Thoughts on Day/Swing Trading
- Thread starter Smart_trade
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Hey ST,
After reading your post, I tried with the game. I encountered two problems. One is catching a child who is stable enough to pick 40 slips from the bowl. Two is holding the child until the game is over by giving him some Meetha Ho Jai(Cadbury).
Finally I learnt two lessons. One is how to tackle unstable things. Two is how to drive through such scenarios.
Thanks for making learning playful.:rofl:
After reading your post, I tried with the game. I encountered two problems. One is catching a child who is stable enough to pick 40 slips from the bowl. Two is holding the child until the game is over by giving him some Meetha Ho Jai(Cadbury).
Finally I learnt two lessons. One is how to tackle unstable things. Two is how to drive through such scenarios.
Thanks for making learning playful.:rofl:
Hey ST,
After reading your post, I tried with the game. I encountered two problems. One is catching a child who is stable enough to pick 40 slips from the bowl. Two is holding the child until the game is over by giving him some Meetha Ho Jai(Cadbury).
Finally I learnt two lessons. One is how to tackle unstable things. Two is how to drive through such scenarios.
Thanks for making learning playful.:rofl:
After reading your post, I tried with the game. I encountered two problems. One is catching a child who is stable enough to pick 40 slips from the bowl. Two is holding the child until the game is over by giving him some Meetha Ho Jai(Cadbury).
Finally I learnt two lessons. One is how to tackle unstable things. Two is how to drive through such scenarios.
Thanks for making learning playful.:rofl:
ST
Last edited:
EXPECTANCY OF TRADING METHOD :
The traders have a misconception that if they follow any method /system they will make money....nothing is further from truth. They will make money only if the method has positive expectancy...if it has negative expectancy, traders if they trade that system , they will loose "systematically"
Let us see what this expectancy is and how we can find out expectancy of the method we trade. I will explain the concept in practical terms and also give example of a real trading method, its parameters and how to find expectancy of this method.
The expectancy is the amount you’ll make on the average on every trade per rupee risked on your trading method . Expectancy can be mathematically expressed as :
Expectancy = ( Probability of win X Average win ) - ( Probability of loss x
average loss )
In our MM game posted some posts earlier, we had our winners making 2 times our loosers and we had 20 winning and 20 loosing trades so the probability of win/loss both are 50 % or 0.5 So let us solve this equation :
E = ( 0.5 X 2) - ( 0.5 X1)
= 1- 0.5
= 0.5
This expextancy is a positive figure....so the method will make money...and it will make more money if we take more trades on the same.
But if the loosers were two times the winners......then this equation will give expectancy as -0.5 ......so that method will loose money no matter how faithfully you follow it......
Readers can get more information about expectancy in a fine book titled "
'Trade Your Way to Financial Freedom’ by Dr. Van K Tharp
The method will have more expectancy if it has either higher hit rate ie higher percentage of winners or higher average amount made on a winning trade....this is where importance of staying with your winning trades ,adding to your winners and cutting your loosers early comes into play.....
In next post we will apply this concept to a real swing trade method, list the method parameters to understand the expectancy of the method based on actual trades generated by the method ......
Smart_trade
The traders have a misconception that if they follow any method /system they will make money....nothing is further from truth. They will make money only if the method has positive expectancy...if it has negative expectancy, traders if they trade that system , they will loose "systematically"
Let us see what this expectancy is and how we can find out expectancy of the method we trade. I will explain the concept in practical terms and also give example of a real trading method, its parameters and how to find expectancy of this method.
The expectancy is the amount you’ll make on the average on every trade per rupee risked on your trading method . Expectancy can be mathematically expressed as :
Expectancy = ( Probability of win X Average win ) - ( Probability of loss x
average loss )
In our MM game posted some posts earlier, we had our winners making 2 times our loosers and we had 20 winning and 20 loosing trades so the probability of win/loss both are 50 % or 0.5 So let us solve this equation :
E = ( 0.5 X 2) - ( 0.5 X1)
= 1- 0.5
= 0.5
This expextancy is a positive figure....so the method will make money...and it will make more money if we take more trades on the same.
But if the loosers were two times the winners......then this equation will give expectancy as -0.5 ......so that method will loose money no matter how faithfully you follow it......
Readers can get more information about expectancy in a fine book titled "
'Trade Your Way to Financial Freedom’ by Dr. Van K Tharp
The method will have more expectancy if it has either higher hit rate ie higher percentage of winners or higher average amount made on a winning trade....this is where importance of staying with your winning trades ,adding to your winners and cutting your loosers early comes into play.....
In next post we will apply this concept to a real swing trade method, list the method parameters to understand the expectancy of the method based on actual trades generated by the method ......
