fxdummie

I agree, the newbie starts with what can be won using this indicator or that system. But money management has to become the "what-I-am-willing/prepared-to-lose" routine before one start using the "holly grail" indicator...

ntrader, would you apply what you are saying ( I don't argue true or false) to the initial topic which is risk to reward ratio to be successful trader. I see the leverage as a side trap adding to the initial pitfalls in which inexperienced traders burn their capital. On the other hand, leverage is instrumental in creating a wealth if you know what you are doing and are starting with very little money.

Before the risk to reward ratio, before betting any money, you need to have a system with an edge. System with backward and forward tests showing that over time in any market conditions the trading setups you are using will go toward the anticipated direction 50% more often and/or the winners will go farther then the losers. Based on your personalty and life style you need to choose what edge to apply. You might not be able to stomach a long line of losers, so you have to find a set up which statistically will produce more winners then losers. You might be someone who like to win big. In this case you need to find a set up with winner bigger then the losers. I know professional traders who would suffer month after month recording small losses and make their money times 100 in a single trade or a single month. Their edge is not the amount of winners but their winning size over the size of the losers. I prefer a combination of both higher then 50% winning probability and higher then 1 win to lose ratio. After you found a set up with an edge, and only after that you can think of position sizing, money management and trade management. Of course, part of the system testing would be placing stops and targets. But you need to test it for your self and experience real time the meaning of position sizing and trade management. I would start risking the minimum - if I know the set up inside out and I can trade it while sleeping - then I can start risking more. Trade management could be fully discretionary, semi-discretionary or mechanical. For super newbies I would suggest find a set up with an edge, risk the minimum, apply mechanical trade management rules and observe, observe and learn. After having being burnt many times and victorious even more you might start getting more experienced with your set up. You might start noticing that in certain market conditions your set up (system) needs larger stops or can achieve further targets. Then you can apply some discretion on stop and target placement, moving stops to break even, trailing stops, adding or scaling out. You might start applying a fully discretionary money and/or trade management when you breath the market - after you have become an integral part of his body... Before you find a set up (system) with a proven edge it is a waist of time, effort and money to do anything else. And even after that the market never will be the same so, it is a constant leaning curve. Most importantly, start smart, start small, be nimble, and don't lose money you can't afford! Forex is the best place to practice not losing money without betting too much of your account. And there is always a paper trading...

Just re-posting this one because from my experience TA has limited importance. TA is the rational (the visual and quantifiable) justification for when and where I enter and exit the market - the HUUUGE rest is my money and trade management, psychology, experience, intuition-gut feeling, being nimble and what all this means for me - it all translates to developing my ever changing trade plan ... Again, this post says it all for everyone dumb blinded by the wonders of any type of TA.

The market is composed by millions of living and breathing entities with different ideas and emotions. The total sum of all activities on the market is the 'market workings". Who is able to know the sum of all at any given moment!!!?! Learning how the market works is never ending and not fully practical because the players and the conditions are always changing. At best it will stunt you realizing how complex the game is. The task should be - how applying of what I know about the market will bring me money according to my life style, trading style and financial state?

The other thread stresses on psychology - this thread is more practical wants to find the answer!!! From my experience the answer is unique for each trader - the holly grail (the answer) is within each of us and is different for each of us. Reading books about systems, strategies, methodologies, money management, psychology is an effort from outside to figure what is inside. Over time I learned what kind markets, trading styles, money management etc. keep you in the comfort zone = calm and present. And, yes, I tried and failed with many systems, indicators, methodologies, money management and so on. The big question for me is - am I aware of my emotions? My emotions are intuitive reflection of what the market is doing. If I am bored most likely the market is not giving me what I am waiting for. Am I going to trade when bored? When I am afraid most likely I don't understand what's going on - would I be willing to bet money before I learn what's going on? And, yes, there are those perfect conditions (according to my trading style) which I wouldn't be able to notice and exploit if I was busy being bored or afraid or willing to see things which are not there. So, my goal is to learn how to stay calm and focused so I can observe the market for what it really is. Simple but hard.

The goal is to train your mind not to freak based on emotions (fear and greed). I am looking for books which are helpful with training my mind not to freak. Systems and strategies are dime and dozens. It is not that hard to find an entry and profitable exit or to learn someone's trading methodology. None of these will work though, until I am an emotional mess. If I don't learn to be present I will pass on all the luck and the trading set ups along the way. For me the luckiest traders are the ones who somehow figured (with books or personal nature or instinct) to keep at bay their emotions and stay focused on the market. Yes, the right path is super simple but hard as hell.

You can expand on horse races all you can. Until you don't pull out some numbers your talk is not about math and probabilities. I hope you have someone to talk to because I am done will taking a condescending attitude.

