What is a "high probability, low risk" entry?

Discussion in 'Strategy Development' started by FireWalker, Dec 2, 2003.

  1. Everyone talks about only trading these "low risk" entries. If you listen to most of the talk on ET, it's all about "discipline", "waiting for the high probability entry". Either that, or it's "entries don't matter... it's how you manage the trade after entry that's important." The message to the newbie trader is that it's all about your psychology. ie. Most traders aren't profitable because they don't take stops, or they overtrade, or they "don't listen to the what the market is telling them", make mistakes, etc.

    But if you backtest any setup you've heard of... they're all negative expectancy. (if they weren't, you'd just set up a computer to trade them all day long and take your psychology out of the equation).

    My question is.............

    Where are all these "high probability, low risk entries"????
     
  2. t0yland

    t0yland

    I think your assumption is wrong. There are in fact non optimized systems that backtest quite profitably. Where are they? Well that is your job to find out. Why would someone give you a technique they spent countless time developing?
     
  3. To me the basic "Volume precedes price" premise is inherently , and consistently viable.

    Recent trades using this premise:

    Short: NTES, LNCR, PNRA, JBLU, and ERTS, all had distribution days prior to tanking.

    Long side: PFE, XRX, BR, and CI...all being accumulated on rising volume.


    Keep it simple. Takes a lotta work to do this, but it pays for itself

    Best,
    David
     
  4. For me, selling a double-top or buying a double-bottom is pretty "low risk" since my stop can be pretty tight (2-4 Ticks above the high of the double-top or below the double-bottom).

    -Fast
     
  5. gms

    gms

    No, you're making an assumption that a backtest portents to future performance. A backtest only shows you where a system's strengths and weaknesses may be.
     
  6. ig0r

    ig0r

    Yes, t0yland is right, there are methods (even very simple ones!) that are extremely profitable (without optimization) in backtests and live, trade management is very important, arguably the most important factor here; a good entry doesnt hurt though, but it's not hard to find either. if you're looking for one, the instrument and timeframe you select are also very important, then make a simple rule for entries and concentrate on working out a system for managing your trades. here's a tip that will save you lots of money, don't have the system hold trades that aren't doing what they should, get out before your stop loss if you need to!
     
  7. when it works ... its like having a free lunch

    :D
     
  8. Ditch

    Ditch

    Here's an example of a breakout from a triangle, that was formed during lunch time. With setups like this you can achieve 80/20 W/L ratio. This is a very simple setup, of which many can be found. They're sitting right under your nose.
     
  9. t0yland

    t0yland

    ig0r,

    Not always true. In swing trading I have found that most losing trades will come back within a few weeks. Granted you always have to have a point in which you are going to get out no matter what. Just my experience though. :)
     
  10. ig0r

    ig0r

    Yes, it is true that especially in swing trades with a good entry, they usually do come back (I swing trade and I see it happen all the time) but think about it in terms of profit over time; the longer you're in a losing trade, not only are you taking on a lot more risk then you need, but you end up take a very small reward (averaged over the length of the hold) because you ended up tieing up your capital for all that time
     
    #10     Dec 2, 2003