Oh No, NOT Another S&P EMini journal...

Quote from goodday:

I had a chance to read a little bit about "martingaling" over the weekend. I don't believe I would be interested in doubling my position after I have a loss and I don't like either the assumptions behind it or the increased risk that comes with the execution of this principle. Maybe I don't understand it well enough to appreciate its finer points, but I think I will pass on it.
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Whether Martingale approach would work, depends on the expectation ratio. The most important thing to remember is that in a casino you rely on pure luck as there is a max bet size that prohibits a calculated gambler from eventually succeeding, if luck turns sour. So let's assume that after 8th draw you have reached the ceiling and have to start from the beginning, that is a strategy that relies on luck of the draw, therefore it sucks.

But in a trading environment, markets are locked within multiple temporary TIGHT price ranges, creating multiple support and resistance levels. Identifying the most tradable S/R levels will increase the odds of success in applying the Martingale within 2-3 attempts to breakout of these levels, as markets will never be locked in those TIGHT ranges. If your system somehow relates to S/R breakouts, then one can look into Martingaling, I do.

Example: It is 5:46am EST now and ES is trading a range of 84/80.75, would I use Martingale upon a break of one of these levels, I wouldn't. Of course eventually it will make a breakout, but upon which time? 2?4?6?10?18? I have no idea on the expectation ratio. On another hand, if one has a max probability of 3-4, I say Martingaling is usable. Everything depends on back-testing, position/money management and being able to identify the right TIGHT S/R ranges.
 
Quote from romik:

But in a trading environment, markets are locked within multiple temporary TIGHT price ranges, creating multiple support and resistance levels. Identifying the most tradable S/R levels will increase the odds of success in applying the Martingale within 2-3 attempts to breakout of these levels, as markets will never be locked in those TIGHT ranges. If your system somehow relates to S/R breakouts, then one can look into Martingaling, I do.... Everything depends on back-testing, position/money management and being able to identify the right TIGHT S/R ranges. [/B]
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Thanks for that explanation. It helps to understand the nuances and consequently apply the principles more accurately for positive results.
Now what I am left with is this: will this technique add substantially to my arsenal of trading tools?
My methodology is to forget what I did in the last trade... win lose or draw. That is, next trade is determined by the conditions the market presents me at that time, not whether I lost or gained in the previous trade. The slate is clean after each trade. Given this frame of reference, the number of contracts I trade next time is entirely based on how confident I am on that new opportunity to trade, not whether it is "time" to double up. Maybe we are essentially saying the same .... that is, you double up just when I am feeling that the next trade is being confirmed by multiple signals. I don't know.
Generally, though, it seems like I need to change my thinking and remember my losses and take action as a reaction to that outcome.... I AM NOT COMFORTABLE WITH TRADING IN THAT PSYCHOLOGICAL FRAME.
I certainly welcome and appreciate any comments or observations.
 
Quote from KRSNA:

...Increase size after a loss or average a loss or add to a loss and wipe out is an absolute definite mathematical certainty. No matter how many times you get away with it. A total wipe out is one day coming once you add to losers.
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For an experienced trader like yourself, this is a poor observation. There is a difference between risking 2% TC per trade all in and initial risk of say 0.2% and scaling in over a period of time and potentially losing same 2%. What's a losing trade in one TF, could very well be a winning trade in a longer one, depends on a trader's ability to manage capital and obviously having an ability to differentiate between winning and losing set-ups, whatever TF that might be. I think GD has said he does not have an edge, that's interesting.

EDIT: What calls for a realisation of a losing trade? Max risk to TC. That is the bottom line. But, there is another angle on this. If a max loss per trade has been reached, but your system is showing even a stronger signal, what would you do after closing the initial trade? That could be a matter of a wrongly time entry, hey, that happens to all good traders on regular basis. And that is not necessarily a personal error in judgement, markets can not be "predicted" with perfection. No matter if you are a trend trader or/and counter one. Therefore it is imperative to have an edge that provides higher odds of success vs failure.
 
I have made a deep study of money management over the years. This study involves thousands of trades. Here are some valuable numbers that may help you know if you have a good strategy.

1. PF will be above 2.0 over 500 trades at least. This is all you need to know about a trader if you want to learn anything from him. Goodday has just posted some daily losses which means I can calculate his daily PF. It is currently approx PF 4.55 on a daily basis. You can also calculate on a trade by trade basis. Excellent Goodday!

So know that you can learn from him.

2. A good strategy WILL ALWAYS recover from a drawdown within 25 trades of entering it. That is from equity high to new equity high. Ideally 15 trades or less.

