How does a strategy allow for mistakes?
Edge
- Thread starter Yukoner
- Start date
How does a strategy allow for mistakes?
How does "only risk 1% of your account balance on any single trade" give you an edge? You're the one who brought up position sizing in an edge thread. Strictly speaking, position sizing is separate from edge. If your strategy has no edge, the only logical position size is 0%.
Many are spineless ninnies. Perhaps we shouldn't follow their example.
Optimal position sizing does not require perfect trading. If I had meant optimal trading, I would have said optimal trading. All you need is an edge (positive expectation), not faultless trading. Once you have a strategy with an edge, figuring out the optimal position size to exploit it is straightforward. Optimal position sizing has been distilled into an exact science. I've written extensively on this subject. Do the search.
I think you are missing the point.
What Yukoner is trying to accomplish is simple. Let's say my trading system is as follows, this is just a simple example :
"Buy when the price is above its 20 period moving and the R2 pivot point, AND the distance between the entry point and the R3 pivot point is 3 times the size of the stop (located at the S2 pivot point)."
Now if that distance (my exit in that case) is only twice the size of the stop or less I will skip the trade.
So yes I do not know what the price will do in advance, but I can still select trades with a 3 to 1 risk reward scenario or better, like this example shows, and ignore the other trades (because the backtest reveals that they are not profitable in the long run), before even initiating my position.
Yes, I understand. But since one doesn't know in advance what price will do, it doesn't make the slightest difference what criteria are used to select the trade unless those criteria stem from live, real-time trading. Criteria that are in the trader's head rather than in the market are smoke and can be relied on to pretty much the same extent.
Nailing is important to do. I Nail using a complete system of the market's operation.
You are an advanced beginner lets assume. Your group of potential traders could think about doing what you wrote in your post above.
I do not buy at the bottom or short at the top. Entry/exit type trading is not something I would consider at all.
I do not even do edge type trading.
Nailing means different things to different people.
I do events type trading. An event that causes me to act is what I call a turn. There are three kinds of turns and they occur in any of the four types of trends.
I find it helpful to always know what type of trend I am in. Then, knowing this, I determine a turn has occurred and I act upon the turn to do one thing: take a profit segment. Since I act the way I do I am in a new hold. This new hold is on the correct side of the market.
I have typed many morsels above. They each have one common aspect: they eliminate risk in doing nailing when an event occurs.
What I notice is that I do NOT look for tops or bottoms. I do NOT have criteria for a top or a bottom.
I only do one routine: look for lock-in on price then look for lock-in on volume then look for lock-in on an event. I act when an event occurs. I hold when only price then volume lock-in on a bar. (Lock-in means the defined name has met the expression in math that the name stands for.)
My action locks-in a profit segment and gives me a new position to hold as new profits accumulate.
At day's end, I can look back at my notes on the chart and log and I notice there are tops and bottoms and I usually (not always) have an event note at or near a top or bottom. My prints confirm my notes and logging.
From this experience I set goals. They are simple.
1. I figure out how many points I need to double. (20)
2. I figure out how many points are offerred each day. (12 is my view)
3. I figure out if I trade each day during the day I can achieve 2. that allows me to achieve 1.
4. When I look at my routine, I see I have more opportunities to nail than I need.
5. Because of 4 I never feel rushed about nailing.
6. if I nail as I can, the 5, 4, 3, 2, and 1 take care of themselves.
Today, I looked at the seconds invloved in acting; on my platform. The print showed 9 seconds.
In conclusion, I feel I have defined for me what you mentioned as risk. I feel my risk is zero and my results are good enough.
Quote from xelite777:
Pfffff....Zero risk is for amateurs, I trade with below zero risk, in other words the market PAYS me instantly when I initiate a new position. In fact, the market is the one taking all the risks when I trade, try to beat that Jack
It is for certain that I cannot beat the "walk" that you do.
It is a neat thing that you can do better than the market offer.
I have noticed how great your illustrations are of this style of trading you do.
Keep up being such a cool and great example.