Tell me about stop and reverse strategies

Discussion in 'Strategy Development' started by IronFist, Feb 18, 2018.

  1. Xela


    Five quick, partially-formed thoughts only ...

    1. Either the "reversal entries" stand up, objectively, in their own right by having a proven collective edge, or they don't.

    2. It's unlikely they do, for quite a few reasons - perhaps including the fact that if you take the concept to its logical conclusion, it leads to an "always in the market" strategy (and I've never seen an "always in" method that has a net positive expectancy, and find it fairly unlikely there is one, really).

    3. PSAR itself was invented for stop-loss placement/adjustment, but seems to be "clutched at" for potential trade entries by traders in search of that "perfect, indicator-driven system" (who also seem to believe in predictive powers of indicator-combinations and in entries mattering more than everything else).

    4. It wouldn't be relevant to me, because "being stopped out" wouldn't ever constitute an entry at all for my kind of trading: it just signifies "a losing entry", of which I've always had plenty and always will - and that's normal.

    5. I suspect that it's a concept that perhaps appeals instinctively to people who like very high win-rates (and they tend not to do so well, overall, for quite a few reasons).
    #11     Feb 19, 2018
    lovethetrade, comagnum and lcranston like this.
  2. Buy1Sell2


    It works. Very low win rate but huge gains when right. Most folks don't have the intestinal fortitude or bankroll to do it effectively.
    #12     Feb 19, 2018
  3. My question was about reverse and build your position of you're wrong, not at the finale of a trend.
    #13     Feb 19, 2018
  4. Buy1Sell2


    Not good
    #14     Feb 19, 2018
  5. Buy1Sell2


    What if you are right the first time and just have your initial position on?
    #15     Feb 19, 2018
  6. volpri


    Of course it is two different trades. And yes, they are related IN THE SENSE that the unexpected happened in the first trade hence that PA provokes a response in the opposite direction which is hard for some traders to execute. So it is most definetely related to dynamic price action. And since most reversals fail (depending of course on context) the odds are slightly in favor that when a reversal fails a trade in the opposite direction will produce a profit. And the doubling up and reversing produces in effect a cancelling out of the previous loss plus a gain. Who would not want to cancel out a loss? I mean in the strictest since you are not cancelling it out (as it does stand as a loss) but you are recuperating what you lost by doubling up. Whereas, if you did not doubleup and reverse but sat on your A$$ twittling thumbs then you are just out your loss. So what is better? I mean nothing wrong with taking a necessary loss but when an opportunity presents itself to recuperate that loss and make an additional gain why wouldn’t a body want to do so?

    To make is simple. Say if i was long 1 contract on what appeared to be a reversal from a bear trend or the bottom of a range. So, say i take the trade and I make my stoploss 2 contracts short, so if it is hit, i am automatically out of the long and now short 1 contract. If that is what this thread is discussing then no I would not do that. What I would do is this: I would be long 1 contract if my stop is hit i would reassess and if the context and the dynamic PA on the bar or bars (as they were formed) that stopped me out, suggest that the first reversal is failing or will probally fail (it did in fact fail if I was stopped out or may not have if i simply had my stoploss too tight) then a reversal of the reversal has a decent probability of working and that is where I would double up position and reverse the direction of my previous trade.

    And win rate is absolutely the most important metric over the long haul. Second is average win to average loss. Get those two right and a trader will be on the right side of history as it is being written by the markets. Who would not want a high win rate and a bigger average gain as compared to the average loss? What is better that or a big loss rate and bigger average loss? A big loss rate and smaller average loss?

    I suspect traders argue against a high win rate simply because they have NEVER been able to achieve one consistently. I’ll take those two metrics above and over ANY other metrics the market wants to share! Cannot stop laughing! ROFLMAO
    Last edited: Feb 19, 2018
    #16     Feb 19, 2018
    th0masq likes this.
  7. Holy crap @volpri, them there is fightin' words here on ET!

    I disagree, and I do have a high win rate, which I calculate as NET, so a breakeven trade that does not cover expenses (commissions/fees) is NOT a win.

    Win rate is a nice "confidence builder". But without forensic analysis of the trades... MAE, MFE, and duration, that's all it is. An 85% win rate MIGHT be profitable, just the same as a 15% win rate MIGHT be profitable. Without the inclusion of the metrics I mentioned, the beta so to speak of such trading MIGHT be beyond the realm of acceptable for such trading, which also includes an overall time-in-market metric. Win rate by itself is meaningless IMO.

