Pete's Place
- Thread starter PetaDollar
- Start date
Right now my exits are haphazard and emotional. But here's where i'm headed: exits tailored to the particular type of trade, tailored to the current market. So i will target the next S/R zone, the next countertrend line, something like that. Also, sometimes I get a good trade signal in the opposite direction, that is another good reason to exit, if not reverse. So the answer to your question is: not necessarily.
Looks like I won't trade tommorow (Weds), and will be away until next Weds.
I want to leave a homework assignment for those interested!
It's a quantitative way to find out how good your entries are, without regard to how good (or bad) your exits are.
You can compare your different entry methods, and you can also compare your entries to other traders entries. You get a dimensionless number for an answer, so you can also compare different instruments(ES, NQ, ZB...).
Instructions: for each of your trade entries, find the max favorable excursion (MFE), and the initial stop points. Sum the MFE's. Divide by the sum of the stop points.
Note: as shown on my spreadsheet a few posts back, I do the calculation for several different stop loss values.
When you calculate this ratio, you are finding out how much favorable movement is costing you in terms of risk.
For random entries, you get a number slightly less than one. That's because of the spread; equally likely to move either way, but you start out losing a half point.
Now comes the fun part... let's compare ratios...
For my "Trend Touch" entries i'm getting about 1.25. I don't think that's so good. But it beats random at least.
For S/R trading i'm getting a ratio between 2-3. Many less trades so I can't trust this number just yet.
I'm VERY interested to hear what other traders get for this ratio!
The question is...
What's good?
I want to leave a homework assignment for those interested!
It's a quantitative way to find out how good your entries are, without regard to how good (or bad) your exits are.
You can compare your different entry methods, and you can also compare your entries to other traders entries. You get a dimensionless number for an answer, so you can also compare different instruments(ES, NQ, ZB...).
Instructions: for each of your trade entries, find the max favorable excursion (MFE), and the initial stop points. Sum the MFE's. Divide by the sum of the stop points.
Note: as shown on my spreadsheet a few posts back, I do the calculation for several different stop loss values.
When you calculate this ratio, you are finding out how much favorable movement is costing you in terms of risk.
For random entries, you get a number slightly less than one. That's because of the spread; equally likely to move either way, but you start out losing a half point.
Now comes the fun part... let's compare ratios...
For my "Trend Touch" entries i'm getting about 1.25. I don't think that's so good. But it beats random at least.
For S/R trading i'm getting a ratio between 2-3. Many less trades so I can't trust this number just yet.
I'm VERY interested to hear what other traders get for this ratio!
The question is...
What's good?
Hmm, no one wants to do any homework! 
Well, i'm tallying up the ratio for the famous 3-bar breakout method, since it's a widely used method. I'd like to see how I compare to it.
Also attached are my trading rules. The last time I had a really bad day and traded like a dummy, I swore I'd never trade $$ again until I had (1) a written set of rules and (2) a profitable month on the sim. Still working on #2!
Some notes about the rules. Page 1 is my general trading philosophy. Starting on page 2 is the actual entry and exit rules. The last page, "daily reminders", could also be called "lessons learned"-- these reminders come from costly mistakes i've made in the past.
Disclaimer: I am not advising the reader to trade futures, stocks, or any other financial instrument with these rules or derivations thereof. This document is provided for educational purposes only. The rules and the trading process have not been shown to work. Any use of the rules or derivations thereof is solely at the reader's risk.
Well, i'm tallying up the ratio for the famous 3-bar breakout method, since it's a widely used method. I'd like to see how I compare to it.
Also attached are my trading rules. The last time I had a really bad day and traded like a dummy, I swore I'd never trade $$ again until I had (1) a written set of rules and (2) a profitable month on the sim. Still working on #2!
Some notes about the rules. Page 1 is my general trading philosophy. Starting on page 2 is the actual entry and exit rules. The last page, "daily reminders", could also be called "lessons learned"-- these reminders come from costly mistakes i've made in the past.
Disclaimer: I am not advising the reader to trade futures, stocks, or any other financial instrument with these rules or derivations thereof. This document is provided for educational purposes only. The rules and the trading process have not been shown to work. Any use of the rules or derivations thereof is solely at the reader's risk.
One thing I've noticed about candlesticks as I flip through the different time periods: the good signals tend to show themselves, in some way, on all or many different time frames. The bad signals will only show up in one or two time frames.
In particular i'm talking about long shadows as signals for turning points. In other time frames, i'll still see long shadows, or "stop lights" (I don't know the real name), where you have a long green bar next to a long red bar. (In bar chart terminology they're called pipe tops/pipe bottoms.)
I've been using the adv/dec line (1-5 min chart) as a filter very succesfully. For instance, the past two days we've had intraday highs in price but with the a/d line failing to make a higher high. Both times great short opportunities followed.
In particular i'm talking about long shadows as signals for turning points. In other time frames, i'll still see long shadows, or "stop lights" (I don't know the real name), where you have a long green bar next to a long red bar. (In bar chart terminology they're called pipe tops/pipe bottoms.)
