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Risk

Risk management demystified, examples and facts proven.Greetings, I've spent a considerable amount of time trying to find the magic formula to stay profitable, I've read books, I've heard speeches, I've talked to pros, and I've stayed profitable, BUT... I've also lost quite a bit, I tried coding my strategy to see how it would really perform without sentiments, as executed by a machine and I was really suprised, no strategy surpassed the 40% profitability mark, so I decided to write down the axioms of my trading strategy and code them the best I could, these 5 axioms are: 1- Direction of the entry, two ways to do it, follow the trend or pick a reversal point. 2- Entry point, if following the trend use momentum indicators, if reversing, candlestick patterns, S&R or trailing stop buy/sell orders are good. 3- Risk management, specially trailing stop loss. 4- News handling (this might be included in point 3, since it's mostly updating your stop loss before big news. 5- Favor the most likely trades out of the 29 pairs. (this one can't be done on trading view obviously) For point 1 there are a lot of AWESOME indicators out there: RSI, MACD, Stochastics, EMA, ALMA, BB, ichiomoku, renko, heikin ashi, and many many others, including my own SCSM indicator. Point 2 isn't as important as many may think, and I will prove it later, however in order to avoid unnecessary risk I would say to avoid opening positions near major news releases. Point 3 is the core of this idea and I will explain it in detail later. Point 4 is important too, but not crucial for longer term trading, the really important thing about news announcements are the price spikes and the SL hunts, meaning you need to either widen your SL or close and reopen or tighten your SL considerably. Point 5 is one of the most important points, there are many symbols to trade, and while I don't encourage trading everything at the same time, diversification helps reduce risk and why trade two weak currencies when you can trade a strong against a weak? Now, to point 3, take a look at the chart of the idea, a profitable GBPUSD strategy on the daily candle over 10 years, blue arrows mean buy at the open, purple arrows mean either SL or trailing stop loss close or condition close (such as too tight BB for example), red arrows mean sell at the open. Now, take a look at this chart: imgur.com I need to use external sources since TV doesn't show the strategy results in the snapshots, sorry for that. Anyways, the strategy IS profitable even taking the opposite signals, HOW!?!?!?!, that makes no sense, or does it? The trick is simple, though the number vary on each symbol, for this particular case (GBPUSD) the strategy opens a trade and places a SL 2400 ticks away from the price. Now, if price reaches 750 ticks in profit it activates a trailing stop loss of 750 ticks, meaning it will breakeven or earn cash no matter what. This may sound a little weird at first, since the risk is higher than the reward in theory, but remember that markets are VERY volatile, it's very possible for a trade to hit those 750 ticks in profit in one or two days if we're in a range, not to mention if we are in a trend. Let's tweak those numbers and set the signals normally but with a 200 ticks SL and see what happens... For starters, THIS happens: i.imgur.com Meaning we get stopped too often, causing serious psychological damage, so I'm going to reduce the test to only 3 years and look the results... imgur.com Wow... just wow, too tight SL is a sure formula to losing, but what about tight TP?, let's do the math again, increasing the SL and using a small TP, for 200 ticks TP and 1000 ticks SL this is the result: imgur.com I've reached the limit of characters for this idea, but I'm not done.
