Suggestions for mastering speculation

[Jaydee]

Let me explain it like this:

A sniper tells you that they only pull the trigger if they are certain that the bullet they are firing is going to kill their target.

Do you need to ask, what about if you are firing from a different distance?

Do you need to ask, what about in different weather conditions?

Do you need to ask, what if the target is moving?

The sniper repeats, they only pull the trigger if they are certain the bullet they are firing is going to kill their target.

In the same way, I am saying that stops are a function of proficiency.

Only proficiency?

So you are telling me that you would have a 5 tick stop on an ES trade that you planned on running over a period of days rather than intraday?

 

[new_trader]

Only proficiency?

So you are telling me that you would have a 5 tick stop on an ES trade that you planned on running over a period of days rather than intraday?

Get the 5 tick stop out of your head and you might start to think a little clearer. I am saying that proficiency is the result of study and practice. What is so confusing? What can't you grasp?

Are you suggesting that the amount of guessing you do is proportional to the term of the trade? Are you suggesting skill is only relevnt on short term trades and luck should be relied upon for longer term trades?

I don't know how to make my point any clearer.

 

[Jaydee]

Get the 5 tick stop out of your head and you might start to think a little clearer. I am saying that proficiency is the result of study and practice. What is so confusing? What can't you grasp?

Are you suggesting that the amount of guessing you do is proportional to the term of the trade? Are you suggesting skill is only relevnt on short term trades and luck should be relied upon for longer term trades?

I don't know how to make my point any clearer.

Are you ever going to post an answer to a question I post?

 

[Joey25]

Trading Vol

Here's a trade I've just done which illustrates that you can have wide stops based on volatility, and provided you use the vol to your advantage in the exits, you'll do far better than being ultra-precise and scalping for a few ticks.

The trade was a pivot point fade, the pivot point being more fadeable the more time has passed throught the day.

The stop is based on resistance, but should come in similar to 15-min ATR

Sell 3 at 1027.00
Stops at 1033.25
Exit at 1018.25

Profit = 3 x 8.75 = +26.25 points

Even though the stop was 6.25 away from the entry point, the move only got as high as 1027.25. What I'm saying is that the price should reverse somewhere between 1027.00 and 1033.25 - where exactly I don't care.

The point is the position of the stop is not the same as the risk of the trade

Then throughout the life of the trade the P/L deteriorated at times by 4pts, and the end result was inefficient in that it got as low as 1014.00. But who cares when the end result is + 9 handles?

Joey

 

[temptrader]

Jaydee,

For f*ck's sake, new_trader is actually trying to tell you something. Don't be so stubborn. He's trying to help you and you're throwing it in his face with your pointless questions, you're asking the wrong questions and should just be listening . . .

 

[jm99]

Financial markets are often characterized by non-constant variance (heteroscedasticity), and tend also to be backward-looking in nature (autoregressive).

In the case of the indices, forward volatility is a function both of previous volatility and trend - i.e if the trend (or drift) in the time series is up, volatility tends to fall.

eg of how historic volatility can be useful...re sp cash over the last 3 days we've had lower lows, red candles and the range (ie the volatility element) has contracted. this has occurred 17 times since 1998, in all trades we have bounced in the next 24 hrs (ie before 2115 tomorrow)....without giving everything away, im now long biased, expecting to hit 992-97 min tomorrow . dyor, fwiw, this is data mined, im also hedge with deep otm puts, so risk reduced in case of meltdown

 

[Jaydee]

Jaydee,

For f*ck's sake, new_trader is actually trying to tell you something. Don't be so stubborn. He's trying to help you and you're throwing it in his face with your pointless questions, you're asking the wrong questions and should just be listening . . .

Oh come on, I wasn't throwing anything in his face or looking for help. I simply wanted to get his opinion on how he would base his stop in the long term and if a stop is purely down to ability. I was looking for something a little more tangible and to the point than what he wrote, that's all.

