My trouble with controlling risk...

[pssonice]

your trouble in controlling risk is that u didnt understand

the meaning of the price pattern. everything concerning the short term development of prices is given by the price itself.

what does this mean ? the longer your forecast the greater your risk.
what does this mean ? the shorter your forecast the smaller your risk.

what to do ? take care on just one price pattern, H&S !

A midyear forecast is all well and good, but before you reach for a single stock or fund, make sure you've picked the low-hanging fruit intraday.

 

[pssonice]

i.e. AMGN, make sure you've picked the low-hanging fruit intraday

I m not just talking. I ll give u an example.

take a look at AMGN longterm as well as short term at the graph below.

Intraday AMGN is telling us " I touched the bottom" by the price pattern left shoulder and one head.
monthly price chart is telling us " I will bounce from where I m now"

 

[pssonice]

i.e.DAX, make sure you've picked the low-hanging fruit intraday

futures r quiet different to handle, nevertheless u can apply the modell as well.

targets r easily derived by multiples of the changes seen before

 

[pssonice]

your trouble in controlling risk doesnt exist any longer if u r willing to understand

the language of the price pattern

 

[pssonice]

your trouble is now, u wish to follow me but u dont now how

that s it

 

[Grey1]

Grey that looks great!

Automation is what I am working towards.

Who do you excecute through?

I use IB at the mo and they seem to be all geared up for automation.

first I need a system, then I need a computer boff to help me out!

Are all your systems US stocks and intraday?

Stephen

all signals comes from Tradestation and executed on IB .. My system only trades US stocks. I will post a screen shot of the signals when the market opens..

Grey1

 

[Grey1]

the meaning of the price pattern. everything concerning the short term development of prices is given by the price itself.

what does this mean ? the longer your forecast the greater your risk.
what does this mean ? the shorter your forecast the smaller your risk.

The statement above is not correct,. you better read a bit more about risk analysisI

If I bought 1 share of AMGN and kept it for 10 years would I be occuring more risk than 1000 shares and kept it for 2 min ?
grey1

 

[pssonice]

u r trying to pick the high-hanging fruit

good luck to u.

the answer to your question is "yes". Because risk is a timedependent variable.
u r increasing your risk in time by keeping your share.

the moment u have to sell your share is not predefined. if u can predefine this moment the answer is "no".


"If I bought 1 share of AMGN and kept it for 10 years would I be occuring more risk than 1000 shares and kept it for 2 min ? grey1"

 

[Mr. Charts]

good luck to u.

the answer to your question is "yes". Because risk is a timedependent variable.
u r increasing your risk in time by keeping your share.

the moment u have to sell your share is not predefined. if u can predefine this moment the answer is "no".


"If I bought 1 share of AMGN and kept it for 10 years would I be occuring more risk than 1000 shares and kept it for 2 min ? grey1"

I find it hard to believe your answer to grey's question is "yes". You surely cannot mean that !
AMGN is now trading pre-market at 57.32.
If you bought one share and kept it 10 years the most you could lose would be $57.32
If you bought 1000 shares and AMGN moved against you by 25c in two minutes, which it certainly can do, you would lose $250.
Risk is not merely time dependent, there are many other variables which need to be taken into account, amongst them volatility, noise levels, position size, psychological factors, position management and overall risk management itself.
Those of us who trade for a living mainly trade high probability situations as we are not gamblers and control risk very strictly.
Trading is basically a probability business and must be treated as such to succeed long term.
Richard

 

[smccreedy]

Hi I don't want to be a pain over this but can this thread get back on topic.

It started as a thread that mattered to most traders and centered around one US trader's problems surrounding taking a loss that sometimes meant a whole week's worth of profits are wiped out in one trade.

Now this is something many traders have experienced and the thread was becoming useful as people listed ideas for helping to take a loss and personal experiences for how they got through this mental risk.

It is not a maths thread about the risk instrinsic in trading over different time scales or sizes more a thread addressing the mental side of trading.

Sorry if I come across as an ar*e but this thread could go from useful to useless very quickly.

Thanks

Stephen McCreedy

Meanwhile on topic.