Education
by EilderJorgeGarcia
1
RIsk management with REAL trades not examples from past dataThis is a sequel to our first post on risk management with trades we have actually executed and not using examples from past market data. In this chart, we show how seven trades would be executed and with said trades increase our profits while minimizing our risk. Closing our trades early protect us from any possible "flash crash" situations. You can have a 30% trade success rate and still be profitable, or even have a 90% winrate and not be profitable. We use real trade examples in this chart, with all of the details below. Even the losing ones. Make sure to browse them if you like by clicking them below. POST 1 POST 2 POST 3 Take note that no matter what, we stick to our original trade plan and once our stops get hit we'll just take the loss then sit on the sides waiting for a new trading opportunity. POST 4 POST 5 Closing our position at a high price when we see an indication of price reversal allows us to re-enter at a lower price and buy more with our initial position. In these specific trades, we use resistance, support, candlestick patterns, and flag patterns as our confirmations. Closing our position at a high price when we see an indication of price reversal allows us to re-enter at a lower price and buy more with our initial position. With every trade that is made, stops and take profits are adjusted with each position. Hover your mouse cursor over each area to see why a trade was executed! There are trading opportunities every day. Don't be in such a rush to always have a position open. Trading emotionally is an easy way to get burnt. These calculations are based on the starting principle of $1,000 USD ** We actually lost less on the trades that didn't go through, because we can adjust our stops to our entry so we'd lose nothing but thats a post for another day! ** FAQ Now how can you use this strategy to your benefit? When you open a position and have your stops in place, and when you're in profit keep a close eye out for reversals; when the price begins to reverse close your position and continue to observe the price. When the price is done correcting and is lower, watch for a bullish reversal to continue its run. When this is done re-enter with new stops. I don't trade flags or some of the techniques used to predict a movement. What should I do? Regardless of how you predict price movements, you can refer to this as a way to trade a market consistently in order to make more profit while minimizing your risk. This is merely one example of how you as a trader can create a trading plan that you stick to consistently to make pips! What if you closed it and it kept going up? At times it's better safe than sorry. we do this Why not just hold? In some markets, a price can reach a certain point and not return to it for months or even years. I definitely don't have the time to be watching charts constantly to be able to do this! Anything worth doing is worth overdoing. Besides, Tradingview has very nice tools available for all of us to enjoy. Simply setting an alert on a trend line will help! We appreciate all feedback and suggestions if you have any feel free to comment below! Wish you all the best. Have a great weekend everyone!
ZEducation
by 162Trading
9
Weekend Quickie- Time to Pick Up Some Protection, Puts on the Q?Are there many reasons for the overall market to go higher? Other than the resolution of U.S. and China trade concerns, there don't seem to be a lot of good reasons for the stock market to rise as a whole. Back in March, traders were discussing "the most anticipated selloff of all time" as trade, political, and monetary fears were sending the market down off its highs. Concurrently, traders were gearing up for a meteoric advance in prices as earnings came in strong. Judging by the price action, these two theories are in vigorous, directly opposed but equal competition with each other, and as a result we can see the QQQ trading in a volatile stalemate. Indeed, most earnings are coming in very strong, but with undertones of lackluster guidance. Guidance aside, market wisdom dictates that good reasons are needed for prices to climb (traders\investors often need good reasons to buy), but prices can fall on their own account. Are there many reasons for the indices to head higher? Are there many reasons for the indices not to fall? As uncertainty continues, traders are considering downside protection with puts or short positions on the market, even as upside bets are being made on certain stocks and sectors. Please like, follow, and share, and maybe we can have fun and do great things together. Thanks again! See it on the site: holsturr.com/category/markets/charts/ ** For speculative and research purposes only - good luck! **
NASDAQ:QQQShort
by holsturr
STOCK TRADES MAY 15TH ARE YOU SCARED OF TRADING REVERSALS?Ever wanted to know how to trade market tops and bottoms? If so drop a comment below. Meoh Short Trade- Stop 71.30 Entry 68.55 Target 1 63.05 2:1 Target 2 60.3 Target 3 optional trail Short setup is forming as market retest range highs www.tradingview.com NBIX- ENTRY 90.92 SL 95.01 T1 86.92 rr 2:1 T2 77.01 rr3:4 Short setup is forming as market retest range highs www.tradingview.com TROW ENTRY ON OPEN 117.30 STOP 120.30 TARGET 114.30 rr 2:1 TARGET 2 106.30 rr 3.66 short setup is forming as market retest range highs www.tradingview.com
NASDAQ:TROW
by nastrades21
Today's Lesson (#4) : Adjusting the leverage to volatilityIn this educational content video I had to cover one the biggest noob trader mistake, trading with too much leverage. That's basically what flushes out almost 80% of the noobs. Getting the margin call, putting more money into trading than you initially expexted. All of this is well known as gambling problems. And the recent flow of beginners who went to the markets with hopes of easy gains, most are now feeling the painful experiment of what the market is doing to fools. So I hope you'll learn something important today with that lesson. Cause if you don't, then you'll probably have to learn it the hard ways later...