He disagreed with the volatility idea Timsk put forward and then said volatility had nothing to do with his trading - he uses a 1.25 point stop regardless. I was curious how he thought and have been asking questions (sorry you didn't like them) which seemed very reasonable for me to get an understanding of how he approached things. I wanted to know if his 1.25 point stop would be set for a longer term trade for example.

All he was saying was effectively 'I have a stop based on my experience' which tells me nothing. My stops are based on my experience too, but I can tell you almost exactly how they work for me and I can tell you how I'll place them on trades across multiple time periods. Based on this, my line of questioning doesn't seem all that unreasonable really.

Sorry it riled you so much that you felt you had to get involved.

 

[arabianights]

I don't think either of you have an argument with one another, you're just talking at cross purposes.

Have a w...

 

[new_trader]

Oh come on, I wasn't throwing anything in his face or looking for help. I simply wanted to get his opinion on how he would base his stop in the long term and if a stop is purely down to ability. I was looking for something a little more tangible and to the point than what he wrote, that's all.

He disagreed with the volatility idea Timsk put forward and then said volatility had nothing to do with his trading - he uses a 1.25 point stop regardless. I was curious how he thought and have been asking questions (sorry you didn't like them) which seemed very reasonable for me to get an understanding of how he approached things. I wanted to know if his 1.25 point stop would be set for a longer term trade for example.

All he was saying was effectively 'I have a stop based on my experience' which tells me nothing. My stops are based on my experience too, but I can tell you almost exactly how they work for me and I can tell you how I'll place them on trades across multiple time periods. Based on this, my line of questioning doesn't seem all that unreasonable really.

Sorry it riled you so much that you felt you had to get involved.

No, you still don't get it. I said the 'stop' is a function of proficiency, not time, resistance, support, pivot points etc...it is not a mechanical issue, at all. You persist in getting some sort of concrete, tangible answer which doesn't exist. What will it take to make you understand what is meant by proficiency? I use a 1.25 point stop now. I used to use a much larger stop. Nothing has changed other than my ability to judge my entry point better. What more do you want?

I also didn't say volatility has nothing to do with my trading. I am saying it shouldn't have anything to do with anyone’s trading. If you are proficient you will be efficient. If you are efficient you trade with close stops because your trades move immediately in your favour after entry and almost never put your stop at risk. Is this making it clearer? If you can only do this using wide stops, then you should endeavour to improve your timing. If you don’t want to or don’t feel the need to, then don’t. But don’t say it’s function of volatility because it is not.

The art of speculation is recognising what has occurred and as a consequence, what will occur. It is knowing what to expect and then acting accordingly with coolness and precision. It is not taking guesses and adjusting stop size to account for 'volatility'. Like I said, cause and effect, action and reaction. Either you understand or you don't.

 

[new_trader]

I don't think either of you have an argument with one another, you're just talking at cross purposes.

Have a w...

Has it helped your trading?

 

[Grey1]

9A. Vary the size of the position (and the placing of your stop) based on the volatility of the instrument being traded. Using ATR is as good a means as any for evaluating volatility and appropriate position size, IMO.

Spot on and well said,,

Many traders look at historical levels such as support and resistance , cycle as an indication of future performance and there is no reason why volatility should be any different and hence your ATR comment is spot on specially for novice traders,,

For more seasoned traders who are into perhaps more mathematical estimation of future volatility they can look into GARCH model .

Foundation of TA is based on deriving forward looking analysis based on historical evidence,,, Hence ATR can be a simple and reliable start for pos sizing

I be talking about the GARCH model in my next seminar for those who are interested in more advanced and mathematical side of the trading which is only suitable for fast PC execution of the model and hence better estimation of projected volatility

grey1

 

[new_trader]

Yes, ATR....makes you wonder how traders can get so messed up in market like we've experienced the last few weeks. I suppose ATR works when it does and doesn't work when it doesn't. Just trade the days when it works and avoid the days when it doesn't and you will make millions.

