Once you miss the boat you miss the boat. We never chase trades. This is one of the worst habits we can start getting ourselves into and this will end in a very slippery path that does not end positively for our accounts. Chasing trades ends in things like trying to get revenge on the market, taking trades you shouldn’t, entering when you shouldn’t, trading too much when you shouldn’t etc etc
When the trade is breaking it has a bunch of orders sitting there ready to break and this is why pin bars often burst really quikcly when they break the high or low. This is great because it is on our side when we take entry at the break. What we are doing when chasing the trade is giving up all this advantage and also giving up the advantage of taking a trade when price is moving in our direction and now taking entry when price is entering the opposite way and now hoping that it will change direction for some reason. In other words when we enter at the break price is moving in our direction, but if we enter at a retrace price is going against us and we have to hope that price finds some sort of support or resistance and changes direction.
As for making two trades one of the daily and one on the 4hr, that’s fine as long as one is at break even. This is all about making money and the aim of the game is risk management. We don’t want to be overisking and it is fine to be in two trades at once in the same pair as long as the trade you got in first on the 4hr was at break even meaning it is no longer risking any money before you opened another full risk trade on the daily trade.
You mention having two trades being ok as long as one is break-even and I have a question regarding multiple trades and risk in general. Feel free to not answer if you feel it’s outside the scope of this thread and would encroach on the information you give to those who pay for your course:
If the risk profile I’ve created for my trading involves a maximum risk of $100 on a single trade should this also reflect my accounts risk maximum i.e. at any one point the total risk of all my trades should not exceed $100. So I could have placed a trade risking $100 on Day 1. Day 2 the trade has reached a point at which I’d planned to move my stop to break-even. At this point, and not before, can I now place another trade because the risk exposure of my trades is currently at $0.
Good decision. I didn’t take this one either from the perspective that the pin was on the right location but not commanding enough and the wrong time zone.
Actually I think your heads and shoulders drawing only makes seeing the S/R more difficult. The level is really obvious and easy to identify on a clean chart.
I’ve been analysing this potential trade a little by using an extension of the standard RR. The standard RR of the logical trade on this signal for me is 2.6RR but obviously this only applies if you’re 100% sure it’s going to reach that level which you never are. I made a little Excel calculator which, at it’s most basic, works out the RR of a trade and gives you both the RR and the “Real” RR (the RR multiplied by whatever you think the probability of the price reaching your profit target is).
For me I reckon it’s maybe a 0.50 chance of reaching this point so a “Real” RR of 1.3RR which is great because that’s a 30% return. Obviously as one gains more experience in assessing the probability of the trade working the “Real” RR will become more accurate.
You can extend this further if you’ve got multiple profit targets by assigning probabilities to these, working out the “Real” RR and averaging it. Obviously the probability will decrease the further the profit target is so you might have a TP3 with an RR of 6 but only a 0.2 probability of reaching this point so in reality you’re looking at a real RR of 1.2.
To me the most important target is the FTA. If price is likely to reach FTA, I enter. Whether it hits my final target or not I don’t mind much. Maybe I should, I don’t know.
I agree that the outcome of a trade is probable, but I think it not a good idea to try to assign a probability before a trade, coz we can’t possibly ‘guess’ ( i.e, we can’t know in advance, because we don’t know who’ll be in the market at a given time).
All we can know (that gets better with practice) is whether the trade is “high probability” or not.
I personally never concern myself with R:R, only with whether the setup is high probability (A+). If it’s A+, it has a high probability of working out like I think it will (including realistic TP expectations).
Don’t get me wrong, I get the concepts behind R:R. But it’s not R:R that puts money into our accounts; it’s consistent application of our edge.
[QUOTE=“dudest;593805”]Don’t get me wrong, I get the concepts behind R:R. But it’s not R:R that puts money into our accounts; it’s consistent application of our edge. Food for thought :57:[/QUOTE]
Clearly without a repeatable process to extract money from the market, we wouldn’t be able to put money into our accounts.
And I think at the soul of what you’re saying is “focus on the process, not the results”- which I whole-heartedly agree with.
However, I’d argue that R:R considerations are one of the most (if not the most) important aspects of trading successfully.
Properly managing your equity IS what puts profits into our accounts…
You can have an “edge”, and still blow an account with a 60% success rate.
If your risking 20$ for every $10 gained you can wipe yourself out easily.
