CL Redux
- Thread starter schizo
- Start date
Interesting, but is Van Tharp correct? Certainly not in all circumstances.
Consider the following:
Say I have three systems:
System 1: 1:1 risk/reward ratio, 80% win rate
System 2: 1:2 risk/reward ratio 50% win ratio
System 3: 1:4 risk/reward ratio, 30% win ratio
All three systems have the same ENTRY point, and same stop loss, their targets are different. We can see they all have positive expectation.
What is the difference between the above and one system that exits one third of the position at a reward of 1x, 2x and 4x the risk?
Consider the following:
Say I have three systems:
System 1: 1:1 risk/reward ratio, 80% win rate
System 2: 1:2 risk/reward ratio 50% win ratio
System 3: 1:4 risk/reward ratio, 30% win ratio
All three systems have the same ENTRY point, and same stop loss, their targets are different. We can see they all have positive expectation.
What is the difference between the above and one system that exits one third of the position at a reward of 1x, 2x and 4x the risk?
I've thought about this scenario too. I think for a lot of methods, scaling out smoothes out the equity curve and makes it psychologically easier to trade but isn't necessarily optimized for profit. I've gone back and forth with this issue more than once in my trading. Interesting topic indeed!
So last week we test the 84 level, after testing it the previous Friday 84.66, with 84.05 on Wed, 84.22 on Thurs, and 84.13 on Friday before finishing slightly above 86 going into the weekend.
The trend had been for the last several fridays to rally slight for some early econ number or equities open, and then sell off, and close the week on a weak note, so this was a change.
Again, just look at RBOB for your answer, this product was up over 3%, probably on east coast and low inventory supply concerns, this pushed brent up, and pulled the weaker wti up as well.
Some analysts think the 4th qtr low had been put it, to soon to tell as we are still in a downtrend that started with the 5 dollar dump from 99 on that black monday when crude dropped 3 dollars faster than your dom could reset.
since, then we tested the 93.50-93.88 upside, and were rejected and with major proftit taking in every asset class since then as lots of asset managers from s&P to silver said to themselves, am i really going to get much better than this, and started unwinding positions and basically closing up shop for 2012 (sure we will make another push up, by managers still running behind their peers) but after that surprise job number when the s&p futures exploded managers thought to themselves - far exceeded my yearly target - good as 2012 is going to get = sell.
So crude hasn`t had a lot of help from anyone wanting to push up the other asset classes, Iran news has been benign, inventories swelling, high gas prices taking toll, so nobody has really committed to building a large position long in crude.
The result just several short covering rally`s that last a couple of days or so, no long conviction, so it seems until proven otherwise we are still in a downtrend, and haven`t gotten to the level where it is a 'no brainer" to buy in the 84.00`s for a major runup, i get the sense that traders are still worried that the 84 level is still vulverable.
I think we will need at least some drawdowns in inventories to get a run back to the 90`s without a middle east escalation event, and if we have builds the sharks are going to come out and try to puch this down below 84, all they need is to be close enough, and one negative euro 2-day headline worry, and boom the 84 level will break just like the 91, 88, 87 levels on this downtrend.
Gasoline inventory levels and west coast/east cost refinery issues are probably the only reason Cl has held up as well as it has so far as any middle east headling is soon dwarfed by another bearish inventory stat, either weak demand numbers or yet another oil build.
CL goes in cycles, and so the real question is when does this downward cycle end, have we seen it, another two dollars down, 4 , or more before the next Uptrend Cycle of 10-15 bucks or more in the opposite direction.
About this time last year we made a large move to end the 4th quarter, and new money came into all asset classes during the first qtr as fund managers put new money to work and wanted to get a headstart on making their yearly numbers so pushed all assets up, which crude benefitted from immensely, under the guise of Iran sanctions to juice it up beyond what consumers demand numbers would support long term and was unsustainable.
