there are 2 main types of terrain, the trending terrain and the rangy terrain, if you are on the right direction, attack and rescue will always be correct, because the direction is right, when you are in rangy terrain, just employing rescues you would be profitable pretty much all the time, until the market shifts from rangy to trendy terrain against your direction.
the 2 main terrain types with their respective directional permutations along with their fractal terrain types, form an unending series and permutation of types of price actions and terrains.
where the 3legged animal excels at, is rescueing against the trend, indirectly, right from the start of the move, and rescueing in rangy terrain with a fairly broad volatility range, essentially you can scale a broader volatility range than what your book would normally allow for if you only trade 1 pair. this is especially so if you look at price action which are very inbetween and show possibility it may turn both ways but you are unsure, and ro3k shows terrain is fairly impulsive on 1 currency, and you are wrong on it, you can rotate it out.
well you see, some positions can be rescue, others cannot, but why? well usually its because of the trend and direction, if you try to rescue against the trend and the volatility expands, your book will be killed very easily, but as traders, we don't have crystal ball, we just try to manage risk as price action unfolds. but what if price action only allows you an opening to rescue 100pips away? well, then it means your money management will have to be extremely tight right?
the question then becomes should i rescue or should i not rescue? sometimes there really is no clear answer, and either you cut it fast, or are able to have enough foreign caps to properly out maneuver the markets just to be able to properly rescue into it.
so rescues does not simply involve direction but also your own book's position and money manage capability to handle the markets volatility. it is sure as heck easier to just cap the risk small right from the start, than to let it snowball too much.
so, i guess a deeper insight is, the mm and mo must be adapted to market's volatility, so as to be able to scale the volatility range as the market pushes further outwards.
if you look at richard dennis's money management, they use the factor of N, which is ATR based, which implies their model factors in market volatility when shaping their money management.
if you look at TAF, they consider the leg range by the ATR of the leg thrust.
its because of these few particular scenarios, that i see the benefit to using the 3 legged animal, because with that, it allows me many more direct and indirect strategies to handle the market's volatility.
i think 1 reason why rescues are a double edged sword, because of afew reasons.
1. rescues if used well can help you deal with drawdown extremely well, essentially your book drawdown becomes fairly small.
2. rescues uses bigger size each time, this is the double edge which cuts both ways. because of afew scenarios. i will elaborate below.
suppose our ATR is 25 pips, we spec-ed the mm to be 25pips for 0.1 lot, essentially, we observed that the mm with level 1 rescue, say 3x is 0.3 lots, which means, if we have scout + level 1 rescue, we have 0.4 lots in, which is 100pips at 0.1 lot at stake.
but suppose as price action unfolded, at t+1hr later, the new ATR is 50pips, the risk model is essentially changed to be 2x old ATR, but because the rescue of size can't go smaller and must go bigger, which is a fibo progression, it is a geometric progression with that is now 2x, so as price expands, suppose ATR expands linearly, which is does not (i must make it very clear, it does not, we can only observe, we cannot predict, but this assumption allows us a starting point to extrapolate the possibilities, average case into best case, and average case into worst case scenario), so if price action expands linearly, we have using a symbol A, p&l fluctuation is A * (1.618)^n
using the above, mathematically, we can see that the rate at which the p&l is fluctuating is not linear, as we conduct rescue, but at a rate similar to martingale, or rather this is a class similar to martingale.
so if you do the simulations, you will see that, the rescue operation has limits, it is a very powerful tool, but it has its limits, and one of the limiting core components for a successful rescue is the terrain's volatility vs your deployed position's sizing.
theoretically, even if you are unleveraged, the limit is still 38.2% of the account, then 61.8% is the last level, if you go past that, using a fibo model, with an ever changing volatility, especially so if the volatility expands pass your tolerance limit.
that was the insight gained, hence, the mo is pretty much correlated to size expansion * volatility.
so theoretically, the key lies in mo, mm, pulse read and volatility mitigation.
hence the intuition that, if i can mitigate the volatility, theoretically, the rescue in some way, can be maximized, especially when things are very unclear and confusing.
this is my conclusion, as to the curve ball which the markets will sometimes throw as us, as we try to use the TAF rescue, it is a very sharp dual edge sword, and it cuts both ways, hence proficiency in using it is a must, as well as other skill sets to complement it.
but of course 1 can always say cutting and flipping is also an acceptable method, well i will definitely agree with that, only when the volatility and momentum thrust supports cutting and flipping, then that method is more efficient compared to the 3legged animal.
you see cutting and flipping and rescue and attack and the 3 legged animal, they all complement one another, each scenario requires a different method to handle, so if theoretically, if we can pretty much cover all kinds of terrain manifestation and all tactics to handle them as they transit from 1 to the other, you have mastered the art of extemporaneous response.
and i shall end the post with 1 line from the art of war:
"A general who has not fully mastered the art of extemporaneous responses may know the terrain like the back of his hand, but will not be able to exploit this to his full advantage."