 

[Jaydee]

I also didn't say volatility has nothing to do with my trading. I am saying it shouldn't have anything to do with anyone’s trading. If you are proficient you will be efficient. If you are efficient you trade with close stops because your trades move immediately in your favour after entry and almost never put your stop at risk. Is this making it clearer? If you can only do this using wide stops, then you should endeavour to improve your timing. If you don’t want to or don’t feel the need to, then don’t. But don’t say it’s function of volatility because it is not.

What I get is that you are talking about a particular type of trading where the market moves in a favourable direction as soon as you enter. In such a situation, you can have a very tight stop - I get that.

However, I can't see how you can say no trader should even consider volatility. With increased volatility, the margin for error becomes much larger no matter how good at entries you are. Therefore, you risk being stopped out all the time and not making anything. It's not unusual for a market to tip the balance one way and then whipsaw at the next moment - the DAX springs to mind.

I'm glad your method works for you and I'm not putting it down but I think you are wrong to say ALL traders should ignore volatility and that by including it a trader has a weaker technique than yourself or isn't addressing the important idea of timing. Your style of trading seems to be all about getting as many winners as possible and tiny risk - that's fine, but there are some styles which don't require such precision and still do very well.

I don't guess which way the market goes. Like you I have rules and a setup that I follow which gives me a good percentage chance in the direction I choose - it's just a favourable possibility though, nothing more. I feel you are almost saying that if a trader had perfect timing, he would never be stopped out and always get 100% winners. That is impossible as there is always an element of chance involved with any trade.

 

[leovirgo]

No, you still don't get it. I said the 'stop' is a function of proficiency, not time, resistance, support, pivot points etc...it is not a mechanical issue, at all. You persist in getting some sort of concrete, tangible answer which doesn't exist. What will it take to make you understand what is meant by proficiency? I use a 1.25 point stop now. I used to use a much larger stop. Nothing has changed other than my ability to judge my entry point better. What more do you want?

I also didn't say volatility has nothing to do with my trading. I am saying it shouldn't have anything to do with anyone’s trading. If you are proficient you will be efficient. If you are efficient you trade with close stops because your trades move immediately in your favour after entry and almost never put your stop at risk. Is this making it clearer? If you can only do this using wide stops, then you should endeavour to improve your timing. If you don’t want to or don’t feel the need to, then don’t. But don’t say it’s function of volatility because it is not.

The art of speculation is recognising what has occurred and as a consequence, what will occur. It is knowing what to expect and then acting accordingly with coolness and precision. It is not taking guesses and adjusting stop size to account for 'volatility'. Like I said, cause and effect, action and reaction. Either you understand or you don't.

I tried to go Long INDU with 20pt STOP. Target is at least 200pts. 5minute ATR, today, was at least 60pts. So, theoretically, I should use Stop Loss 2.5xATR= 150pts. First time, it was stopped out. Second time, it was successful. I knew it should be successful in 2 attempts. I used perfect 1minute entries to do that. So my expected R:R is 200/ (2x20) = 5.

For pure ATR based calculation, it would be 200/150 = 1.3

It means, an experienced trader can take better R:R trades with minimal risk. That's how I understand about what you've been trying to talk about. does it make sense?

 

[Grey1]

Yes, ATR....makes you wonder how traders can get so messed up in market like we've experienced the last few weeks. I suppose ATR works when it does and doesn't work when it doesn't. Just trade the days when it works and avoid the days when it doesn't and you will make millions.

Your comments are non technical and irrelevant. Understanding volatility is crucial in risk assessment and hence directly correlated to pos sizing,,,
Personal un justified views such as ATR works when it does and does not work when it does not is not a type of defence that one should put forward in acceptance or denial of theoretical concepts specially when it comes to volatility..

