I don't pretend to understand everything said in the book. Some I understand but I don't know how to make use of.
Can you elaborate how you apply what you quote in your trading?
I trade 1 ES
- Thread starter random trader
- Start date
I don't pretend to understand everything said in the book. Some I understand but I don't know how to make use of.
Can you elaborate how you apply what you quote in your trading?
In your case a bad trade costs you a minimum of $1000. Mininum because you do not use a hard stop. A good trade makes $400. So in your case a bad trade ALWAYS costs you more than a missed trade.
But the problem at the heart of your method is exactly the undertone expressed here. You set a very wide, soft stop because you're 'fearful' that IF you're stopped, you cannot or will not get back in. You get in early because you're 'fearful' that if a move starts that you expected, you cannot get in.
The truth is that if you trusted yourself and your methods, you could sell at any time once a worthwhile move started in your direction. If you're willing to ride the move 20 points against your position, why would you not be willing to sell a few points cheaper?
Something to ponder: IF it's really true that you're ALWAYS early, then why not simply wait a while before you sell? In this case, you could have sold Friday, at any point, higher than you sold the Friday before.
OldTrader
There are three kinds of missed trades I know about:
Hopefully you are not worried about this third one. If it leads to trades outside the system, it is destructive. If it leads to the creation of new system, it can be constructive.
- Sleeping (literally, or figuratively) during entry signal
- Used limit order for entry, not filled
- Outside of system
Hopefully you are not worried about this third one. If it leads to trades outside the system, it is destructive. If it leads to the creation of new system, it can be constructive.
It has been my observation by now that the average poster on this board has rather limited knowledge about statistics. It's very hard, if not impossible, to win in this game if you are not proficient with statistics. OldTrader, please don't take this personally.
If you talk about the size of win vs. loss without considering the probability of win vs. loss, I suggest we all stop trading and go buy lottery tickets. A good buy makes millions, while a bad buy only cost you $1.
I could change to a system which always gives late entry, or a mix of early and late entry, but there is no guarantee that the loss from being late is smaller than the loss from being early.
A system that's early is trend fading, and a system that's late is trend following. These is no evidence that one works better than the other.
Ok then, what is your probability of winning, and how did you arrive at the number? To gain 8 points while risking 20, you'd need 5 wins for every two losses to break even, or a success rate of 71%.
I keep track of my trades in a spreadsheet so I can do this.
For one method, I have a 33% chance. For another, I have a 50% chance. Again this is based on trades I have made.
This experiment is ongoing and the number is what I am trying to find out. However, TGregg provided some insightful statistic to show that my system should be extremely close to breakeven. I am trying to make improvements from there.
It's on page 3 of this thread. How many had the patience to read from the beginning?
Where in your original quote did you even remotely mention statistics or probability? You did not mention that the probability of a missed trade succeeding was higher than the probability of a bad trade occurring. What you said was that "missed trades cost you more than bad trades". Evidently you're more proficient with statistics than you are with English.
But one further comment....proficiency in statistics has little to do with successful trading.
OldTrader
Even though English is my second language, I would argue "missed trades cost you more than bad trades" means "all your missed trade as a whole cost more than all your bad trades as a whole", not "each missed trade costs you more than each bad trade". Correct me if I am wrong.
During the discussions, I assumed we all had probability considered and included in the calculation because I have brought it up so many times on this thread. Did not think there was a need to point it out explicitly every time. I was wrong.