When you know it will be a bad day...

[Handle123]

Quote from LeeD:

Judging from the price chart nothing out of the ordinary happened. Would I expect to see the volume to drop too? The volume today was exceptionally low between 12:05 AND 13:00 EST...

If you watch the DOME long enough, like a year, you will get a feel of what is happening. In addition to studying Price, you can see patterns based on orders at various Price levels, as limit orders are added, filled, or canceled, tendencies occur.

I do not trade when price bars get too big, I will not expand my stop loss. If in past several bars, ranges of five minute bars expands to double, to me the market is getting uncontrolled, when it develops this way, volume can wildly expand.

I am not a good breakout trend trader in ES, learned long ago from testing, it loses for me, too many whipsaws, risk too high. But I do well trading chop but within a trend, so when bars get "tight' again, I can resume trading. It is the only way for me to risk as little as I do, based on time of day. You can certainly trade larger bars, but I would have to expand risk to 2-3.00 points and trade many less contracts. Whereas when market is more controlled, I can risk a few tics and go for much less profit targets, than when you risk more. My daily goal in ES is two points and cut back size 90%, thereby not able to have a losing day once achieved.

Too few of traders have tested back far enough to understand daily drawdowns and Max daily losses in a row. Let's say testing back ten years, that a very small occurrence of four losing trades occurs in a row, you can double contract size on next trades until profitable trade occurs. That might get one back to even on the day or even be ahead for the day depending on target to risk.

 

[LeeD]

Quote from Handle123:

Too few of traders have tested back far enough to understand daily drawdowns and Max daily losses in a row. Let's say testing back ten years, that a very small occurrence of four losing trades occurs in a row, you can double contract size on next trades until profitable trade occurs. That might get one back to even on the day or even be ahead for the day depending on target to risk.

> Too few of traders have tested back far enough

Why do you think is that?
1) They don't find it necessary;
2) They are lazy;
3) They don't have a clear trading plan;
4) They need higher-resolution data than minute data (tick data is way more expensive);
5) Any other reason?

 

[SomeYoungGuy]

Quote from Handle123:

Too few of traders have tested back far enough to understand daily drawdowns and Max daily losses in a row. Let's say testing back ten years, that a very small occurrence of four losing trades occurs in a row, you can double contract size on next trades until profitable trade occurs. That might get one back to even on the day or even be ahead for the day depending on target to risk. [/B]

eek.. You're advocating a martingale to get back to even. That's most likely a losing proposition.

Let's say you have a strat that has a 1 in 5 chance of losing. You do the math and know that the probability of having 5 losing trades in a row is .2 * .2 * .2 * .2 * .2 = .00032 or .032% or 1 in 3125.

Now you just had those four losing trades, there's only a 1 in 3125 chance that your next trade will lose right? WRONG! It's 1 in 5, just like every individual trade.

When you woke up this morning with 5 trades on your agenda, at that point you had a 1 in 3125 of losing all 5.

The gotcha is that you have to factor out the first 4 losers. They already happened, so their sum probability is 100%, you only know the odds of the one event that hasn't happened yet, the last unknown, which is 20%.

when the outcomes are still unknown: .2 * .2 * .2 * .2 * .2 = .00032 or .032%

when some outcomes are known: 1 * 1 * 1 * 1 * .2 = .2 or 20%

Think about the inverse. If you do 5 trades every day, and your first trade is a winner. What are the odds of all five trades being losers? 0% because it's now impossible for all 5 to lose as you won the first.

when you know the first is not a loser: 0 * .2 * .2 * .2 * .2 = 0%

Calculating the chance of x losers in a row or in a day or whatever only is useful for answering account level questions. Like "my account blows up if I lose 5 trades in a row, what are the odds I have an account blowup?"

 

[LeeD]

Quote from Big Money:

The only problem is you. I would say you have two issues at work here: common sense and stupidity are what cause you to do this

Big Money, I need to think about this. I think I'll be back with more questions shortly.

 

[Handle123]

Quote from LeeD:

> Too few of traders have tested back far enough

Why do you think is that?
1) They don't find it necessary;
2) They are lazy;
3) They don't have a clear trading plan;
4) They need higher-resolution data than minute data (tick data is way more expensive);
5) Any other reason?

All 4 of them plus they lack computer skills of coding huge amounts of data. And yes, tick data is very expensive, but it is a lot less expensive than losing a few accounts.

 

[LeeD]

Quote from SomeYoungGuy:

Let's say you have a strat that has a 1 in 5 chance of losing. You do the math and know that the probability of having 5 losing trades in a row is .2 * .2 * .2 * .2 * .2 = .00032 or .032% or 1 in 3125.

Now you just had those four losing trades, there's only a 1 in 3125 chance that your next trade will lose right? WRONG! It's 1 in 5, just like every individual trade.

The outcomes of individual trades are necessarily independent. They are dependent on the methodology. So, only Handle actually knows if they are anywahere close to independent.

As for outright "martingale approach", assume you go long every time ES goes down 2 points, you double position if it is down 4 points, double again if it's down 8 points, etc

S&P 500 going down 2 points in a day happens nearly every day (from top to bottom). How often does S&P 500 go down 32 points (which is just 5 trades of this properly martingale startegy)? What about 64 or 128 points?

 

[Handle123]

[QUOTE
Calculating the chance of x losers in a row or in a day or whatever only is useful for answering account level questions. Like "my account blows up if I lose 5 trades in a row, what are the odds I have an account blowup?" [/B][/QUOTE]

Problem with too many traders, not enough funds. By risking 1% of my account on any one position, makes it impossible to blow out my account. Just cause margin is $500 for ES, it is most dumb to divide into your account every $500 to see how many contracts to trade. But trading one ES for every $10-15k reduces stress and possibility of blowing up one's account.

There is always a chance of multiple losses beyond the norm of backtesting 10-15 years of data, but trading within one's means is being prudent. Just like adding to a losing position is not advised to those who are losing traders, but more skilled traders can find it profitable.

 

[LeeD]

Quote from Handle123:

Just like adding to a losing position is not advised to those who are losing traders, but more skilled traders can find it profitable.

This is the most profound implication! I have always been under impression that repeatedly doubling down is not efficient use of capital.

Edit: Doubling down aside, when you are trading in a choppy market, do you consider extending the stop loss... or do you patiently wait for another trade opportunity?

In mean-reverting markets having a large stop-loss massively increases chance of breaking even and ending up in profit after a drawdown. Obviously, there are rare exceptions when this doesn't work.

 

[exaltedangel09]

Quote from LeeD:

This may seem like a question that can be answered with a bit of discipline... and yes, it is...

I am still relatively a new trader. I have my winning streaks. However, I am not there yet to take the right decision no matter what.

On more than a couple of occasions I was in a situation when I wasn't in the right state of mind to trade. I didn't have enough sleep, I was anxious about private life, I had a hangover, I felt like a looser because I lost a few card games....

Normally, I shouldn't trade in such a state as I know from experience there is 80% chance of having a big loss against 20% chance of having a moderate profit.

What I notice is I often start and continue trading on such days. First I am getting passionate about performance targets I may have... and I feel obliged to trade.... because I don't think straight hope replaces common sense. After I have a first loss, I run into a bigger loss while trying to recover and trading on pure hope.

Are there any thoughts or ideas or repeatable "mantras" that stop you from trading when you know you shouldn't?

You sound like you got problems.
..
And that you do not make $.
..
But stay, I'd gladly make money off you
..
The market IS zero-sum after all.

 

[exaltedangel09]

As for doubling down.
It works until it doesn't (black swan)
That is why, HAVE a rule.


-->Never double down more than 3x. <--