I took a trial of Linda's room. I never went back, her calls were at best 50% correct. Using a +2 / -1 dollar ratio for trades, 50% correct will make anyone rich over the course of time. For the legion of emini traders who think they can play the 1/1 ratio and win 70% or greater trades, rotsa ruck with that over the course of time!
"For the legion of emini traders who think they can play the 1/1 ratio and win 70% or greater trades, rotsa ruck with that over the course of time" i don't trade the emini (ES) but another index futures. and i have a lower target than risk ratio (for most setups) and a over 70% win ratio, and it works for me. there are many many many ways to skin the market cat. but this idea that IN FUTURES INTRADAY SCALPS, that your profit target must be greater than your risk - this is one of the most pernicious myths i see considering it is so popular, and that the popular (90%) of futures traders LOSE money - maybe you should reconsider risk/reward ratio is DEPENDANT ON THE TRADE SETUP. i have one trade setup that has a 3/1 risk/reward ratio it also has 90% (no, that is not a typo) winning trades WITH that risk/reward ratio... that's positive expectancy. which is the bottom line most of my other trade setups have around a 5/3 risk/reward ratio. but that is misleading, since scaling out on multiple contracts might lead to (for example) initial stop: 12 points first target: 6 points 3 contracts (2/1 risk reward) but once first target is met, stop is moved to -4, with second target being +10 then, stop is moved to +4 with third target being based on certain internals calculations. regardless, my point is this. there is no CORRECT risk/reward ratio for trading in general it is SETUP dependant. and the setups are also dependant on the instrument traded - it's volatility, its granularity, etc. and the structure of the day. on a "trend day" which only happens in the indexes on average 4-6 days a month - a wider profit target, based on trend following setups is a good idea. however, on a day where the market is rotating around value, different parameters apply you have to adapt TO the market. it doens't care about you, your stops, or your targets. so don't try to pigeonhole it. trade it
"i have one trade setup that has a 3/1 risk/reward ratio it also has 90% (no, that is not a typo) winning trades WITH that risk/reward ratio... that's positive expectancy. which is the bottom line" More than 90% of all emini traders who try to win that ratio for one calendar year or more will fail, for sure. Congrats on being skilled enough and disciplined enough to make that reverse scale work for you. I can think of one former "guru" and several hundred disgruntled clients of a hugely promoted ES service who believed they could win with a similar ratio in the ES. They learned otherwise, the hard way. I'm sincerely glad to hear you are one of the very few emini traders who has managed to succeed with such an inverted risk/reward scale
i think you are not completely understanding what i am saying i am saying THAT trade setup has a 90% win ratio, with a 3/1 risk/reward ratio that setup occurs on average about once a month. it's an overnight trade it is a VERY rare setup. i was speaking of one setup to illustrate that hard and fast rules about risk/reward ratio are stupid. risk/reward ratio needs to be setup dependant, and of course setups are dependant on a host of factors, including the instrument you trade. i choose to trade primarily one instrument, and have spent a long time developing setups for that instrument. i know that some of these setups have significant negative expectancy on other instruments, based on backtesting them others seem to work on all the index futures.
yes risk/reward ratio's are entry dependent...but do not bother trying to explain this. I knew a system that used rate of change and momentum, and just used price to see the direction....
also, i am not an emini trader i trade YM. YM is not "technically" an emini, since emini is a trademark of CME, and YM trades on CBOT. it is a mini contract, though now that CME and CBOT are merging, that may change of course
Guys, I understand what you are all relating here 100%. I spent several years and literally 1,000s of personal manhours coding mechanical systems, fiddling with stops of all manner. I know how to build mechanical systems that win 80% of trades and net profitable over time. I understand why you use a wide stop to give the high positive expectancy of small move ample room for fruition. Trust me... we could have a detailed conversation on any aspect of what you do and it won't be over my head. * That said, it takes an incredibly high level of discipline to accomplish what you are doing, whitster. Where you see a specific setup few times per month, 90+% of mini traders would think they see it once a day. If your scale worked on that particular setup, surely the use of a similar stop - profit target must apply elsewhere. That is inevitably the train of thought which develops in order to avoid taking losses on other trades. ** I have likewise tried to explain this concept in other threads (scaling out) and it seems to be missed overall. Forget about each individual trade as a priority or even important event. The trade we are in right now means no more or less than the previous 100 past or next 100 to follow. When testing any system, method or approach, what is the sweet spot in its yield curve for profits and loss? If the data covers 1,000 trades in 24 months AND suggests +30pts YM using a -10pt YM stop is the biggest per-trade profit size AND maximum realized profit in that time, EVERY SINGLE TRADE with no exceptions should be managed accordingly. Let me restate that another way. If 1,000 trades at random using one's method - system - approach profits the most over long periods of time using a hypothetical +30pt / -10pt scale, it cannot be improved upon. Completely forget about individual trade aspects: it is all baked into the overall database. Just manage each trade according to its sweet spot on the test curve, and you cannot improve upon those results by micro-managing fixation on each individual trade. ** If you have an approach that tests out best using a 5/3 ratio, then stick with it thru every trade. The problem for 90+% of all traders trying that in real time with real money is a fixation on each & every individual trade, and detrimental micro-management Whatever your ratio tests out at as the sweet spot in a yield curve for performance, please adhere to that. My point is this: almost no traders can hold themselves strictly disciplined to that ratio, trade after trade after trade. They literally go broke taking profits... take profits too soon, "bail out" of trades that unnerve them, numerous ways to bastardize the performance yield curve when ratios of profit to loss are inverted and trade entry skill is not razor sharp.
Austin... good post. The discipline, part especially. There is a saying - first you learn how to lose money. Then, you learn how not to lose money. Then, you learn how to make money. Most traders never complete stage I. I am not a mechanical trader, just to clarify. I am discretionary, but I am far from "random". I am only allowed to enter if a trade setup presents itself. I have a list of 21 setups. BUT... I don't HAVE to enter if a trade setup presents itself. If I see some market internals, or other reasons NOT to enter a trade - i will forego it. My success rate is around 80%. That's the sweet spot for me. I like my methodology of scaling out, small initial targets, moving stops in, etc. because it results in basically no drawdown, and a very smooth equity curve. I also take 7/10 of my profits generated, at the end of each week and take them OUT of my futures account, placing them into relatively conservative buy and hold stocks, some commodities (oil, gold), some money market, etc. I keep less than 10k in my futures account at all times, as well. When I get to 10k, I sweep out back down to 5k and reduce my size. Another ULTIMATE hard and fast rule i have is that I NEVER NEVER NEVER widen my stop, and I ALWAYS set my stop and first target exit UPON entry. I'd love to be an emotionless trader, but i have not achieved that yet. I maybe never will. That's why I have rules (and a 60 page trading manual I wrote). I love the fact that futures play on trader's emotions. That's where the money is to be made. I remember every day that every single cent that is marked to market and placed in my futures account CAME from somebody else's account. Futures (sans commissions) is ZERO SUM. Unlike stock market. That's pretty humbling.
21 setups........wow...intraday emini can only do 3 things........i have 3 signals ....down sell up buy sideways buy and sell.......that is humbling also......and i never think about where the money comes from....whassup with dat? any money you get from anywhere comes from someone else.....unless u r printing u r own stuff......60 page manual? i hope that is not a one market manuscript.....r u an engineer? put about 59 1/2 pages of that in file 13 ....if it is all about 1 market......