I've been using the adv/dec line (1-5 min chart) as a filter very succesfully. For instance, the past two days we've had intraday highs in price but with the a/d line failing to make a higher high. Both times great short opportunities followed.
Roger that.
I started working on the last piece of the puzzle today, methodical exits. Whaddaya know, +17 for the day, with only like 4-5 trades.
It was also comforting to just follow the exit rules in the heat of battle. Much less stressful.
So I just need to keep it up for the rest of the month, then I'll switch back to $$ in January.
Since I haven't seen this ratio (MFE/risk) anywhere else, I guess I invented it, which means I get to name it:
The BS Factor
"BS" stands for "Better than Stupid". Entry methods that are better than random (in terms of how much MFE you get for a given risk) have a BS factor > 1.
I just computed the BS factor for the famous 3 bar breakout method, for the NQ, week of 17 Nov. I get just about 1 (0.97 to be exact).
That's not the whole story. The winners are correlated (i.e. it works really great on trend days). So I suppose decent entry method would be to monitor 3-bar breakout for a winner, then take subsequent entries.
The BS Factor
"BS" stands for "Better than Stupid". Entry methods that are better than random (in terms of how much MFE you get for a given risk) have a BS factor > 1.
I just computed the BS factor for the famous 3 bar breakout method, for the NQ, week of 17 Nov. I get just about 1 (0.97 to be exact).
That's not the whole story. The winners are correlated (i.e. it works really great on trend days). So I suppose decent entry method would be to monitor 3-bar breakout for a winner, then take subsequent entries.
From his DAX Journal in the Forex forum. I think #7 is the most important element of trading.
1. Get out of losers quickly. Once you feel a trade is a loser, get out!. Don't try for break even or to save a few ticks.
2. If you don't like the way a trade is acting, get out. Don't wait for it to be a loser. Scratch it and move on.
3. Be patient. Don't try to make things happen. There isn't always a trade.
4. Don't trade impulsively or emotionally.
5. Don't chase, anticipate moves.
6. Admit when you are wrong.
7. Learn to recognize winning and losing trades fast.
8. Don't call tops or bottoms ( if you do play small and have a stop). Wait for higher low, or lower high.
9. Don't add to losers. Losers average losers.
10. Discipline and control are essential to success.
11. Always no how much risk you have before you put on a trade.
__________________
Mark Oryhon
V.P. Proprietary Trading
Velocity Futures, L.P.
San Felipe Plaza
5847 San Felipe, Suite 2350
Houston, Texas 77057
1. Get out of losers quickly. Once you feel a trade is a loser, get out!. Don't try for break even or to save a few ticks.
2. If you don't like the way a trade is acting, get out. Don't wait for it to be a loser. Scratch it and move on.
3. Be patient. Don't try to make things happen. There isn't always a trade.
4. Don't trade impulsively or emotionally.
5. Don't chase, anticipate moves.
6. Admit when you are wrong.
7. Learn to recognize winning and losing trades fast.
8. Don't call tops or bottoms ( if you do play small and have a stop). Wait for higher low, or lower high.
9. Don't add to losers. Losers average losers.
10. Discipline and control are essential to success.
11. Always no how much risk you have before you put on a trade.
__________________
Mark Oryhon
V.P. Proprietary Trading
Velocity Futures, L.P.
San Felipe Plaza
5847 San Felipe, Suite 2350
Houston, Texas 77057
BS Ratios for my S/R trading:
1.4 (2 pt risk) <--- good
1.3 (3 pt risk) <--- ok
0.9 (5 pt risk) <--- no better than random
This includes some nastily bad days and emotional entries, and it still beats random entries. Also note that you don't get a better BS ratio by making the stops bigger: this type of trade either works great right away or doesn't work. Trend touch seems to need a little bigger stops to work well.
The distinguishing feature of Trend Touch is that with a mechanical bracket stop/limit order for an exit of 5/10 it has a positive expectation.
For the S/R you need to judge good exits on the fly to be profitable. On the other hand it's easier to judge.
It'll be interesting to see if I can improve these numbers in the coming weeks. I believe a consistent BS ratio of 2 is possible with s/r trading, meaning you are risking only 1 pt for 2 pts of MFE.
1.4 (2 pt risk) <--- good
1.3 (3 pt risk) <--- ok
0.9 (5 pt risk) <--- no better than random
This includes some nastily bad days and emotional entries, and it still beats random entries. Also note that you don't get a better BS ratio by making the stops bigger: this type of trade either works great right away or doesn't work. Trend touch seems to need a little bigger stops to work well.
The distinguishing feature of Trend Touch is that with a mechanical bracket stop/limit order for an exit of 5/10 it has a positive expectation.
For the S/R you need to judge good exits on the fly to be profitable. On the other hand it's easier to judge.
It'll be interesting to see if I can improve these numbers in the coming weeks. I believe a consistent BS ratio of 2 is possible with s/r trading, meaning you are risking only 1 pt for 2 pts of MFE.