To reiterate the disclaimer:
The ignorant and malicious are free to reveal themselves with replies that I will not acknowledge. The inquisitive and intellectually stimulated are invited to post constructive replies, and or questions.
"Trading is WAR!"
âThose who are first on the field of battle will be rested and those who follow will be exhausted. â Sun-Tzu, Art of War.
That was the beginning of scaling for me. Everyday, I look at the market as a battlefield , I see myself as a general, and my trading dollars as an army. I see each support and resistance zone as an inevitable âhot zoneâ, a cluster of soldiers ready to attack. When comparing the strategy of war to trading, youâll see many correlations.
Before any major battle, generals drop in a small, but highly specialized and effective group of soldiers into the area that perform reconnaissance and preparation for the inevitable landing of the army. They are the ones who provide the entries and exits for the general so a battle plan can be developed. Once the information is gathered and a plan has been developed, the army is moved in. We too, seek âintelligenceâ through our analysis and scanning of the markets. Our analysis is secondary to how we interpret it and execute our actions.
No general, except for Custer perhaps, has exposed an entire army to massive or unknown risk. Every challenging battle ended in success for the general that âscaledâ his army into battle. When victory is imminent there are less groups and larger masses concentrated to a smaller number of areas, since the likelihood of defeat and or casualties have been minimized. As price action heads into support or resistance (the primary areas of battle), I establish a âsmallerâ position (on the battle field early), and then I watch the battle as the casualties of other armies are expended. Once Iâm pretty certain of the battleâs outcome (trend), I advance my armies (increase my position). By sacrificing a smaller number of troops, I not only minimize my exposure, but Iâm able to collect intelligence from the battlefield.
After entry, stop and target are predetermined, the next question is how much exposure will be used in the battle. A simple assessment of the risk reward ratio (after I have scanned) tells me what the likelihood of casualties (losses) will be, and whether or not victory in that battle, and the ability to fight another day can be achieved, while preserving the majority of the army. In essence the question, is the risk of loss outweighed by the potential of profit?
When I scan I always find marginal setups, and many times the reward potential is too great for me to pass up, in spite of the fact that the risk reward ratio may not fit my plan. To compensate for this, I added another component to my trading plan, the âexposure tableâ. Hereâs an âexampleâ:
Again this is just an example. The amount and scalability of the shares depends on the trading plan and position concentration. By using a table, I establish a position in these questionable setups with a smaller position size. If the trade goes against me, I have fewer casualties. If the trade begins to bear fruit I add to that position accordingly, not exceeding my maximum exposure for that trade. Averaging up on a long, and averaging down on a short allows me to continue adding to a position that maintains its trend. I must admit that in the beginning, I had a very tough time doing this since it was counter intuitive to buy more where I thought I should exit. After a while, I found that not only did this further refine the money, risk and trade management portion of my trading plan, but it really did wonders for my greed and fear. I satisfied the fear element by using a small position, and the greed was addressed because I had a position early on, and I have the option to add to it. For example, if the position went against me, I would lose $100 instead of $1,000. My trading became much more relaxed. If it began trending the way I wanted, I would add to the position and my average price was always better than the price I would get by closing the position out at the market price.
You may want to consider adding this to your plan, or revising it. The table will allow you to position yourself in the âmarginalâ plays, having them prove themselves, while limiting your risk exposure. The biggest challenge of course will be having the discipline to follow it.
May the trend be with you!
Previous reports:
Volume 1 â âFear and the Marketâ
http://www.elitetrader.com/vb/showt...&threadid=19559
Volume 2 â âSwitching TimeFramesâ
http://www.elitetrader.com/vb/showt...&threadid=19881
Volume 3- âElements For Successful Tradingâ
http://www.elitetrader.com/vb/showt...?threadid=20208
Volume 4 â âWhat Are YOU Looking At?â
http://www.elitetrader.com/vb/showt...=5&pagenumber=1
Volume 5- "Building a Trading Stable"
http://www.elitetrader.com/vb/showthread.php?s=&threadid=20510
The ignorant and malicious are free to reveal themselves with replies that I will not acknowledge. The inquisitive and intellectually stimulated are invited to post constructive replies, and or questions.
