This is similar to how I manage my winners as well - I started using a 3 EMA setup to keep me in "the trend within the trend". Also looking at longer candles (20, 30, 60 min for example) helps me not get faked out of my trades too soon.
I'd like to second this particularly that part about tight stops not being optimal. They certainly are not if you want to capture bigger profits. Also, it's good to realize that volatily (the magnitude of daily ranges) plays here some role too. The ES daily ranges for the last 2-3 months have been considerably smaller than during the last summer for instance.
The Expectancy formula is: Expectancy = Probability * Gain Nature law is often quite frustrating that when you want improve one term, the other degrades and vice versa and that the person who don't realise this and try to get both is a Holy Grail researcher. I pretend that this Holy Grail exists but it is not easy to find it so let's rather behave as it doesn't exist since it is the case of the huge majority and as a consequence you have to chose BEFORE TAKING ANY TRADE what framework you favor: either a 1:1 ratio gain with high probability (scalp style) or a 1:2 or 1:3 ratio gain with low probability (swing style). if you try to mix the two you are trying to realise the nearly impossible and you will lose with a probability of one at term. It doesn't imply that you can't exit with a 1:1 ratio or even less in the swing framework it means that when you do so it is because you have proved yourself you were wrong and not that you are scalping since it is not the framework you supposedly chose when entering this trade.
A more correct formula has two terms: Expectancy= prob_of_success*magnitude_success-prob_of_failure*magnitude_of_failure, to put it in a general way.
See Harry? We can agree on some things (like the above). Using a swing entry and a scalp stop usually doesn't pan out. I have seen another trader on this board (sorry, can't remember who) call the errant mixing of trading styles "systemmessionary" and I will admit that I have suffered from this problem in the past... I had to decide what type of trader I am and let each of my setups dictate the proper stop amounts. Mixing Scalp with Daily Range/Trend with Swing did not work for me. I am not a scalper although I am aware of the benefits. A person really gets a feel for their personality type when defining their trading style - or should that be the other way around? :eek: Regards, Paul
Better still: Pre-commission and pre-trading costs average aggregate daily expectancy = [(prob_of_success*magnitude_success) - (prob_of_failure*magnitude_of_failure)] x Opportunity Factor, where Opportunity Factor is average number of trades per day...
Correct if you want to have it per day and not per trade. My formula was per trade, the one proposed by you is per day, that is, it gives the expectancy for an average single day.
Wally, Any coherent analysis of expectancy will impute the opportunity factor... identical per trade expectancies with differential opportunity factors will result in different aggregate profits... I hope that helps. Candle
And if you don't like Ideal Gas Law PV=nRT you can have (P1 * V1) / (Z1 * T1) = (P2 * V2) / (Z2 * T2) You know what I mean: my formula was just as simple as for the goal purpose Now when you say that Expectancy= prob_of_success*magnitude_success-prob_of_failure*magnitude_of_failure, It can be a good formula for scalp but not for swing because the distribution of winners and losers for swing is hetereogeous and it would better to separate the two or you will obtain something like the expectancy of a mixed population between Giants and Lilliputians .