Very well stated
virtusa
Risk Management is the answer
- Thread starter Wide Tailz
- Start date
virtusa
It's a rookie mistake to place your faith in the entry by itself. The "edge" is a package that includes a very strict exit for many different scenarios... Try that back test again with no loss limit and tell me that equity curve is really usable in the real world!
Advice for new traders:
"Find a superior trader to trade for you, and do something you really love ....... otherwise cut losses, cut losses, cut losses. If you can do this, you may have a chance." Ed Seykota
"Don't focus on making money, focus on protecting what you have" Paul Tudor Jones
"Do nothing, absolutely nothing, until you know what you're doing... until there is something to do" Jim Rogers
"My philosophy is that all stocks are bad. There are no good stocks unless they go up in price. If they go down instead, you have to cut your losses fast." William O'Neil
Advice for new traders:
"Find a superior trader to trade for you, and do something you really love ....... otherwise cut losses, cut losses, cut losses. If you can do this, you may have a chance." Ed Seykota
"Don't focus on making money, focus on protecting what you have" Paul Tudor Jones
"Do nothing, absolutely nothing, until you know what you're doing... until there is something to do" Jim Rogers
"My philosophy is that all stocks are bad. There are no good stocks unless they go up in price. If they go down instead, you have to cut your losses fast." William O'Neil
He cares not for the cares of this world, but for your soul.......
After 25 years of daytrading forex and futures, I am not a rookie anymore.
Second, I posted an extensive post with mathematical proof that a good entry matters a lot. I never said that a good entry alone is the holy grail. I just said that a good entry is more important then risk management, to make profits. Good entries can make profits, good risk management cannot make even a dime.
I don't have to backtest anything, I get confirmation on a daily basis that a good entry increases the generated profits a lot. I never made any money with risk management. It just protected my capital. A rookie can have another opinion...
IMO you are both correct,
Which of the 2 is more important depends on what strategy we use to trade.
I don't agree.
If I would change my entries with a 10% worse entry, I would lose 12.18% of my net total result. The 10 % is calculated by taking 10% off the average net profit per winning trade.
If I would change my entries with a 20% worse entry, I would lose 28.03% of my net total result.
Bad entries reduce my net profits massively, and a good risk management cannot compensate that except if you have few winning trades or big losses.
The bad entries would reduce the margin of my stop, which means that I would be stopped out earlier. So less winning trades, and each winning trade would have smaller profits because of the bad fills of the entries. Each trade can lose 1-3 points because of bad entries.
You need to understand the impact of a 1 points improvement of each average win to understand why the entries are so important.
Ok I agree with you 100%. I understood what your strategy was from your earlier posts and none says that you should change your trading or that your entries are less important than Money management.
"Wide Tailz" was mostly referring to only 1 aspect of trading which is capital preservation and not focusing on any particular strategy.
Good risk/trade mgmt is what separates the winners from the losers over the long run.
A broker analyzed 43 million trades. The win rate was surprisingly high at 61% on some symbols & well over 50% on others yet the majority were losers simply due to their losers being far larger than their winners. Had they a a risk-to-reward as low as 1:1 most would have been profitable.
It is not the entry signals that doom the vast majority - it is piss poor risk/trade mgmt. This is something within our control.
https://finance.yahoo.com/news/why-many-forex-traders-lose-070700862.html
A broker analyzed 43 million trades. The win rate was surprisingly high at 61% on some symbols & well over 50% on others yet the majority were losers simply due to their losers being far larger than their winners. Had they a a risk-to-reward as low as 1:1 most would have been profitable.
It is not the entry signals that doom the vast majority - it is piss poor risk/trade mgmt. This is something within our control.
https://finance.yahoo.com/news/why-many-forex-traders-lose-070700862.html
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If you have not at least a 1:1 risk-to-reward, you should not be trading.
If you analyze/conclude based on winning rate, you have no clue about trading. Expectancy is what counts. Look up what that is.
Risk reward depends from the difference between exit and ENTRY. So entry is important and essential to calculate risk reward. So what you say makes no sense.
You stated he should improve his risk reward. Ever thought about the fact that the entry might maybe have an influence on risk reward?
Good entry and exit can generate profits. Risk managment can only reduce losses, it can NEVER generate profits.
I have no risk management at all and survive 25 years of trading. Each trade I go full in. So no playing with size.
I have only a hard stop.You cannot call that risk management. Even a 5 year old child can do that.
PS: A lot of these "traders" are not qualified at all to be trading. No wonder so many fail. That is the main cause. If you have a $100 account you can already call yourself a "trader".
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There are so many things that count in the success of a forex trader. From a proper risk management strategy to opening positions at the right time, a trader needs to be an expert at everything. It might take some time but if you are serious about it, there’s no looking back.