Quote from RAMOUTAR:
Harrytrader...you never cease to amaze me. Yes...probability is an essential component, and well stated. Unfortunately, the closest proving ground for probability is backtesting. While backtesting is valuable...hindsight can never take the evolution and the uncertainty of the future in its account. Probability from my experience, is more closely compared with the repetition of cycles. I draw my daily plays from a trading stable, and since these are stocks that I watch day in and out, I have a clearer perception of the probability in the stock's move, compared to someone who watches it less frequently. Be well, Harry.
Harrytrader has a very good point. He talks about clear determination of a physical R:R ratio.
You don't sound like that. You say: "Unfortunately... backtesting... Probability from my experience is more closely compared with the repetition of cycles... Since these are stocks that I watch day in and out, I have a clearer perception of the probability in the stock's move, compared to someone who watches it less frequently..."
You sound like you are yourself extremely discretionary in your approach to determining R:R ratios! I think this is a bit of an irony, considering the amount of effort you put into declaring the importance of due diligence (which I fully agree with).
If you didn't get it yet, I'll make my point clear: I am a "discretionary" trader, too, yet have I still tested every possible R:R ratio in very arduous and time-consuming backtesting, so that when I apply them discretionary, I have "in my head" what would be the probable outcome. It isn't just perception. Now to really make the point finer: I trade futures, and I preferably fully focus on 1 index at a time. I like to trade 1 issue, and completely specialize, so I know and understand every single breather that index does. With so much "experience", would you say I "could have a clearer perception of the probability of the move?" Well, you probably would, but I still say it's not sufficient. You really need to hand-test and crunch your ratios IMO, or you won't be able to top-perform. You seem to apply lots of discretion here, but I suppose that's because you're trading stocks. If you were into futures, you would realize that so much "discretionary tolerance" wouldn't be welcome there at all. It's a very tough and competitive market, and you bet every kid there knows their ratios in and out!
While this may not matter so much in the very inefficient stock markets, I think it would still make a considerable difference to improving performance. For example, why not test all the R:R's on all the issues you trade and only focus on those 10 issues that deliver the highest R:R's on a regular basis?
Just my 5 cents, anyway. I think harrytrader had some good points.
As for plumlazy: Awesome quotes! I am quite plumlazy myself, so I hope you don't mind me stealing/borrowing them for my signature to remind myself? Thank you, I'm sure no one will notice, anyway. You are a legend, plum!