If you feel pos sizing and volatility are not a measure of risk analysis please refer me to some theoretical papers so I can update my knowledge,


Grey1

 

[Joey25]

No, you still don't get it. I said the 'stop' is a function of proficiency, not time, resistance, support, pivot points etc...it is not a mechanical issue, at all. You persist in getting some sort of concrete, tangible answer which doesn't exist. What will it take to make you understand what is meant by proficiency? I use a 1.25 point stop now. I used to use a much larger stop. Nothing has changed other than my ability to judge my entry point better. What more do you want?

I also didn't say volatility has nothing to do with my trading. I am saying it shouldn't have anything to do with anyone’s trading. If you are proficient you will be efficient. If you are efficient you trade with close stops because your trades move immediately in your favour after entry and almost never put your stop at risk. Is this making it clearer? If you can only do this using wide stops, then you should endeavour to improve your timing. If you don’t want to or don’t feel the need to, then don’t. But don’t say it’s function of volatility because it is not.

The art of speculation is recognising what has occurred and as a consequence, what will occur. It is knowing what to expect and then acting accordingly with coolness and precision. It is not taking guesses and adjusting stop size to account for 'volatility'. Like I said, cause and effect, action and reaction. Either you understand or you don't.

Unless I'm missing something, all you've done is deduce that a stop of 1.25 will suffice for winners of 1pt or less. Of course volatility seems irrelevant for this type of "micro-scalping".

http://www.trade2win.com/boards/general-trading-chat/39528-good-week-bad-week-2.html

All credit to you for posting those results, new_trader, and I'm sure in a prop environment you would do very well, but don't make it out to be something it isn't.

Joey

 

[counter_violent]

No, you still don't get it. I said the 'stop' is a function of proficiency, not time, resistance, support, pivot points etc...it is not a mechanical issue, at all. You persist in getting some sort of concrete, tangible answer which doesn't exist. What will it take to make you understand what is meant by proficiency? I use a 1.25 point stop now. I used to use a much larger stop. Nothing has changed other than my ability to judge my entry point better. What more do you want?

I also didn't say volatility has nothing to do with my trading. I am saying it shouldn't have anything to do with anyone’s trading. If you are proficient you will be efficient. If you are efficient you trade with close stops because your trades move immediately in your favour after entry and almost never put your stop at risk. Is this making it clearer? If you can only do this using wide stops, then you should endeavour to improve your timing. If you don’t want to or don’t feel the need to, then don’t. But don’t say it’s function of volatility because it is not.

The art of speculation is recognising what has occurred and as a consequence, what will occur. It is knowing what to expect and then acting accordingly with coolness and precision. It is not taking guesses and adjusting stop size to account for 'volatility'. Like I said, cause and effect, action and reaction. Either you understand or you don't.

Have you set a date yet to go live ?

 

[new_trader]

I don't guess which way the market goes. Like you I have rules and a setup that I follow which gives me a good percentage chance in the direction I choose - it's just a favourable possibility though, nothing more. I feel you are almost saying that if a trader had perfect timing, he would never be stopped out and always get 100% winners. That is impossible as there is always an element of chance involved with any trade.

No, I am not saying a trader will always get 100% winners. There is always the chance of misjudgement and this is why a trader must use tight stops. Capital preservation is paramount. As the trader progresses and makes new discoveries and has new realisations they will modify their behaviour and the result will be their stops are being hit less often and their entries are improving and they are becomming profitable. This is irrespective of ‘market conditions’ because the trader becomes aware of what is what and what is not. Simple.

 

[jm99]

eg of how historic volatility can be useful...re sp cash over the last 3 days we've had lower lows, red candles and the range (ie the volatility element) has contracted. this has occurred 17 times since 1998, in all trades we have bounced in the next 24 hrs (ie before 2115 tomorrow)....without giving everything away, im now long biased, expecting to hit 992-97 min tomorrow . dyor, fwiw, this is data mined, im also hedge with deep otm puts, so risk reduced in case of meltdown

fwiw, targets hit.

grey - spot on

 

[new_trader]

Have you set a date yet to go live ?

Do you always make spurious inane comments?