3. A good strategy can have as many as 7 losses in a row, but rarely more. Usually 4 losses in a row over 2000 trades is what I like.

4. No surprize BIG single losses. Several small losses are better than one big one.

5. Once you are consistent (1000 -2000 trades) these averages will hardly move. Average per trade. Average per loss. Average per win. PF.

6. The least important factor in futures trading is capital. Give a consistent trader with a PF of 4.0 $10,000 and he will be able to take it to the limit of contracts he is comfortable with.

7. Always reduce size after a loss and increase size after a win.

8. Learn how to compound.

9. Also have fun when accepting a loss. Remember a big loss will be a story you will laugh at later, if you survive. Laugh at small losses now and you will trade till you die!

10. Practise Single-Pointed-Concentration. Trade in the present moment where there is no fear.
 
Quote from romik:

For an experienced trader like yourself, this is a poor observation. There is a difference between risking 2% TC per trade all in and initial risk of say 0.2% and scaling in over a period of time and potentially losing same 2%. What's a losing trade in one TF, could very well be a winning trade in a longer one, depends on a trader's ability to manage capital and obviously having an ability to differentiate between winning and losing set-ups, whatever TF that might be. I think GD has said he does not have an edge, that's interesting.

EDIT: What calls for a realisation of a losing trade? Max risk to TC. That is the bottom line. But, there is another angle on this. If a max loss per trade has been reached, but your system is showing even a stronger signal, what would you do after closing the initial trade? That could be a matter of a wrongly time entry, hey, that happens to all good traders on regular basis. And that is not necessarily a personal error in judgement, markets can not be "predicted" with perfection. No matter if you are a trend trader or/and counter one. Therefore it is imperative to have an edge that provides higher odds of success vs failure.
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Scaling in is usually practised by traders using divergence signals, or where the market retraces to support and adding to position is a good plan. Obviously a very low use of capital and treating the scaling as a single trade within strict rules is fine as long as it does not destroy your PF.

The problem is it can lead to a large loss. That destroys the PF. As long as that does not happen averaging is OK.

One big loss really sets my compounding back as the maths must take into consideration the type of risk I accept. I would rather get to where I want with several small risk trades.

In the end if your PF stays healthy with scaling you have a good strategy.
 
New Month, New Thoughts and New Directions for this thread:

After much thought I have decided to not post the trading details of my regular account, though I will continue to do most of my trades in that account.
I started a new account with $20,000 TC. The future posts will reflect the action in this new account. This will create a transparency that will enable every one to do their own calculations, evaluations etc. I am not going to promise that my regular account will mirror this account in trades, because I am not YET sure where I am going with this. So take this account on its own merits.
 
Can you please explain what you mean by

8. Learn how to compound.

Thanks
mishwar

Quote from KRSNA:

I have made a deep study of money management over the years. This study involves thousands of trades. Here are some valuable numbers that may help you know if you have a good strategy.

1. PF will be above 2.0 over 500 trades at least. This is all you need to know about a trader if you want to learn anything from him. Goodday has just posted some daily losses which means I can calculate his daily PF. It is currently approx PF 4.55 on a daily basis. You can also calculate on a trade by trade basis. Excellent Goodday!

So know that you can learn from him.

2. A good strategy WILL ALWAYS recover from a drawdown within 25 trades of entering it. That is from equity high to new equity high. Ideally 15 trades or less.

3. A good strategy can have as many as 7 losses in a row, but rarely more. Usually 4 losses in a row over 2000 trades is what I like.

4. No surprize BIG single losses. Several small losses are better than one big one.

5. Once you are consistent (1000 -2000 trades) these averages will hardly move. Average per trade. Average per loss. Average per win. PF.

6. The least important factor in futures trading is capital. Give a consistent trader with a PF of 4.0 $10,000 and he will be able to take it to the limit of contracts he is comfortable with.

7. Always reduce size after a loss and increase size after a win.

8. Learn how to compound.

9. Also have fun when accepting a loss. Remember a big loss will be a story you will laugh at later, if you survive. Laugh at small losses now and you will trade till you die!

10. Practise Single-Pointed-Concentration. Trade in the present moment where there is no fear.
More...
 
Two long trades since 7 AM (EST):

1. scaled in 2+1+1+1 = 5c Long
2. scaled in 3+1+1= 5c Long

Closed both trades for a net profit of $181.00
 
One long trade since 8 AM (EST):

1. scaled in 2+2 = 4c Long

Closed for a net profit of $11.00

Need to go flat right now, before 8.30 news.
 
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