Emotions in trading

[easymon1]

what other goal does a trader need to have?

The ability to 'walk the talk' and manifest the goal.

 

[easymon1]

4 ticks a day times 100ES contracts is $1 million per year.

What do you need in order to make '4 ticks a day' happen?
In a word, What are you waiting for?
"If Wishes were Horses
Beggars Would Ride."
Some old dude.

 

[hilmy83]

Question from SML:

1. When you are scalping and adding to losing trades how do you determine to go for 1 or 2, or.....8 points? Do you hold for more points (greater than 1 point) when you need the profits to recover a scaling in loss?

There are three things about every trade: Probability, Risk, and Reward.
If volatility is low and market moving slow…bars are small..I go for less points but will increase size. High probability usually means less reward and more risk.

Scaling into a losing position aka averaging down is done to increase the probability that the trade will end up a successful trade. How is that? It sounds counter intuitive to do so and well it ….actually is actually counter intuitive. So how does scaling in increase probability? It does so because it lowers the amount of distance price has to travel or move to get you into profit compared to the distance it has to travel to get your initial position back in profit. You may actually lose on that initial position or BE on it but your subsequent entries will pull you into profit. That is the idea. Of course like anything else it doesn’t always work. None of us can be 100% sure that our initial entry is the exact perfect entry. We have our setups but none if us can be sure the market will accommodate our setups and render us a profit. In very short-term trading averaging down very often works if the larger context supports doing so because it deals directly with the uncertainty of the markets and our initial entry. It should not be done on a whim as the context must be right. The idea is to increase probability of making money on that trade overall even though you may in fact lose or BE on some of the contracts.

What makes it often work are two things:

1) implementing it in the right context

2) the tendency of the market to probe all session long back and forth searching for fair value and places where more transactions will take place.

Now we have to understand if we increase the probability that the market will reach a profitable point by averaging down (because it will now have to travel less distance to render a profit) before it reaches our SL then we are affecting the other two things in our trade, namely we are increasing our Risks and reducing our Reward in terms of distance in points and money in points PER Contract. But the way we overcome this is by increasing our size. That gets us enough reward to make the trade profitable. So there are always tradeoffs. Rarely can any of us make the perfect trade i.e. small risk, high probability, big reward. So, if we take a position and subsequently add to that position before exiting it, as it moves against us, then we are increasing our probability of making money on the trade but at the same time we are increasing our risk as we are adding more contracts. And since the market has moved against us we are also reducing our reward in terms of points or travel distance. That is we should not expect to hit the profit target of our original and initial entry. The market has moved against me and will require a bigger move in distance to make the amount points I was trying to originally make.

Now to answer your question. No, I don’t typically go for more points to make up for a previous loss. But it really depends on the volatility of the moment. But typically I will:

1) increase the size of the position on my next trade, without averaging down, and get my loss of the previous trade back in one or two trades but will trade for LESS points, not more. Thus I am increasing the probability but reducing the reward per contract and increasing my risk as the position size is bigger. But the size is what makes my previous loss back. For instance if I lost on 3 contracts of ES if conditions appear ok I will double to 6 contracts. The distance needed for another 3 contracts to give back my loss from the first 3 contract loss is bigger as opposed to doubling up . By doubling up I get my loss back get in 1/2 the move in terms if dustance distance.

3) if the context is conducive to averaging down I will in equal amounts at predetermined places say every 2 point move against me and wait for a probe in my favor help me recover my previous loss. So if I started with two contracts at two points against me I will add two more contracts …..so on and so one. Usually 2 or three times. Then wait for a probe in my favor.

3) if in a hurry and the context is conducive I will martingale. Say I start with one contract. on my first scale I will add 2 contracts. So now I have 3 contracts on. On my next scale I will add 6. Then I will go for a smaller move in distance so less profit per contract than say my initial PT but it has to move less now even less than equal amounts of averaging down. and soon I have my loss back and a profit. If it works out. Of course sometimes it doesn’t.

Bottom line to get a loss back i prefer to up size and go for smaller moves and if it takes 2 or even 3 trades to recover so be it. Often I can recover in one trade. The loss is made back by size not distance or points.