BITSTAMP:BTCUSDEducation
by PRO_Indicators
13
Gold - Could Jump Towards 1380 If Risk Enters Into Play=> Inflation recently slowing across US, EZ, UK et al other major economies we have only one side of gold in play here... risk . Volatility is set to increase in May as tensions in the Middle East, namely Iran continue to escalate. We are setting the stage for war and commodities (namely oil and gold) are the beneficiaries of risk flows. => FED hikes in May are now swimming in done deal territory after yesterday's FOMC with bonds expected to remain choppy for the next few months after confirming the widely anticipated 3%. => USDJPY has defended the 110 barrier after USD bulls looked for reassurance despite the momentum. Profit taking is partly to blame here. => If inflation enters back into the picture we can escape towards 1400 although we don't see inflation in play till Q318. In any event, smelling more panic here in foreign policy over the coming weeks.
FOREXCOM:XAUUSDLong
by RaiseTheBid
Risk management. How much to risk per trade?While not much is happening, remember to improve on your system more than anything else I believe. Reading every book on TA doesn't matter if you have a dumb system where you're guaranteed to blow your account sooner or later. Here's a friendly reminder on how much to risk on every trade. Suppose a 50,000$ starting account. *** Win 8 trades out of 10 on average. *** 2 losses in a row has a 4% chance of happening. Expect it to happen. 5 losses in a row has a 0.032% chance of happening. If that happens come on... Calculations. A/ Risking 10% account on each trade (starting 5k then 4500 etc). 2 losses in a row ==> Down to 40500. Down 9500. 5 losses in a row ==> Down to 29524. Down 20500. B/ Risking 2% account on each trade ($1000 then $980 etc). 2 losses in a row ==> Down to 48020. Down 2000. 5 losses in a row ==> Down to 45200. Down 4800. *** Let's say win 7 out of 10. *** 2 losses in a row has a 9% chance of happening. Will definitely happen regularly. 5 losses in a row has a 0.24% chance of happen. Should be a rarity but can happen! Very unlucky. Calculations same as previously. *** Win 5 out of 10 (rip). *** 2 losses in a row has a 25% chance of happening. Evertiem! 5 losses in a row has a 3% chance of happening. Enjoy! 10 losses in a row has 0.1% chance of happening. Unlucky!!! A/ Risking 10% account on each trade. 2 losses in a row ==> Down to 40500. Down 9500. 5 losses in a row ==> Down to 29524. Down 20500. 10 losses in a row ==> Down to 17433. Down 33000. Hey whattap baggy? B/ Risking 2% account on each trade. 2 losses in a row ==> Down to 48020. Down 2000. 5 losses in a row ==> Down to 45200. Down 4800. 10 losses in a row ==> Down to 40850. Down 9150. What about an aggressive but still not too insane 5% 5 losses in a row ==> Down 11 grans. 10 losses in a row ==> Down 20 grans 40% loss. Pretty harsh. Find your best strategy. Most trading education sites recommend 1 or 2%. If possible, it would be better to look at your past trades and calculate your hit rate figure how much you can risk BUT be conservative, for example you might be drunk at some time and start underperforming. Then you can easilly lose 5 times in a row so make sure you never go too crazy. Also the better the trade the more you can risk, but that can be subjective and I bet alot of people would screw it up, so if unsure just stick to your plan. Like buying a break at the top when overbought is way less good than buying at a monthly support with 5 min 15 min 1 HR and 4 HR RSI oversold...