With risk to bore my self - I am kindly asking for numbers, SunTrader. We can talk in general as much as we want about math and probabilities. Fortunately, math uses numbers! Show me the numbers, please!

Do you have a disaster stop you place before you go to bed? If not, how would you have handled the May 2010 "flash crash" which was not in theory. If the market went against your position and you had a small account - yes, your loss will be infinite. My means are assessed on the premise of what I am willing to lose before entering the market. Entering without stop (not even disaster stop) is declaring that you have infinite deep pockets. I know I can only control my initial risk when in the market. I need to at least expect what I am ready to give up! But again, my time and means are not infinite so maybe I am ignorant to what you are saying!

A big fund with deep pockets would like to trade with no stop loss. But most of us don't have the privilege of playing with our money. This system would be great If your life span is hundreds of years. But in my case I rather have my stop loss hit and look for another entry than have an immaculate curve pointed in the far far beyond. The main call of this thread for me is to buy pullbacks with the trend = buy temporary weakness in an overall strength! And to minimize the risk find your entries in a smaller time frame. The real work for each trader is directed in designing/testing a system which will fit his/her trading reality: account size, temperament, time to trade ... In a way trade management is related to the individual psychology and account size: This means small accounts have to use a system with good win/loss ratio or high winning probability. In my experience high probability systems usually require smaller targets. On the other hand, system with great win/loss ratio require more patience and trust in your system because there are many scratch trades or small losses. Some people's temperament and time to trade would allow them to be in a trade for short time therefore they better use high probability-small targets systems. Other would like to stick with their few winners and let them run - but they have to have the nerve to stay longer. Of course this is gross generalization - there is always an exception plus for me the best system is the one with O.K. win probability and great win/loss ratio. The problem with not using stop loss is problem of scarcity. If your wealth is limitless then no need for stops. If you have limited resources and are trying to build wealth without using stop loss - it is ignoring the reality of your limited resources. And from a practical stand point - I wouldn't know how to assess win/loss ratio of a system with no "losses"!!

One way of assessing a slow day besides the volatility variable is volume. When no range and light volume = the big guys are out golfing = take off or use modest targets. Different case is when narrow range but heavy volume - market is pressure cooking the next big move = volatility expansion. In this case either stay on the sidelines until clear direction or keep probing the market "until proven right". For me "right" and "wrong" is about direction. Time, volatility and price proves you right or wrong. And it is not important to be right but to follow the market _which is always right.

If PoP ever existed he was a pit trader - they don't usually use charts and indicators but only price levels and how the price reacts around them influenced by supply/demand and/or news/rumors. You need diff set of tools and skills for pit trading. The book is more useful for giving you an idea of the herd psychology of the pit traders. And how to follow your "gut" feeling against the rumors and the pear pressure. Another problem with this apocrypha is that whoever wrote it doesn't appear to be a professional trader. A lot of the interpretations are hard to understand and somewhat naive.

ST, again what do you consider "high". Since math is involved we need to deal with numbers to asses your statement. 50% win probability and 1:1 win/loss ratio will give you a flat curve. At what point for you see these two (yes, both of them) become too "high" mathematically? 60% and 2:1? Or 90% and 5:1? Or in between? Thanks!

Spot on! Not the entry is important but the direction. I shifted to volume and tick based charts - and it's working for me. As long as you are using a chart you need to deal with closes. In your case you don't display them but they are there. The bar close is what it is - a dead sentence. Now that the bar is done and over we can assess it's life - high, low, volume, speed of formation (for tick and volume charts) and, yes, if this helps you make right decisions - bar open and close. I appreciate this thread because many gurus out there put too much importance on candle types and bodies and wicks... At best you can break even without having the bigger picture and the direction in mind.

ST, Would you specify when win/loss ratio and high win probability become high in your opinion, please! Thanks

Joshdance, as far as I see you are trying to say that intraday bar closes don’t matter. I say any bar close don’t matter if it is not in relation to any other bar close or to the market structure. Moreover, even my last statement doesn’t matter if it can’t be used to make money. After all, bars, indicators and so on are made to help us make sense of the market direction so we gain an edge. On any time, tick, volume chart, - market flows in waves of supply (down) and demand (up). In these waves the individual bars are in relation to each other. The bar low/high shows what were the extremes of supply and demand for the bar period. The close shows where the price have settled for the chosen bar period. None of this will matter if it doesn’t make sense to me and/or can’t be used to make a decision on a trade direction. Trading is a probability game. Me as a master of my world need to make sense of the big black nothing out there called market. I choose my tools and start exploring.

I am a visual person, reading and agreeing 100% with what is said about the market wouldn't do me any good if I don't see it on a chart with price action, volume, s/r and so on. I would love if this thread originator show me (or refer me to) how does he uses this knowledge to make money. Not challenge just curiosity! Thanks!