10 trades
6 winners = 60$
4 losers = 80$
Maintaining at least a 1:1 Reward to risk ratio will keep you afloat.
To me, my RR ratios are built into my trading process…they are not separate entities.
RR is a huge part of an application of our edge, surely? The percentage of trades one wins is inextricably linked with risk-reward to create a trading edge. As bigcheefer30 mentions, there’s no point winning 60% of trades if my RR is 1:0.5
I think it can be an important exercise in analysis to try and quantify aspects of the trades we make. It might be that, after a significant sample size of trades I can look back and see that a particular type of trade only worked 40% of the time and my RR averaged out at 1. I can look at that and think, well, in future I either need to not make that trade or only take that type of trade in situations where my RR is above say 1.5.
Risk and reward is dependent upon each trader’s win rates. As I’m sure most of you know by now, we should not be speaking about Risk/Reward as Johnathan does not want us to focus too much on it.
I think it’d be best is those which wish to speak about Risk Reward keep it to PMs or another thread, as we are deviating from what Johnathan has taught us, and you are confusing any new viewers/lurkers who follow this thread.
From what i’ve learned in this thread, the price don’t care what R:R you consider.
The most important thing is to understand the price action story and only picking A+ setup.
When price reach FTA, we either move to BE, or move to BE and take partial profit, or take full profit.
Risk reward is [B][U]very very important[/U][/B]! If you don’t watch your risk reward it can quickly bite you in the bum!
What is crazily silly is the internet full of people that go around sprouting that “you have to reach a min risk reward” and they have no idea what idea their win rate is and because of this they are not profitable. Everyday they go into the markets and because they have this mindset of they “have to reach a set risk reward” they target a fixed risk reward. As we know the market don’t give a stuff where a trader targets are or where there min risk reward is.
These traders give up profit whilst holding on for their fixed rewards, they watch winners turn into losers and yet they turn and tell us that the key is fixed risk reward.
The key is not risk reward. A trader with a low risk reward can be profitable and a trader with a massive risk reward can be too. The key is knowing and working it out with the expected win rates and working this in with your particular chosen method.
Thanks for clearing this up Johnathon - when you say “The key is knowing and working it out with the expected win rates and working this in with your particular chosen method.” - how can we work this out - presumably you can only know this when you have been trading your particular chosen method over a minimum of a year (if you are only trading daily charts, say, as I am) and keeping strict records in your journal so that you know what your win rate is over a sufficiently long period, right?
Until you have been trading for a sufficiently long period, what do you do until then about RR? Just make sure you only take A+ setups so you have some reassurance that a lower RR ratio will still keep you profitable over time?
You need to back test. There are years and years of records for all of us to learn from. Our particular method is quite easy to do this because we don’t enter mid-candle.
If you’re on MT4, scroll your chart randomly back 2-3 years and press F12 to go through th candles 1 at a time
in order to backtest correctly, would you record a win if upon the break of the candle hihg/low price subsequently reached the significant FTA (before reversing) on the TF you were backtesting?
The reason for my question to johnathon is because I actually think that backtesting does not give a realistic view of your likely win rate, forward testing for a period of time on demo is better, but really you can’t know your win rate unless you have been trading a live account for a sufficient period of time - live trading with real money feels very different psychologically than demo trading. you have to factor in your individual psychology to truly know what your win rate will be. so if backtesting/demo trading to discover win rate - i think you have to discount that quite a bit to give yourself a realistic view of your win rate once you start live trading - although of course, as a trader becomes more expert and proficient then win rate should more closely align to backtesting/demo trading results
Very true. When I went live (which was this very month), I made 3 losing trades right away. Emotions can really mess with us. After those 3 trades I got my emotion under control again and made back all I’ve lost.
Getting back on track was actually easier than I thought. Once you’re back to normal, you’re back to normal. Just like that. For me it took 3 days. Every trades after that, I felt just like demo’ing.
To be able to stick to the plan, you need confidence. Confidence to not check the chart all the time and not freak out when you see it goes into negative. To build confidence, you need screen time. Lots of screen time. Back testing can give you that screen time while demo/forward testing can give you a taste of how trades develop in real time. I think they go hand in hand.
When learning to trade, everyone learns different , this is not a one size fits all.You really need to make a plan of how to learn this,after you have read material on this.