"Trading is WAR!"
âThose who are first on the field of battle will be rested and those who follow will be exhausted. â Sun-Tzu, Art of War.
That was the beginning of scaling for me. Everyday, I look at the market as a battlefield , I see myself as a general, and my trading dollars as an army. I see each support and resistance zone as an inevitable âhot zoneâ, a cluster of soldiers ready to attack. When comparing the strategy of war to trading, youâll see many correlations.
Before any major battle, generals drop in a small, but highly specialized and effective group of soldiers into the area that perform reconnaissance and preparation for the inevitable landing of the army. They are the ones who provide the entries and exits for the general so a battle plan can be developed. Once the information is gathered and a plan has been developed, the army is moved in. We too, seek âintelligenceâ through our analysis and scanning of the markets. Our analysis is secondary to how we interpret it and execute our actions.
No general, except for Custer perhaps, has exposed an entire army to massive or unknown risk. Every challenging battle ended in success for the general that âscaledâ his army into battle. When victory is imminent there are less groups and larger masses concentrated to a smaller number of areas, since the likelihood of defeat and or casualties have been minimized. As price action heads into support or resistance (the primary areas of battle), I establish a âsmallerâ position (on the battle field early), and then I watch the battle as the casualties of other armies are expended. Once Iâm pretty certain of the battleâs outcome (trend), I advance my armies (increase my position). By sacrificing a smaller number of troops, I not only minimize my exposure, but Iâm able to collect intelligence from the battlefield.
After entry, stop and target are predetermined, the next question is how much exposure will be used in the battle. A simple assessment of the risk reward ratio (after I have scanned) tells me what the likelihood of casualties (losses) will be, and whether or not victory in that battle, and the ability to fight another day can be achieved, while preserving the majority of the army. In essence the question, is the risk of loss outweighed by the potential of profit?
When I scan I always find marginal setups, and many times the reward potential is too great for me to pass up, in spite of the fact that the risk reward ratio may not fit my plan. To compensate for this, I added another component to my trading plan, the âexposure tableâ. Hereâs an âexampleâ:
Again this is just an example. The amount and scalability of the shares depends on the trading plan and position concentration. By using a table, I establish a position in these questionable setups with a smaller position size. If the trade goes against me, I have fewer casualties. If the trade begins to bear fruit I add to that position accordingly, not exceeding my maximum exposure for that trade. Averaging up on a long, and averaging down on a short allows me to continue adding to a position that maintains its trend. I must admit that in the beginning, I had a very tough time doing this since it was counter intuitive to buy more where I thought I should exit. After a while, I found that not only did this further refine the money, risk and trade management portion of my trading plan, but it really did wonders for my greed and fear. I satisfied the fear element by using a small position, and the greed was addressed because I had a position early on, and I have the option to add to it. For example, if the position went against me, I would lose $100 instead of $1,000. My trading became much more relaxed. If it began trending the way I wanted, I would add to the position and my average price was always better than the price I would get by closing the position out at the market price.
You may want to consider adding this to your plan, or revising it. The table will allow you to position yourself in the âmarginalâ plays, having them prove themselves, while limiting your risk exposure. The biggest challenge of course will be having the discipline to follow it.
May the trend be with you!
Previous reports:
Volume 1 â âFear and the Marketâ
http://www.elitetrader.com/vb/showt...&threadid=19559
Volume 2 â âSwitching TimeFramesâ
http://www.elitetrader.com/vb/showt...&threadid=19881
Volume 3- âElements For Successful Tradingâ
http://www.elitetrader.com/vb/showt...?threadid=20208
Volume 4 â âWhat Are YOU Looking At?â
http://www.elitetrader.com/vb/showt...=5&pagenumber=1
Volume 5- "Building a Trading Stable"
http://www.elitetrader.com/vb/showthread.php?s=&threadid=20510
)