Thanks for the consideration in asking.
Please feel free to answer. I'm getting quite firm with what I'm doing in my head, so I'm not scared of getting derailed and look forward to reading the answer myself.
Cool - Thanks KP
And away we go...
k p said:
with enough careful analysis, you can see which trades require a bigger stop,
My thoughts (in no particular order)
Each trade has a rationale for taking it / entering – when the trade breaks down and that rational no longer valid – breach of that is the stop loss placement – any bigger is wasting $ capital..., and burning through emotional capital
This statement has the connotation of forecasting/ predicting…, potentially even knowing – we simply can’t fall into those traps…, ever
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k p said:
High win rate and small profits per trade are almost the exact opposite strategy of low win rate but a high profit per trade.
First the whole notion of win rate
It proven that a < 50% win rate is overall profitable with correct risk (money) management
The term win rate – for *manual systematic traders (*a term MO coined that I very much like)..., is a made up fallacy/ talking point – use by shills – to entice us into buying their services / wares
No matter the win rate – we make our pay check by managing each and every trade that break downs – first and foremost…, period
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Now…, with regard to the statement overall
Winning consistency is not determined by how frequently one trades…, or how quickly one takes profits
Winning consistency is a direct result of correctly identifying the current context…, then waiting on / taking the appropriate signal(s) within that context
The amount of potential profit available is determined by the PA
The actual amount of profit realized is determined by the trader’s acumen
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Additional thought
But first – a thought on time frames
Imo the term Time Frame is a misused label – instead…, it should be called Time Sample
It all the same exact PA…, and it all contiguous – it simply a matter of the sample size we choose to break it into for our own personal consumption
I believe the term "Time Frame" erroneously leads folks to view PA as somehow discrete…, and unique to that particular TF picked
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Anyway
The way this statement is (actually both statements are) framed up – comes across as using two discrete time frames (samples) to trade from / compare results
In fact we should only ever be using / referencing one TF (time sample) to trade from / as comparison
Yet irrespective of the TF used for trading – the approach one uses should remain constant
Now…, I realize what you’re trying to say is;
There is more opportunity on a smaller TF – and yes…, potentially there is – but…, there is also the practical side
Yes HFT (computers) can…, and do – exploit these smaller TF opportunities
Humans however…, can only take so much of this crack candy before becoming overly saturated – and rendered completely ineffective…, if not (and more likely) exceedingly detrimental – to their trading
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On yet another note;
In response you mentioned scalpers – so let’s define these day trader scalpers
Scalpers…, historically…, were traders who attempted to captured the spread – that type of trading is mostly dead – HFT nailed the coffin shut...,imo
Do these scalpers still exist – likely they do…, and I nowhere near qualified to say they don’t
Day trader scalpers – which includes me – strive to capture a portion of each “move”
There are of course a handful of additional categories day traders fall into – but not germane for categorizing scalpers
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Interesting. What I mean with the first is I think that if I plan to take a REV at a key level and get in right at the level, I could almost keep a tight 2 point stop, so if price overshoots by more than 2 points, its more than likely that the reversal didn't/wont happen.
The “pat” answer would be – what does your back testing show
However it no secrete – I’m not a big fan of back testing for manual systematic traders
If every moment in the mkt unique – how the hell can one use past data for future happenings
I do think back testing (rather studying / reviewing historical data) useful for seeing/ familiarizing what past iterations of one’s decided signals look like / can morph from..., even into
It also useful in identify the evolution of an instrument’s behavior…, also with learning mkt mechanics 101
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Anyway – to address your above comment specifically
In this business…, like no other – information costs dearly
Too little costs…, as does too much
Too little – one is entering prematurely…, and with not enough supporting PA – which leads to increased losing trades (trades breaking down more frequently as one never really materialized anyway – think death from 1K cuts)
Conversely too much – one is entering too late – price has moved away from the correct stop loss placement (where the trade breaks down / reason for entering no longer valid) consequently risk has increased
Incidentally regarding this last one – the potential profit (move that can be exploited) is reduced
The way to identify/ define optimal entry is;
Experience – with experience one’s PA deciphering skills improve
Learning the behavior of what you’re trading – and though behavior does constantly evolve – knowing the instrument intimately allows one to pick up on the nuances of the evolution quicker / easier
Keeping a journal and logging each trade – as over time tendencies do emerge
No way around it – in the beginning…, nailing entries is a crap shoot at best
Survive this…, while gaining the necessary experience/ knowledge/ insight – trading becomes a whole lot less burdensome (notice I specifically did not say easier – as no matter how easy some days are – other days will more than make up the difference)
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But if I buy a breakout, maybe a RET after the breakout, lets say 3 or 4 points above the level, then a logical stop would be below the actual level that price broke out from, so in this case, I'm thinking a 4 or 5 point stop would be prudent just in case price tests the level again that before was resistance but now could be support.
BO means there was a range for price to break out from – breach of the upper range (for a BO up)..., or breach of the lower range (for BO down) is the stop – anymore of a stop is wasting money
We pay in either a wider stop…, or comish and fees to reenter – comish and fees are way less costly than an increased stop
You’re going to find…, when in a losing trade – it like having a big ass boat anchor tied around your neck tugging you to the deep 6
A loser costs monetarily…, and it costs psychologically
Get out of the loser…, save your $ capital…, preserve your emotional capital…, free yourself up to trade again
Compared to spending the coin for another fee and comish – this akin to an ubber blue light special at Kmart (look it up on Wikipedia if unsure of the reference)
As for trading the RET (retest or retrace) – stop would be the breach of either (breach of the low…, or high – made by either)
Why draw a loss out any further in hopes price will return
We never trade the signal – that is entering too early (on too little information)
We trade the supporting PA of said signal
As for the second, I'm not sure why could would be inaccurate. Some traders prefer scalping and require a high win rate, whereas another trader might be going for big win, attempting to catch a bottom of a huge move, try a few longs and get stopped out a few times, but keep trying to eventually get that huge move back up. To me, these two strategies are like night and day. (although I guess both make sure of a tight stop, but the win rates would be much different)
I addressed this previously – more frequent entries and reduced profit targets – do not equate to more winning trades
Creating proper context…, then waiting on / taking appropriate signals within that context – does
So long as it done reasonably…, and within the constraints PA is providing
Damn I'm wordy today
RN
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