So that is something to watch for, it would seem that a middle east catalyst, namely supply disruption issues would be the catalyst necessary for fund managers to ignore swollen inventories (as they don`t matter-if you have the potential for major supply disruptions) they can get around this existing inventory question. But they will need something like this to build a case for a sustained, large bull run.
But every year crude has 15 dollar moves in both directions in cycles so i expect 2013 to be no different, that type of volitility is what keeps everybody in busines who trades crude with positional size - and I am willing to bet they will find some reasons to continue the moves from 80 to 110 in 2013.
So are done with the downtrend or not - that is the big question?
With the data at hand right now, I would say no, but things change fast in crude oil so stay alert!
The trend had been for the last several fridays to rally slight for some early econ number or equities open, and then sell off, and close the week on a weak note, so this was a change.
Again, just look at RBOB for your answer, this product was up over 3%, probably on east coast and low inventory supply concerns, this pushed brent up, and pulled the weaker wti up as well.
Some analysts think the 4th qtr low had been put it, to soon to tell as we are still in a downtrend that started with the 5 dollar dump from 99 on that black monday when crude dropped 3 dollars faster than your dom could reset.
since, then we tested the 93.50-93.88 upside, and were rejected and with major proftit taking in every asset class since then as lots of asset managers from s&P to silver said to themselves, am i really going to get much better than this, and started unwinding positions and basically closing up shop for 2012 (sure we will make another push up, by managers still running behind their peers) but after that surprise job number when the s&p futures exploded managers thought to themselves - far exceeded my yearly target - good as 2012 is going to get = sell.
So crude hasn`t had a lot of help from anyone wanting to push up the other asset classes, Iran news has been benign, inventories swelling, high gas prices taking toll, so nobody has really committed to building a large position long in crude.
The result just several short covering rally`s that last a couple of days or so, no long conviction, so it seems until proven otherwise we are still in a downtrend, and haven`t gotten to the level where it is a 'no brainer" to buy in the 84.00`s for a major runup, i get the sense that traders are still worried that the 84 level is still vulverable.
I think we will need at least some drawdowns in inventories to get a run back to the 90`s without a middle east escalation event, and if we have builds the sharks are going to come out and try to puch this down below 84, all they need is to be close enough, and one negative euro 2-day headline worry, and boom the 84 level will break just like the 91, 88, 87 levels on this downtrend.
Gasoline inventory levels and west coast/east cost refinery issues are probably the only reason Cl has held up as well as it has so far as any middle east headling is soon dwarfed by another bearish inventory stat, either weak demand numbers or yet another oil build.
CL goes in cycles, and so the real question is when does this downward cycle end, have we seen it, another two dollars down, 4 , or more before the next Uptrend Cycle of 10-15 bucks or more in the opposite direction.
About this time last year we made a large move to end the 4th quarter, and new money came into all asset classes during the first qtr as fund managers put new money to work and wanted to get a headstart on making their yearly numbers so pushed all assets up, which crude benefitted from immensely, under the guise of Iran sanctions to juice it up beyond what consumers demand numbers would support long term and was unsustainable.
So that is something to watch for, it would seem that a middle east catalyst, namely supply disruption issues would be the catalyst necessary for fund managers to ignore swollen inventories (as they don`t matter-if you have the potential for major supply disruptions) they can get around this existing inventory question. But they will need something like this to build a case for a sustained, large bull run.
But every year crude has 15 dollar moves in both directions in cycles so i expect 2013 to be no different, that type of volitility is what keeps everybody in busines who trades crude with positional size - and I am willing to bet they will find some reasons to continue the moves from 80 to 110 in 2013.
So are done with the downtrend or not - that is the big question?
With the data at hand right now, I would say no, but things change fast in crude oil so stay alert!
Agreed, I don't believe for one moment it's wrong, it just never worked well for my style of day trading.
I think for swing trading it might be a good option for me, but I only swing trade equities/ETFs not oil; I find CL's swings to be too erratic day-to-day. I have a precision method of scalping where all in/all out just makes way more sense for me.