    I'm merely stating my first level thoughts, and will leave the pugilists to slug it out.
    #17     Feb 19, 2018
  8. Buy1Sell2


    Noone is arguing against high win rate. The push-back is against the argument that high win rate is essential.
    #18     Feb 19, 2018
    murray t turtle likes this.
  9. volpri


    I agree a BE that doesn’t cover expenses cannot be counted a win. So when I say win rate that is what I mean. Only count the winners. For instance, I enter long on say ES it trades against me 2 points so I scale in to the loser (more fighting words LOL) with a second contract. It trades back up. I exit BE on one contract and make a gain on the other. Only the latter counts as a winner. Because the BE is really a loser if it doesn’t cover comm costs. If it goes 1 tick over BE it covers comm on that 1 contract and can technically be viewed as a winner but for practical purposes i would consider it a BE.

    MAE ...MFE ...R/R have some merit in terms of adjusting ones system but are metrics that in the end mean little in terms of actual profit made on a win. For me it is like this. You can have a paper profit but it is not a real profit until you actually take it. You can have a paperloss but it isn’t a real loss unless you take it. You can have initial risk (which I do) but actual risk is what counts for me as I adjust my PT as the PA unfolds.

    If I enter a trade and my actual risk ends up being much smaller than my initial risk, i.e. where I first placed my SL, then I am not going to follow that trade very far. I will exit on any decent profit when I see PA indicating it is best to do so. I know that is counter-intuitive. For the way a trader tends to think is this way; if the trade had little risk then I was correct on the direction and I should let this suckerbill run. But actually the opposite is the truth (most of the time). There is AWAYS a trade off on risk, probability, and reward. Except for occasional anomalies you cannot have low risks, big reward, and high probability. There simply are too many smart traders out there. They are not going to allow it. So, in the above trade example my risk (actual) was low. That makes the probability high it is going to give me a profit. But I cannot hope for a big reward as there has to be a trade off. The mistake traders make is they enter the trade and it takes off with little actual risk. So as they are patting themselves on the back for astutely getting the direction right and bragging to their spouse who is hoovering over the moniter after hearing the ruckus ...suddenly the market turns back and they find themselves holding a loss and the spouse is either screaming or laughing as hard as possible. Thinking it will come back they keep holding the loss. Finally it is unbearable and they bite the bullet and exit. Spouse is clearly angry now. No supper tonight.
    Last edited: Feb 19, 2018
    #19     Feb 19, 2018
  10. volpri


    High win rate is not essential to be profitable but why in the sam hell would anyone prefer a low win rate? I mean, like if a traders strategy produces a profit, even with a low win rate, ...well...fine tune it to achieve a high win rate and that trader have just stepped up to a better level!

    In the end the trader cannot lose if the trader is winning. I know people will say you may not lose but you will miss out on some additional profits by exiting too early so as to maintain a high win rate. While there is some truth to the concept it is also mis-leading. You DO NOT have to miss out on any additional profits. But by exiting early in a trend you are actually positioning yourself for compounding. Why? How? Well we all know every trend has PB’s. You exit at a swing low’s or swing high’s ( depending if bear or bull trend) and enter again on the Pb’s at a better position or cheaper price. I know everybody screams commissions...too much...well brokers have to make a living too...the price of a comm is little to pay if you can make 10 or 20 times the amount the comm costs you by entering at a better price.

    People get these ideas from “turkey” bellyaching about “losing” his position if he Reminiscence of a stock operator. But you never here no more from turkey. Do you? The idea sounds like a load of 4B3E5BF0-4BAD-4687-B4A1-CD93C295376F.png

    to me. However it could be turkey sh$t. On any trend I have multiple entries and exits as I ride it up. I will also scale in when first entry is losing. Just gives me a much bigger profit when the trend resumes instead of bleeding to death from Multiple SL. You cannot make any money if yu are losing..and losing..and losing.

    Give me a high win rate and good average win to loss ratio and that is all I want. How many traders hang on in trends to make it big on tuesday to only give it all back, doing the same thing, on wed. Rinse and repeat for thursday and friday. At the end of the week they pat themselves on the back for being at break even. They were BE when they started the week!

    Not me. No sir ree bob i wanna win monday, tues, wed, thurs, and friday.
    Last edited: Feb 19, 2018
    #20     Feb 19, 2018