Anyway I am not telling or advising anyone on ET to do any of this. You asked a question and even though I may have used we, us, our, you, your I am really talking about myself and how I see and deal with the situation you brought up. It takes a lot of practice to know how and when to employ such tactics. So, don’t think I am telling you or anyone else to do this! I am not.

From forex, stocks, to futures; I'm pretty sure majority of people who has ever traded, tried this at one point in their trading journey. Averaging down, reverse with doubling up, martingaling etc...it's so ingrained in us.

But lke you said, it doesn't always work. But it will work often enough to make one be complacent and get caught one day and just lose their freakin minds and blow up.

 

[SimpleMeLike]

Good Morning hilmy83,

Question for you please?

When a trader trade without averaging or scaling in (like Volpri is describing), what does the trader do when a trade does not work? What is his or her next step after the trade loss or when it does not work?

Thank you,

 

[Sprout]

What do you think about keeping risk constant ?

Let’s say I have 10 contracts per point as my max position.

I can buy 1 @ 100 for 10 points risk,
Then buy another 1 @ 95 for 5 points risk
Average is 97.5 - 5 = SL @ 92.5
Then buy another 3 @ 94 for 2 points risk
Average is 95.4 - 2 = SL @ 93.4

…

The problem with averaging is letting the risk get out of control.

Sometimes you just have to accept the loss which I am pretty sure you know how to do.

Good luck with averaging down, on the long side, btw 9:30 and 10:30 ET today xD

…

Really liked how you broke a trade down in three components (Risk, Reward and Probability) and the interplay btw them.

That’s really the core of trading.

Less risk means more size.
Contracts / Points
Totally agree !

No. Unless you’ve already defined an entry at the lower prices for the long.

The strategy you’ve outlined is increasing your risk in a trade that is moving against you.

It’s easier to manage risk having max position at the beginning of a trade and take partials as it moves in your favor.

 

[Sprout]

From forex, stocks, to futures; I'm pretty sure majority of people who has ever traded, tried this at one point in their trading journey. Averaging down, reverse with doubling up, martingaling etc...it's so ingrained in us.

But lke you said, it doesn't always work. But it will work often enough to make one be complacent and get caught one day and just lose their freakin minds and blow up.

Experience talking..

 

[hilmy83]

Good Morning hilmy83,

Question for you please?

When a trader trade without averaging or scaling in (like Volpri is describing), what does the trader do when a trade does not work? What is his or her next step after the trade loss or when it does not work?

Thank you,

I personally do S&R (stop and reverse) because I trade opening range breakout setups. I'm betting on that price range to expand right off the high volume open.

 

[SimpleMeLike]

I personally do S&R (stop and reverse) because I trade opening range breakout setups. I'm betting on that price range to expand right off the high volume open.

Hello hilmy83,

Exactly, you would have personally kept on trading, even though you loss on the last trade.

The same applies to those who scale in, if they take a loss, keep on clicking and recover the loss.

No matter what, have to keep on clicking.

If a trader average in, and refuse or do not know when to exit for a loss, that trader is being irresponsible.

If a trader average in, and exit for a loss and does not how to recover the loss/drawdown, that trader is being irresponsible.

We all keep running from the drawdown and loss recovery and replaces it with allllllllll other excuses.

In case anyone forgot, we are Guessing Ass Day traders, better getting use to losses and pain, no matter how you trade.

 

[volpri]

From forex, stocks, to futures; I'm pretty sure majority of people who has ever traded, tried this at one point in their trading journey. Averaging down, reverse with doubling up, martingaling etc...it's so ingrained in us.

But lke you said, it doesn't always work. But it will work often enough to make one be complacent and get caught one day and just lose their freakin minds and blow up.

Yes it can happen….blow up…blow out..blown to smithereens. It can also happen without using the techniques and in fact probably does way more than using them since most traders don’t use them and blow up anyway, if we are inclined to believe the stats of failed day and intraday traders. The deal is; using the techniques the blowout can happen really fast. Again if a trader doesn’t know the context in which to do it in then it foolish to do it. Many who have tried it I suspect did it on a whim, or to just try and avoid a loss, or revenge trading. And not to increase probability.