it is this 1 line which stood out from all of the AoW, which caught my eye.
the 2 main terrain types with their respective directional permutations along with their fractal terrain types, form an unending series and permutation of types of price actions and terrains.
where the 3legged animal excels at, is rescueing against the trend, indirectly, right from the start of the move, and rescueing in rangy terrain with a fairly broad volatility range, essentially you can scale a broader volatility range than what your book would normally allow for if you only trade 1 pair. this is especially so if you look at price action which are very inbetween and show possibility it may turn both ways but you are unsure, and ro3k shows terrain is fairly impulsive on 1 currency, and you are wrong on it, you can rotate it out.
well you see, some positions can be rescue, others cannot, but why? well usually its because of the trend and direction, if you try to rescue against the trend and the volatility expands, your book will be killed very easily, but as traders, we don't have crystal ball, we just try to manage risk as price action unfolds. but what if price action only allows you an opening to rescue 100pips away? well, then it means your money management will have to be extremely tight right?
the question then becomes should i rescue or should i not rescue? sometimes there really is no clear answer, and either you cut it fast, or are able to have enough foreign caps to properly out maneuver the markets just to be able to properly rescue into it.
so rescues does not simply involve direction but also your own book's position and money manage capability to handle the markets volatility. it is sure as heck easier to just cap the risk small right from the start, than to let it snowball too much.
so, i guess a deeper insight is, the mm and mo must be adapted to market's volatility, so as to be able to scale the volatility range as the market pushes further outwards.
if you look at richard dennis's money management, they use the factor of N, which is ATR based, which implies their model factors in market volatility when shaping their money management.
if you look at TAF, they consider the leg range by the ATR of the leg thrust.
its because of these few particular scenarios, that i see the benefit to using the 3 legged animal, because with that, it allows me many more direct and indirect strategies to handle the market's volatility.
i think 1 reason why rescues are a double edged sword, because of afew reasons.
1. rescues if used well can help you deal with drawdown extremely well, essentially your book drawdown becomes fairly small.
2. rescues uses bigger size each time, this is the double edge which cuts both ways. because of afew scenarios. i will elaborate below.
suppose our ATR is 25 pips, we spec-ed the mm to be 25pips for 0.1 lot, essentially, we observed that the mm with level 1 rescue, say 3x is 0.3 lots, which means, if we have scout + level 1 rescue, we have 0.4 lots in, which is 100pips at 0.1 lot at stake.
but suppose as price action unfolded, at t+1hr later, the new ATR is 50pips, the risk model is essentially changed to be 2x old ATR, but because the rescue of size can't go smaller and must go bigger, which is a fibo progression, it is a geometric progression with that is now 2x, so as price expands, suppose ATR expands linearly, which is does not (i must make it very clear, it does not, we can only observe, we cannot predict, but this assumption allows us a starting point to extrapolate the possibilities, average case into best case, and average case into worst case scenario), so if price action expands linearly, we have using a symbol A, p&l fluctuation is A * (1.618)^n
using the above, mathematically, we can see that the rate at which the p&l is fluctuating is not linear, as we conduct rescue, but at a rate similar to martingale, or rather this is a class similar to martingale.
so if you do the simulations, you will see that, the rescue operation has limits, it is a very powerful tool, but it has its limits, and one of the limiting core components for a successful rescue is the terrain's volatility vs your deployed position's sizing.
theoretically, even if you are unleveraged, the limit is still 38.2% of the account, then 61.8% is the last level, if you go past that, using a fibo model, with an ever changing volatility, especially so if the volatility expands pass your tolerance limit.
that was the insight gained, hence, the mo is pretty much correlated to size expansion * volatility.
so theoretically, the key lies in mo, mm, pulse read and volatility mitigation.
hence the intuition that, if i can mitigate the volatility, theoretically, the rescue in some way, can be maximized, especially when things are very unclear and confusing.
this is my conclusion, as to the curve ball which the markets will sometimes throw as us, as we try to use the TAF rescue, it is a very sharp dual edge sword, and it cuts both ways, hence proficiency in using it is a must, as well as other skill sets to complement it.
but of course 1 can always say cutting and flipping is also an acceptable method, well i will definitely agree with that, only when the volatility and momentum thrust supports cutting and flipping, then that method is more efficient compared to the 3legged animal.
you see cutting and flipping and rescue and attack and the 3 legged animal, they all complement one another, each scenario requires a different method to handle, so if theoretically, if we can pretty much cover all kinds of terrain manifestation and all tactics to handle them as they transit from 1 to the other, you have mastered the art of extemporaneous response.
and i shall end the post with 1 line from the art of war:
"A general who has not fully mastered the art of extemporaneous responses may know the terrain like the back of his hand, but will not be able to exploit this to his full advantage."
it is this 1 line which stood out from all of the AoW, which caught my eye.