I still struggle to take my predefined loss. I am reluctant to place hard stops for fear of being squeezed out and find it hard to execute even when I can 'feel' the trade is only going to get worse.

Any tips from traders who have overcome this problem on how they did it?

 

[options]

Mental stops are, (until you get to a certain stage) notoriously difficult to follow to the letter because they contain a variable and explosive mixture: Your brain/mind.

The small percentage of loss trades will continue because you are able to do nothing about altering this state of mind until you follow a constructed method for so doing.

Solution: Place a hard stop. When it gets hit, whether in profit or loss do not trade again that day. Turn the comp off and do domething else. Do not continue to watch that market....And feel good about doing it. Even the losing trades. You have done exactly what you set out to do. That is to trade with a plan and limit losses. What happens after you are out is of no concern to you.
So congratulations for following your plan.

As it gets easier to 'accept' a loss You can move to a mental stop. (If you want.) But as it gets hit you must execute the exit without thinking. After all you have already worked out your plan of action, you are simply being a robot and following your own orders.

Feel you are 'correct' about doing this. When you are able to carry on looking at the same market after pulling out exactly where you wanted to. Those losing trades that carry on will make you feel a very happy chap indeed.

Of course if you are continually getting stopped out and making losing trades, Then there is something else wrong in the trading mix, and another question entirely.

 

[barjon]

..........................I still struggle to take my predefined loss. I am reluctant to place hard stops for fear of being squeezed out and find it hard to execute even when I can 'feel' the trade is only going to get worse...........................

smcc

It's all in that naughty old mind which clings onto that odd occasion when not taking the predefined loss saw the price rebound into profit and blocks out the many more occasions when not taking the predefined loss just resulted in a bigger loss.

As I said much earlier in the thread, let the arithmetic prove it for you. If you analyse your trades where your predefined loss was touched and find that "rebounded into profit" = low %age and "bigger loss" = high %age then you have something you can pin on the wall to blunt the siren song of naughty minds.

Of course, as options points out, if the arithmetic doesn't look like that then other things need looking at.

good trading

jon

 

[Charlton]

Lost opportunities

Mental stops are, (until you get to a certain stage) notoriously difficult to follow to the letter because they contain a variable and explosive mixture: Your brain/mind.

The small percentage of loss trades will continue because you are able to do nothing about altering this state of mind until you follow a constructed method for so doing.

Solution: Place a hard stop. When it gets hit, whether in profit or loss do not trade again that day. Turn the comp off and do domething else. Do not continue to watch that market....And feel good about doing it. Even the losing trades. You have done exactly what you set out to do. That is to trade with a plan and limit losses. What happens after you are out is of no concern to you.
So congratulations for following your plan.

As it gets easier to 'accept' a loss You can move to a mental stop. (If you want.) But as it gets hit you must execute the exit without thinking. After all you have already worked out your plan of action, you are simply being a robot and following your own orders.

Feel you are 'correct' about doing this. When you are able to carry on looking at the same market after pulling out exactly where you wanted to. Those losing trades that carry on will make you feel a very happy chap indeed.

Of course if you are continually getting stopped out and making losing trades, Then there is something else wrong in the trading mix, and another question entirely.

Options

This is very sound advice.

Another factor I would like to add is the "Opportunity Cost" of not exiting when necessary at a small loss. Attempts to hang on in there smacks of letting emotions govern sense i.e. trying to take revenge on the offending instrument, which is very silly indeed. By releasing funds tied up in the loss-making transaction they can be better applied elsewhere and, hopefully, cover the small loss and much more very quickly.

Charlton

 

[smccreedy]

Well thanks everyone, very construtcive indeed good advice for me and any one else who will come across this thread at some time.

Key points are:

Yes you are right, sometimes you'll not exit when you should, sometimes you'll even average a losing trade, something will happen in the market, you'll make money and it sticks in your mind.

Of course these ocassions are outweighed by the times you lose your shirt.

What always sticks in my mind is in an idea in a trading book, I forget which one, which states it's human nature to want to be right a lot and then wrong once get over that and get back to being right.

In trading this can translate in to my problem of taking lots of small profits, maybe even 99% right in a week only to come across the one loser that wipes it all out. Maths wise I'm down but I've felt good 99% of the time and bad for shorter time. I repeat the pattern over and over.

