fail within 5 bars and price will trade back into the channel or further down or up into it, even if it never actually broke the upper or lower limits on the attempt. In the larger context those odds favor fading the BO attempt out of the top. Why? Previous weakness to the left before the range began. So 80% from top maybe 70% from bottom. Ok, so BO attempts and their failure or success are now based upon mathematical logic. Now what about the entry..SL..PT in the initial structure of the trade. I got the math on my side in BO attempt failures. But where does a mathematical basis come into play in my initial trade structure? Ok, my initial entry, if I am conservative, will be to short when price is in the top 1/4 of the range. If not so conservative, I may start shorting in the top 1/3 of the TR. Initial SL will be say 2 to 4 points above the top of the range or above my entry if using a set SL (maybe a little more in volatile market conditions) OR an alternative initial SL looking to the left and finding the closest or lowest (in terms of SL distance) swing high before the range began and placing the initial SL just above that swing high thus using an initial PA SL, as opposed to a dollar or set point SL. For the initial PT I use the traders equation that brooks teaches: The probability of success X the initial reward needs to be greater than the probability of failure X the initial risk. To come to the probability part of the equation I have to make a judgement call. To help me make that I ask: What just happened in price action? What are the chances of price hitting X target BEFORE it will hit X SL? Then I mentally adjust the target to give me a higher probability of success. If the probability of success is high say 60% to 75% then the left over percentage becomes the probability of failure figure. Once I assign the probability number I can plug in the numbers into the equation and structure my SL and PT to give me a positive traders equation. Mind you I don’t do this manually so much as mentally. Then I place my trade. So, now that I am in the trade I have to manage the trade according to the unfolding dynamics of PA AFTER my entry. I have to monitor actual risk and actual PT. I want at least a 1 point scalp and prefer 2:1 reward to risk but will sometimes settle for 1:1. Often, when price moves immediately in my favor after my entry I can get a 3:1 or 6:1 reward to risk based upon my actual risk I suffered after my entry. If I can get that kind of reward I will grab it quickly even BEFORE my initial PT is reached because depending on the type of setup I entered on, I know that paper profit can disappear quickly. That is why traders get whipsawed. Price moves immediately in their favor..they get greedy thinking more is coming they will hold and bam suddenly price reverses and as quick as they saw a gain, they now see a good paper profit with a GOOD R:R, evaporate and they are now in a losing trade. See, they had a mathematical advantage but they did not take advantage of it in the dynamics of the unfolding trades. On most setups (there are some exceptions like in strong BO’s) if the market gives me a 3:1, 6:1, 8:1 ..etc reward to actual risk I would mathematically be foolish to not take it. I CANNOT go wrong taking it as that is an edge i.e. a mathematical advantage and math is relentless. Greed as well as fear can obliterate our “edge” as price dynamically unfolds. That is why, if you have looked at my chart in my journal you see me jumping in and out. The dynamics of the trade just gave ME a dynamic edge and I am taking it! It ain’t magic as ON aka Fedex likes to announce LOL. Things are a bit different when averaging down although much of the process is very similar. I will, perhaps at a later date post more on structuring a trade when utilizing averaging down. I am posting this writeup I wrote in this thread because it is a thread about educators that tend to only discuss entries and rarely discuss managing a trade. I will also post it in my journal. Happy trading Volpri
It is useful for a trader to do an initial structure of a trade followed by a secondary step of monitoring the dynamics of the trade as it unfolds after entry and making dynamic adjustments to SL’s, PT’s and any successive entries such as scaling up or averaging down. Doing this i.e. initially structuring a trade, followed by monitoring the dynamics to make adjustments, if needed, is an exercise that may give him an “edge”. An edge is a overall mathematical advantage. It is not just a chart setup pattern (like a wedge..Flag..etc) or a candlestick pattern like a doji or the myriad of other candlestick patterns. Neither is it based on indicators..Bollinger bands...MA’s etc. It is a way to look at price on a chart and come up with a decision that will hopefully put the odds in your favor before you place your entry. The markets by nature are filled with uncertainty and nothing can ever be for sure. This is so because there are too many reasons and variables for price to up and down or sideways. Some of these can be known but others cannot ever be known beforehand. For instance, maybe Jackrabbit is about to kick the bucket in 6 months so he decides to sell all his holdings...of several million ...buy himself a big yacht and hit the high seas. Or maybe Henry a fund manager is going through a nasty divorce and his wife is after the big bucks so he sells out, moving the markets. The point is we can never know ALL the variables of why price goes up or down. Therefore, the markets are fraught with uncertainty. Math, which some consider an exact science, ..others don’t...can never give us 100% certainty in the markets either. It is impossible. So, bottom line we operate in a sea of uncertainty. Like driving in a fog with glimpses or fleeting moments of clarity. Nevertheless, in all this uncertainty traders leave footprints. The chart will reveal these footprints. This said, math can still be useful and utilized to put odds in a traders favor. So it should be used as a tool to do so. Brooks teaches what he calls the traders equation. It goes like this: Probability of the trade of an upcoming trade to be successful X the potential reward needs to be greater than the probability of the trade failing X the initial risk. So say you had a trade that you figure has a 60% probability of making 4 points before your Initial SL would be hit. Say your SL was 2 points. So, plug these into the equation. 60%x4 = 240 40%x2 = 80 240>80 240 is greater than 80 so you have a positive traders equation. This is a mathematical advantage, which is an edge. If you see a setup you want to take then you may well find it useful to run the traders equation. There are 3 variables within the equation. They are: Probability, Reward, Risk. Lets look at them. Reward YOU set quite easily as it is what you think you can get out of the market using that setup you see on the chart. This may come from previously observing what this type of setup, on average, renders. The Risk you set quite easily too. It is what your are willing to risk on the trade. It may be a percentage of your account. It may be a set point amount like 2 points or 10 points...whatever. The hardest one to arrive at is the Probability. To arrive at a feasible and viable probability figure a trader needs to learn how to read the PA contexts in two areas. The larger context i.e. where price has been, what it has done. In summary, all the bars to the left. The next context Is the immediate context. You can have an intermediate context and an immediate context but I prefer to just lump them together and call it the immediate context. This context is the present price Plus any pattern PA is in at that moment while the setup is forming. And it includes things like the present volatility..etc. For instance, a range with price at the top of the range and price moving slow. So, to arrive at some probability figure that you can assign to the equation you look at both contexts and assign your best guess. Usually, that will be between 40% and 60%. There are times in very strong BO’s it can go to 75% or 80% and on very very rare occasions it may be as high as 90% but that will disappear very quickly LOL. This simple practice has the potential to help a trader have a high win rate. If you are a intraday scalper, like myself, win rate is quite important. It is a good metric to keep in mind. Probably the most important metric, overall. Ok I see the eyes rolling..LOL. I took four trades this morning. They were all winners. I may not take any more trades today as I need to go to town for abit. I actually stopped trading some time ago this morning. I will see about posting a chart showing the trades and showing how the traders equation works. However, I will wait until after the market close in case I get a chance to place another trade or two before the close. That way you can see all the trades for the day. Anyway, I extracted 18 points which really was a poor performance, partially in part, because I was too occupied writing stuff down and the market was moving fairly fast. But it is what it is. I will try and post later.