BITFINEX:BTCUSDEducation
by MrRenev
5
Lesson on trading, TA and RiskG'day Cobbers and Shobbers, How are we this morning, did many of you manage to make so profit yesterday? I will start with a quick talk about Edges and trading strategy and how to be profitable from your charts. First if you take a look at the chart linked below from yesterday you will notice I flipped outlooks as the day progressed, I also traded on these calls, some I got stopped out on at small losses, a few I made breakeven or small profit after fees, the last one I made a massive profit on, none of those trades were any better than the other. Seriously! You have to look at your trades in the same way a Casino runs, lets look at the Roulette table for example on a black/red bet, now the "Edge" the Casino has in this situation is the 0 00 on the wheel, which gives the player a 47% chance of winning , the house at 47% plus the edge (Around 6%%) This edge over 10 bets this edge won't net the Casino much or anything at all but over millions of games, you can see the potential for profit. Trading is the same, once you have a strategy and find an edge, weigh up the risk to reward ratio and it fits your plan, you trade it, win or lose it does not matter, because if you have a good solid strategy and solid risk and money management plan in place, the profit will come. Taking the emotion out of trading is the first thing you need to do to last, this also relates to doing Technical Analysis. To be good at TA, you need to do more than just study and draw lines, you need to take out any preconceived Bias you have towards the market, be fluid and not stubborn. Big Egos and know it alls always fail, they are unable to admit when they are wrong and end up missing subconsciously the triggers and patterns that are going against their analysis, they filter out all the noise that is not in their favor and look for that which confirms their biases. Just remember The Market can do anything. you can do your research, analyze and be confident in your trade to go in a certain direction but you can not expect it to, which is why we trade on probabilities, when you see an opportunity ( set by your strategy / Edge) you need to factor in all the data in front of you, decide if it fits your R/R ratio, find an entry and set an exit and stick to it, if you miss the entry then let it go and wait for the next opportunity, it may come back and you will get another chance. Know your exit (look for resistance/support) levels, factor these in with your strategy (be it breakouts or simple MA crosses) before you set you buys/sells and take profits along the way. Risk You will hear people talking about Risk all the time and it seems pretty simple but it isn't. A simple explanation can be setting Stops and not risking more than a percentage of your account equity but it is more than that and it also part of what makes markets move. Risk = Pain. Pain is what causes big runs, first goes the stop losses in a big move, then the overleveraged and then those whose pain threshold is pushed beyond the limits, you know this to be true, its why you end up selling off your position at the bottom and then it magically moves up again. This is why you don't risk more than you are willing to lose, and you really got to believe it or this pain will cause you to sell at the bottom, good traders don't deal with this pain because they trade within Risk, they trade without emotion, knowing that a loss matters not, they are a part of trading, your strategy, if followed properly will profit over time. Many fail because they don't follow their strategy, they over-leverage, the place position sizes way to large and small moves against there position causes pain, pain causes loss of confidence. You can see where I'm going with this. G'day Thanks for dropping by, hopefully, you garner something valuable from my post, be it educational or an idea towards a trade of your own. Please share, like and comment and engage with me, I am here to help.
BITFINEX:BTCUSDEducation
by TroyByrne
10
How it's all connected upIn this video I explore how the US Dollar strength affects stock markets and the EURUSD. When I was very new to trading I had not known about all this - and late in the game I wished that somebody would have told me sooner. Shorter term bounces of the US dollar can cause traders to exit positions too soon. Around this time day traders could find that spikes in the US dollar causes them to be bounced out of trades that are long or short on other instruments. Volatility is what we need in trading, but there is a kind of love-hate relationship with it.
FX:US30Education
by Captain_Walker
Volatility itself could kill the marketsThe VIX is called the 'Fear Index'. That's for a good reason. In times of high volatility what do you do? People in general stay out i.e. they sell off and keep their powder dry, or look for safe havens. They fear for their money, even if they don't admit it. As a trader you're told 'volatility is good for traders'. But really - is it? It depends on how extreme the volatility is. How many of you have stayed out of the markets simply because you cannot withstand the volatility and risk? I think there are many who do so - and they are right. No point jumping in and getting fried if you cannot take the loss (in your stop losses). The average true range on many charts are pretty high in recent times. And if your stop loss is sensibly going to two times average true range (at least), many will know that they cannot take the loss. It's this simple, do you throw your money into a volatile market, like stocks at this time - and have any degree of confidence that tomorrow morning or two months later, your assets are gonna be worth more? I think not. So logically most people will not venture much into stocks at this time. Forex markets too are becoming more volatile in the last 2 months and more so in the last week. Can you jump in and with what level of stop-losses? Most people are gonna stay away. This is about mathematics. Most people have smaller accounts and cannot withstand the volatility, so would sensibly stay out. The whole thing is connected up. The Yen and USD to Wall Street (the US30); the EURUSD to Ger30. They've got you cornered! :)) If a majority - even 51% of people - stay out, it means they've gotta liquidate, which means selling off. If this idea is right then it means there is more downside to lots of indices and possibly increased volatility on forex markets.
CBOE:VIX
by Captain_Walker