Such lost souls are throwing good money after bad. The context has to be right and a trader has to know how to use it and when. For instance, yesterday morning using it (averaging down) going long was potentially the death of an account but using it (i.e. averaging down or scaling in if the semantics are too hard to swallow lol) going short was printing money over and over. Much more than just trailing one position down to the bottom. That is, entries and exits over and over in a big move make more than one entry with a trailing exit for the entire move. Again because of the phenomena of probing during the move.

As concerns doubling up when I find myself on the wrong side of the market in terms of direction and am losing then I often just exit, take the loss, double up, reverse direction and have a higher probability of getting back my loss with 1/2 the movement needed as opposed to reversing with the same size position as used on the losing trade. Higher probability yes…but it means more risk on and likely less reward in terms of distance traveled for PT, but quicker to get back a loss and print some money. If price continues in my favor after reversing and doubling up I can always get back in but I have cleaned out the loss and quickly. I am not waiting and struggling all session long to get back a loss and end the day profitable.

This works for me because of the context and the probing for fair price and the probing for increased transaction points. However I also have to understand the proper SL placement or it becomes a losing strategy even IF I get the doubled up direction correct. And I cannot be greedy. Don’t hold a doubled up position for big movement unless momentum is strong. Just get the loss back and maybe print some money then reassess for a new trade. I don’t want to get whipsawed on a double up position because of the market probing and bad SL placement or me being greedy. If the market gives me back my previous loss I grab it then go from there…maybe a new trade right away maybe wait for a new setup. There is nothing more disgusting as an intraday trader scalping than the market than getting back a previous loss and not taking it because of greed to then only see it evaporate and even worse suddenly get stopped out on an even bigger loss. Greed has compounded the loss.

 

[Sprout]

Yes it can happen….blow up…blow out..blown to smithereens. It can also happen without using the techniques and in fact probably does way more than using them since most traders don’t use them and blow up anyway, if we are inclined to believe the stats of failed day and intraday traders. The deal is; using the techniques the blowout can happen really fast. Again if a trader doesn’t know the context in which to do it in then it foolish to do it. Many who have tried it I suspect did it on a whim, or to just try and avoid a loss, or revenge trading. And not to increase probability.

Such lost souls are throwing good money after bad. The context has to be right and a trader has to know how to use it and when. For instance, yesterday morning using it (averaging down) going long was potentially the death of an account but using it (i.e. averaging down or scaling in if the semantics are too hard to swallow lol) going short was printing money over and over. Much more than just trailing one position down to the bottom. That is, entries and exits over and over in a big move make more than one entry with a trailing exit for the entire move. Again because of the phenomena of probing during the move.

As concerns doubling up when I find myself on the wrong side of the market in terms of direction and am losing then I often just exit, take the loss, double up, reverse direction and have a higher probability of getting back my loss with 1/2 the movement needed as opposed to reversing with the same size position as used on the losing trade. Higher probability yes…but it means more risk on and likely less reward in terms of distance traveled for PT, but quicker to get back a loss and print some money. If price continues in my favor after reversing and doubling up I can always get back in but I have cleaned out the loss and quickly. I am not waiting and struggling all session long to get back a loss and end the day profitable.

This works for me because of the context and the probing for fair price and the probing for increased transaction points. However I also have to understand the proper SL placement or it becomes a losing strategy even IF I get the doubled up direction correct. And I cannot be greedy. Don’t hold a doubled up position for big movement unless momentum is strong. Just get the loss back and maybe print some money then reassess for a new trade. I don’t want to get whipsawed on a double up position because of the market probing and bad SL placement or me being greedy. If the market gives me back my previous loss I grab it then go from there…maybe a new trade right away maybe wait for a new setup. There is nothing more disgusting as an intraday trader scalping than the market than getting back a previous loss and not taking it because of greed to then only see it evaporate and even worse suddenly get stopped out on an even bigger loss. Greed has compounded the loss.

All strategies can work if the market conditions are right.

For example, just having a small account (weekly swept) where one engages in high risk tactics can be an effective firewall.

In theory only the balance of that account is at risk for catastrophic loss and liquidation.

The psychological effects ripple beyond the firewall though and require different tools.