As Charlton says too the very under used idea of opp cost of hanging on a loser.

I have, in the past (i'm an intra day trader) held on to a loser averaging down sometimes for as long as three months and found my self in a real state. Even if by miracle it has come back to get me out at even or so I look back at not earning for three months and it makes me sick.

I could have taken the small loss, moved on,made money for three months and it would be long forgotten.

All great points to consider.

I'll tell you what I am trying.

I no longer 'match' trades in my spreadsheets just list them in time order. Before I would say I B@X S@Y there fore made y-x on that trade it was a 'winner' or a 'loser'.

Now I just open and close as I see fit and only give a daily total.

This is a small trick but it stops me trying to break even on a trade, or not wanting to take a loss as I've had no losers all week etc. I just try to do the right thing and at the end of the days weeks and month it add up to profit.

Maybe this will work for anyone reading this who doesn't like to lose and gets hung up in 'if I can just get back to even I'll exit'. Why? It you're losing get out, reverse even, and if you are lucky to see the market come back your way why exit at even, perhaps you are right and it will go further.

Any other methods people use to make sure when they know they should be out, they actually are out?

Stephen McCreedy

 

[Grey1]

good luck to u.

the answer to your question is "yes". Because risk is a timedependent variable.
u r increasing your risk in time by keeping your share.

the moment u have to sell your share is not predefined. if u can predefine this moment the answer is "no".


"If I bought 1 share of AMGN and kept it for 10 years would I be occuring more risk than 1000 shares and kept it for 2 min ? grey1"

pssonice,

No disrespect to you but I think you need to be educating yourself . I have made many references to risk analysis on this BB which might help you out in understanding the risk concept in intra day trading ...if i was you i would not open a trading account before fully understanding risk and its implications .

Grey1

 

[Grey1]

Trading is basically a probability business and must be treated as such to succeed long term.
Richard

Spot on ..

Grey1

 

[flameali]

I used to have the same problem. now i set my stop loss before i enter any trade. its not perfect but it saves me lots of money.

 

[Connie Brown]

My problem is that I have outsized losing trades that are wiping away my profits and then some. These are trades that I know are crap when I have the opportunity to get out for a loss of 2 or 3 ticks. Instead of getting out with a 2 or 3-tick loss or even a 10-tick loss, I have simply watched these trades run against me -- just sitting frozen in the headlights of the order book.

I feel like there a wiring problem in my head that is preventing me from gracefully accepting these losses (it’s not that I can’t do it – I simply don’t do it). It’s not as simple as putting in stops (although that would certainly help to reduce the magnitude of the losses). My successful trades can sometimes go 5 or 6 ticks against me, but I don’t sweat as long as the character of the market doesn’t change significantly (based on my read of the order flow and T&S).

When the character does change, I don’t want to be in that position any longer. I want to be able to pull the trigger as soon as I know it’s wrong. I think part of the problem is taking money out the equation in thinking about winners/losers.

I have highlighted the part that you have already highlighted in your head.

You may want to play around with codifying precisely what it is that tells you the character changes. A hint may or may not be in the '5 or 6 ticks against me', I don't know.

But unless you can empirically identify what it is, for you, that implies a change of character, you'll let these one-off blow-offs steal your profits. Tie it down.

 

[Profitaker]

pssonice,

No disrespect to you but I think you need to be educating yourself . I have made many references to risk analysis on this BB which might help you out in understanding the risk concept in intra day trading ...if i was you i would not open a trading account before fully understanding risk and its implications .

Grey1

No disrespect to you sir, but now that you have berated somebodies understanding of risk analysis, I think the least you should do is answer your own question, together with an explanation of why you think it is so ?

""If I bought 1 share of AMGN and kept it for 10 years would I be occuring more risk than 1000 shares and kept it for 2 min ? grey1""

 

[Profitaker]

Risk is not merely time dependent, there are many other variables which need to be taken into account, amongst them volatility, noise levels, position size, psychological factors, position management and overall risk management itself.

I must disagree. Risk is a function of time and volatility - nothing else. "Noise levels" and "psychological factors" are in the mind of the beholder.