Smart_trade
I am giving below system parameters of a real swing trading method based on trades generated by this method. I have randomly picked a 2 months period about a year back...I know that 2 months is a small sample size....but this is just an illustration......( all figures are after considering brokerage,STT and all other charges )
SWING TRADE METHOD SYSTEM PARAMETERS
1) Total no of trades ........ 20
2) No of winning trades ........ 13 ( 65 % of total )
3) No of loosing trades ........ 7
4) Max consecutive loosers ...... 2
5) Max consecutive winners ...... 4
6) Average profit on a winning trade Rs 21,696
7) Average loss on a loosing trade Rs 6,265
8) Profit factor ........ 3.46 :1
( Ratio of Av amount won
on a winning trade / Av amt
lost on a loosing trade )
9) Max Peak to valley drawdown Rs 12,500
Expectancy of this method = ( 0.65 X 3.46 ) - ( 0.35 X 1 )
= 2.249 - 0.35
= 1.899
This method will definately make money as the expectancy is very high ....
Everyone can find the expectancy of his method based on his trades generated by the method....
The above is only an illustration to explain how a good system has its system parameters and expectancy... I will not be able to disclose specifics of the method for obvious reasons.....but with the ideas which will be presented in this thread, people themselves can build such methods and trade them....
Smart_trade
SWING TRADE METHOD SYSTEM PARAMETERS
1) Total no of trades ........ 20
2) No of winning trades ........ 13 ( 65 % of total )
3) No of loosing trades ........ 7
4) Max consecutive loosers ...... 2
5) Max consecutive winners ...... 4
6) Average profit on a winning trade Rs 21,696
7) Average loss on a loosing trade Rs 6,265
8) Profit factor ........ 3.46 :1
( Ratio of Av amount won
on a winning trade / Av amt
lost on a loosing trade )
9) Max Peak to valley drawdown Rs 12,500
Expectancy of this method = ( 0.65 X 3.46 ) - ( 0.35 X 1 )
= 2.249 - 0.35
= 1.899
This method will definately make money as the expectancy is very high ....
Everyone can find the expectancy of his method based on his trades generated by the method....
The above is only an illustration to explain how a good system has its system parameters and expectancy... I will not be able to disclose specifics of the method for obvious reasons.....but with the ideas which will be presented in this thread, people themselves can build such methods and trade them....
Smart_trade
EXPECTANCY OF TRADING METHOD :
The traders have a misconception that if they follow any method /system they will make money....nothing is further from truth. They will make money only if the method has positive expectancy...if it has negative expectancy, traders if they trade that system , they will loose "systematically"
Let us see what this expectancy is and how we can find out expectancy of the method we trade. I will explain the concept in practical terms and also give example of a real trading method, its parameters and how to find expectancy of this method.
The expectancy is the amount youll make on the average on every trade per rupee risked on your trading method . Expectancy can be mathematically expressed as :
Expectancy = ( Probability of win X Average win ) - ( Probability of loss x
average loss )
In our MM game posted some posts earlier, we had our winners making 2 times our loosers and we had 20 winning and 20 loosing trades so the probability of win/loss both are 50 % or 0.5 So let us solve this equation :
E = ( 0.5 X 2) - ( 0.5 X1)
= 1- 0.5
= 0.5
This expextancy is a positive figure....so the method will make money...and it will make more money if we take more trades on the same.
But if the loosers were two times the winners......then this equation will give expectancy as -0.5 ......so that method will loose money no matter how faithfully you follow it......
Readers can get more information about expectancy in a fine book titled "
'Trade Your Way to Financial Freedom by Dr. Van K Tharp
The method will have more expectancy if it has either higher hit rate ie higher percentage of winners or higher average amount made on a winning trade....this is where importance of staying with your winning trades ,adding to your winners and cutting your loosers early comes into play.....
In next post we will apply this concept to a real swing trade method, list the method parameters to understand the expectancy of the method based on actual trades generated by the method ......
Smart_trade
The traders have a misconception that if they follow any method /system they will make money....nothing is further from truth. They will make money only if the method has positive expectancy...if it has negative expectancy, traders if they trade that system , they will loose "systematically"
Let us see what this expectancy is and how we can find out expectancy of the method we trade. I will explain the concept in practical terms and also give example of a real trading method, its parameters and how to find expectancy of this method.
The expectancy is the amount youll make on the average on every trade per rupee risked on your trading method . Expectancy can be mathematically expressed as :
Expectancy = ( Probability of win X Average win ) - ( Probability of loss x
average loss )
In our MM game posted some posts earlier, we had our winners making 2 times our loosers and we had 20 winning and 20 loosing trades so the probability of win/loss both are 50 % or 0.5 So let us solve this equation :
E = ( 0.5 X 2) - ( 0.5 X1)
= 1- 0.5
= 0.5
This expextancy is a positive figure....so the method will make money...and it will make more money if we take more trades on the same.
But if the loosers were two times the winners......then this equation will give expectancy as -0.5 ......so that method will loose money no matter how faithfully you follow it......
Readers can get more information about expectancy in a fine book titled "
'Trade Your Way to Financial Freedom by Dr. Van K Tharp
The method will have more expectancy if it has either higher hit rate ie higher percentage of winners or higher average amount made on a winning trade....this is where importance of staying with your winning trades ,adding to your winners and cutting your loosers early comes into play.....
