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  1. Default Please Help - Trade Less Or More

    In trading I have been confused by the argument about whether we should be taking more trades or less trades.

    Taking more trades: I understand the science of the law of large numbers and the example of the toin coss where what should be 50/50 can produce some weighted streaks in either direction if you are tossing less times but over 1000s of throws the results of head to tales will start to balance out and approach 50/50

    If this is the case does this mean that as traders if we are to trade less rather than more because if we are supposed to take just a handful of trades per day i.e 2-4 does this mean we are clearly at risk to huge variance in terms of our trading results.

    Can I tell you what I have been experiencing.

    I have noticed if I trade many times per day (still picking high probability trades 5% system which is 1R is equivalent to a 55-60% system which is around 2R.

    I know generally experts frown upon high win rate systems because many high win rate systems have very poor risk reward like risking $400 to make $100. I assure you mine is risking $100 to win $100.

    I just want to know whether people suggest trading through it whenevver the next high probability set up comes or have a 3 loss strikeout rule.

    Comments are welcome. I know most trading gurus says trade less but many people in options talk about lots of trades because of the probability factor.

  2. Default

    If I trade less per day am I putting my self at risk to alot of randomness and variance or is it the case that whether I do 3 trades per day or 12 trades per that the variance is weighted accordinf to the volume of trades.

    Thanks

    Kevnot medicore trade) that sometimes I can get some really terrible streaks of losses. This is with a system that is 70% win rate (1R). I know with a 70-75% system you can still expect streaks of 4 losses but man it was shocking when it happened.

    I tried to trade through it believing that it would eventually turn but despite some wins that came through it hit more losses and I in the end lost confidence in being able to trade through losing streaks as I was told to.

    You may ask why didnt I stop. Well I was told there is no point stopping because you do not know how results are distributed and if tyou stop that could be the moment the wins come. I was also told it doesnt make sense stepping away then coming back the next day because the sequences of wins and losses has nothing to do with days.

    I am eager to know how people trade here because to get 6 losses out of 9 last week for a system that is 70% I wouldnt want to think how I would cope with the systems out there which are more like a 50-55% win rate (obviously being 2R). With a 50-55% win rate would I have to expect streaks of like 6-8 losses in a row.

    Does trading less minimize variance or randomness or does it escalate it.

  3. Default

    Trading gurus don't mind whether you win or lose. But the thing they do not want is for you to lose quickly. So advice from that quarter has to be suspect if it potentially leads to that objective - it is for their benefit, not yours.

    Trading less escalates variance, you know this. Unless -

    a) the environment in which your strategy works has changed and you have not yet detected this and adjusted for it

    b) your execution has not been constant

    c) the strategy really never worked, it just gave random results, and up to now mostly positive.


    Don't be fooled by advice to stay out of the market - unless you need time to adjust the strategy or your emotions are ruling your decisions. The market continues whether you are in a position or not, so if a strategy depends on a particular chart scenario, these continue to generate and play out whether you have money in or not, so ignoring the set-ups and trades you didn't take is just a way of skewing your win rate and probabilities.

  4. Default

    I am not a day trader and I am not sure what those percentage points mean, but my advice is this on how to make money in the market:

    1. have a system that wins more than loses (based on back tests spawning more than one market cycle)

    2. Using the data you can define your risk level precisely using something like half Kelly

    3. Take every trade and the miracle of compounding take care of you

  5. Default

    If I understand the nature of your question correctly, your perceived dilemma seems to be a cause vs effect issue. In contrast, I think it is a quality vs quantity consideration. There are two underlying drivers that affect how your problem is perceived. Firstly, whether your trading method is mechanical or discretionary. Secondly, whether your trading style is short or long term in nature. In other words, you will have an incomplete conversation without having a broader consideration of how you approach trading.

    I will not get into the details because it is a complex topic. However I will briefly contrast between mechanical and discretionary to highlight the quantity consideration. A mechanical approach do not focus on individual quality in a trade. The focus is that each trade must meet predefined qualifying reqiuirements to take the trade. The quality is in the overall system and the aggregate results over many trades, with reliability getting closer to expected results based on a larger population of trades rather than less. In contrast, discretionary is meant to focus on quality of each trade. If for example, when a discretionary trader experiences a string of losses, there are usually stop trading rules build into the overall trade plan. The whole premsie of a discretionary trader is to be able to call quality trades. If for any reason, trade results are not happening as expected then something else is happening and it is prudent to assess the situation before committing further trade capital. In other words, do not trade for the sake of it.

 

 

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