Using Losing Trades as an Indicator
- Thread starter Redneck
- Start date
A few losing trades with an acceptable SL, shouldn't be a problem.
After that it always seem to boil down to:
* Not following the market (fighting it)
(Not being able to switch sides, when the unexpected happens)
(Looking for reversals in a trend)
(Taking every breakout from a range)
* Impatience
* Fear of being "wrong”
(Hesitating to step into that void, where there is no confirmation (yet), but the risk is the smallest)
After that it always seem to boil down to:
* Not following the market (fighting it)
(Not being able to switch sides, when the unexpected happens)
(Looking for reversals in a trend)
(Taking every breakout from a range)
* Impatience
* Fear of being "wrong”
(Hesitating to step into that void, where there is no confirmation (yet), but the risk is the smallest)
I think an analysis of losing trades can show if you are taking trades in the right places to begin with. When the market breaks important levels it will quite often retrace soon afterwards.
From this we can do various studies.
1. We can play the continuation trade....wait for retrace then jump on board. For the ones that get stopped out we can then work out what statistically would be a good level for the retrace and adjust our trade level to give more (or less) breathing space.
2. We can contra-play for the retrace itself. The minute price breaks a peak, fade it (OR let it fake out a set number or pips first...that you will know after analysing the failed trades). I know I know...the old story about falling knives. But this kind of price action happens especially in the early market and around figures. Maybe certain instruments like to shake out retailers stops by going a set distance. If you keep getting stopped out on those kind of trades only to see it go your way then maybe a little adjustment to your stop loss is required
But I guess what I'm saying is that by studying losses we can improve on future trades by building up a better understanding about what the OPTIMAL amount should be for our stop loss..and also the probability of being able to add on to the losing trade and then closing the trade at a slight profit or flat instead of always just accepting a fixed-point stoploss hit. (I DON'T mean some martingale system of adding continuously to losing trades...been there, done that,,,got the t-shirt
)
From this we can do various studies.
1. We can play the continuation trade....wait for retrace then jump on board. For the ones that get stopped out we can then work out what statistically would be a good level for the retrace and adjust our trade level to give more (or less) breathing space.
2. We can contra-play for the retrace itself. The minute price breaks a peak, fade it (OR let it fake out a set number or pips first...that you will know after analysing the failed trades). I know I know...the old story about falling knives. But this kind of price action happens especially in the early market and around figures. Maybe certain instruments like to shake out retailers stops by going a set distance. If you keep getting stopped out on those kind of trades only to see it go your way then maybe a little adjustment to your stop loss is required
But I guess what I'm saying is that by studying losses we can improve on future trades by building up a better understanding about what the OPTIMAL amount should be for our stop loss..and also the probability of being able to add on to the losing trade and then closing the trade at a slight profit or flat instead of always just accepting a fixed-point stoploss hit. (I DON'T mean some martingale system of adding continuously to losing trades...been there, done that,,,got the t-shirt
)%%
SAME way we could analyze a profitable win trade/investment but with an error.
LIKE a nice profit on a short term trade this year;
but accidently put on larger position size than max % called for.
So,same way with a profit trade but with improper position size error ........
Same example\but the guy went bankrupt;
car dealer had so much inventory\ I had to park on a grassy hillsideLOL
[ Edit\So he was trainwreck waiting to happen , so to speak]
First - if you reading this thinking all losses can be eliminated - throw that thinking in the trash
What I'm gonna propose is - self induced losses can be eliminated
Way I'm gonna T this up will include several "If yes - then"..., or..., "If no - then)
Gonna dig in one or two tiers - then leave the rest up to the reader to do the work
Schizo - off the top of my head - one can define each type of loss - track them over time - then enter that data in excel and plot (graph or chart) to see one's improvement over time..., or where attention needs to be focused
SunTrader - Good thinking - I actually review my trades real time throughout each session - and adjust fire as required
=====================================
This works on one loss ...,or all of em..., - you can track real time then adjust fire..., or analyze at the end of a session - downside to end of session - you have to go back in time and re-create the scenario / your frame of mind
===================================
I have a loss
Was the trade in the direction of price's current movement
Yes..., then
did thru the normal breathing of PA - I get jittery and exit early
did my stop loss get taken out - then price moved off in the intended direction
(is my stop loss set far enough away to allow for nominal breathing (ATR set to 1 - is a good tool for identifying this / and real time changes in current volatility..., or simply reading the bars)
did price go in my direction, then come back and stop me out
=======================
Was the trade in the direction of price's current movement
No..., then
was I in sync with price
were my charts not marked up correctly to identify the current movement - possibly were they mucked up with so many lines and such it was confusing me
am I fighting what I'm seeing / having a bad day / pissed off / whatever
=====================
Did price change direction just after I entered
Yes..., then
am I studying what that looks like / learning to contextualize it - so I can possibly recognize when its developing the next time
===============================
There numerous ways one can take this..., and conduct the appropriate root cause analysis
While knowing - some losses are simply part of this business
Being honest with yourself while conducting analysis will go along way in eliminating the self induced BS
same for wining trades.., and over trading
results are a really good indicator - how one is performing
Food for thought
RN
What I'm gonna propose is - self induced losses can be eliminated
Way I'm gonna T this up will include several "If yes - then"..., or..., "If no - then)
Gonna dig in one or two tiers - then leave the rest up to the reader to do the work
Schizo - off the top of my head - one can define each type of loss - track them over time - then enter that data in excel and plot (graph or chart) to see one's improvement over time..., or where attention needs to be focused
SunTrader - Good thinking - I actually review my trades real time throughout each session - and adjust fire as required
=====================================
This works on one loss ...,or all of em..., - you can track real time then adjust fire..., or analyze at the end of a session - downside to end of session - you have to go back in time and re-create the scenario / your frame of mind
===================================
I have a loss
Was the trade in the direction of price's current movement
Yes..., then
did thru the normal breathing of PA - I get jittery and exit early
did my stop loss get taken out - then price moved off in the intended direction
(is my stop loss set far enough away to allow for nominal breathing (ATR set to 1 - is a good tool for identifying this / and real time changes in current volatility..., or simply reading the bars)
did price go in my direction, then come back and stop me out
=======================
Was the trade in the direction of price's current movement
No..., then
was I in sync with price
were my charts not marked up correctly to identify the current movement - possibly were they mucked up with so many lines and such it was confusing me
am I fighting what I'm seeing / having a bad day / pissed off / whatever
=====================
Did price change direction just after I entered
Yes..., then
am I studying what that looks like / learning to contextualize it - so I can possibly recognize when its developing the next time
===============================
There numerous ways one can take this..., and conduct the appropriate root cause analysis
While knowing - some losses are simply part of this business
Being honest with yourself while conducting analysis will go along way in eliminating the self induced BS
same for wining trades.., and over trading
results are a really good indicator - how one is performing
Food for thought
RN
Then pick 2 and double your fun..., or 50 and have a party
It up to the individual what they set it to..., based on what and how they trade
On a good entry .25 is more than adequate - lol
RN