In next post we will apply this concept to a real swing trade method, list the method parameters to understand the expectancy of the method based on actual trades generated by the method ......
Smart_trade
I have a small doubt here.. frm whatever I gathered frm ur posts, u trade with the flow and do not close ur trades till the time the market comes back and takes ur Sl...
what I imply here is that , as per my understanding, u do not trade with a decided % stop and a decided % profit or a fixed profit & loss...
In such a case scenario, to calculate the trade expentancy, u will have to rely on the past data of profits and losses...
what I believe is that past data of a small time period may not give the true representation of the robustness of the system, as the markets are dynamic and may change....
for instance if I take the the past trade data of profits & losses for x period and find that my system gives a positive expentancy.. the very nature of the mkt may change fr the next x period. ie. the mkt may go frm a 'trending phase' into a consolidation phase..
hence I believe, if one is trading a system where the profits are not predecided, to calculate whether the system has a positive or negative expentncy, trades done in all kind of mkt scenarios would have to be taken into account...
regards
Hi Anurag....
I agree with you that the markets change and so does profits and losses of various periods.....but if you see the method performance on a long time you get the idea of what to expect in a overall period. This is where having a large expectancy helps.....in a bad period the profits may go down but they dont go negative....
This method is not a flow method in its normal always in the trade type....it takes off the profits on defined critaria...Though we dont have fixed profit which we take on every trade we have our risk defined as a % of the trading capital and based on the distance of the stop point the quantities traded vary.....so risk is always defined...
Smart_trade
I agree with you that the markets change and so does profits and losses of various periods.....but if you see the method performance on a long time you get the idea of what to expect in a overall period. This is where having a large expectancy helps.....in a bad period the profits may go down but they dont go negative....
This method is not a flow method in its normal always in the trade type....it takes off the profits on defined critaria...Though we dont have fixed profit which we take on every trade we have our risk defined as a % of the trading capital and based on the distance of the stop point the quantities traded vary.....so risk is always defined...
Smart_trade
MULTIPLE TIMEFRAMES
Multiple timeframes is a great concept even for day trading and short term trading . This concept was developed by many and Dr Alexander Elders and Robert Krauz are the two names I associate with concept of Multiple timeframes.
There are many ways multiple timeframe concept can be used in our trading.Some of the applications are as under :
1) Trade in the direction of trend on higher timeframe.....suppose you are trading 5 min bar, take all trades in the direction of higher timeframe...say 30 min timeframe. So if 30 min timeframe is in uptrend, take all long trades and no short trades.....our sequence of trades should be long...add....book profits.....stay out....again long...add....book profits. But what if the 30 min is not trending and is in sideways phase ? Either dont trade in this period or even if you take trades, be very fast to get out on first sign of trouble....We daytraders want our trades to move in our favour quickly after we enter....and we dont like hanging around in a trade which is going nowhere.
2) When longer timeframe is trending, we trade more aggressively in direction of that trend....we give bit more room for our trades to work.....but when the longer term trend is sideways.....these trades are small , choppy and frustrating ,we enter and exit fast....grab whatever profits we can.....but in trending period we play for big win.
Smart_trade
Multiple timeframes is a great concept even for day trading and short term trading . This concept was developed by many and Dr Alexander Elders and Robert Krauz are the two names I associate with concept of Multiple timeframes.
There are many ways multiple timeframe concept can be used in our trading.Some of the applications are as under :
1) Trade in the direction of trend on higher timeframe.....suppose you are trading 5 min bar, take all trades in the direction of higher timeframe...say 30 min timeframe. So if 30 min timeframe is in uptrend, take all long trades and no short trades.....our sequence of trades should be long...add....book profits.....stay out....again long...add....book profits. But what if the 30 min is not trending and is in sideways phase ? Either dont trade in this period or even if you take trades, be very fast to get out on first sign of trouble....We daytraders want our trades to move in our favour quickly after we enter....and we dont like hanging around in a trade which is going nowhere.
2) When longer timeframe is trending, we trade more aggressively in direction of that trend....we give bit more room for our trades to work.....but when the longer term trend is sideways.....these trades are small , choppy and frustrating ,we enter and exit fast....grab whatever profits we can.....but in trending period we play for big win.
Smart_trade
Thanks a Ton Da ,
If we can Define the Trending period and Sideways Period of a Srip then it will be execellent ,
Then we can wait for trend to start and switched to lower time frame and trade aggresively ,
Yes we can have some false signal of trend starting but knowing when trend starts is a great confidence in my veiw
Please share some thoughts on it , If possible with a chart
If we can Define the Trending period and Sideways Period of a Srip then it will be execellent ,
Then we can wait for trend to start and switched to lower time frame and trade aggresively ,
Yes we can have some false signal of trend starting but knowing when trend starts is a great confidence in my veiw
Please share some thoughts on it , If possible with a chart
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