[quote=philmcgrew;1693295]I'm in the trade until it's dead category. I don't believe that it is our job to guess when a trend will be over. This is exactly why I detest profit targets in most cases.
When evaluating a position I look at stop loss location and risk before anything else. Then I look at reward. This is the opposite of a new trader who immediately starts fantasizing about how many pips are going to rain down upon him. If I reasonably believe that the trade can make 1:1 then I take advantage of the edge I have and execute that trade. I think the worst thing you can do is have a target. The market doesn't give a crap about your targets and you should not be satisfied that price has touched some fictitious line that you drew on your chart.
Good morning.
Please allow me to point out some contradicting elements in your post:
You say that you detest profit targets (in most cases) but you enter a trade if you reasonably believe that the trade can achieve a risk/reward ratio of 1:1 - which is a pre-defined target as such. (whether 1:1 is a minimum requirement for you is not relevant since you have no control over how far the price will move in your favour after entry or whether it will move in your favour at all)
Secondly, you point out that it is not the traders job to guess when a trend will be over. I couldn't agree with you more, and I even go futher by saying that a trader should not guess where it starts or where the middle of a trend is either. If I asked you what constitues your "reasonable belief" what would you answer? Is it based on your judgement of the market at the time and experience? Or do you enter/exit the market at a precise mathematically pre-defined level always applying it in the same way?
My reasons not to apply judgement
mathematical and psychological)
If you apply judgement, you allow emotions to interfere with your trading and while not all discretionary decisions have a negative outcome, they can raise or erase your confidence in an unjustified manner. In a fixed probability model, (which is what trading is) a discretionary (or judgement based) decision has the same chance of a positive vs negative outcome than a coin toss -- but for the reason that you consciously and deliberately took that decision, you could be fooled into thinking that your experience (rather than the law of probability) will be able to tell you more accurately whether a trade will turn out the "right" or "wrong" way.
Consequently, if you rely on judgement, you may find yourself in a state of fear at a time when you should have the courage to take the trade and vice versa.
The concept of trend following relies on the "Babe Ruth" priciple: frequency vs magnitude. This alone makes the concept a psychological challenge for most traders (including myself) because the majority of the time, we produce losing trades which we have to take in order not to miss the few massive winners that compensate and moreover produce the rewards.
If you try to trend follow in a discretionary way, you set yourself up for failure. Why? Because after a serious losing streak, your confidence in your ability to judge the market correctly will almost be non-existent. (especially with the relatively high draw-downs experienced in trend following)
If you have a mechanical system and you follow it without questioning, losing trades will become part of an equation and not a fault derived from your own personal judgement. Furthermore, this helps me to deal with the emotional struggle of losing 10 trades in a row.
All the above stems from personal experience and shared experiences from other traders and is intended to be thought provoking in a positive way.
regards
daytrading
When evaluating a position I look at stop loss location and risk before anything else. Then I look at reward. This is the opposite of a new trader who immediately starts fantasizing about how many pips are going to rain down upon him. If I reasonably believe that the trade can make 1:1 then I take advantage of the edge I have and execute that trade. I think the worst thing you can do is have a target. The market doesn't give a crap about your targets and you should not be satisfied that price has touched some fictitious line that you drew on your chart.
Good morning.
Please allow me to point out some contradicting elements in your post:
You say that you detest profit targets (in most cases) but you enter a trade if you reasonably believe that the trade can achieve a risk/reward ratio of 1:1 - which is a pre-defined target as such. (whether 1:1 is a minimum requirement for you is not relevant since you have no control over how far the price will move in your favour after entry or whether it will move in your favour at all)
Secondly, you point out that it is not the traders job to guess when a trend will be over. I couldn't agree with you more, and I even go futher by saying that a trader should not guess where it starts or where the middle of a trend is either. If I asked you what constitues your "reasonable belief" what would you answer? Is it based on your judgement of the market at the time and experience? Or do you enter/exit the market at a precise mathematically pre-defined level always applying it in the same way?
My reasons not to apply judgement
mathematical and psychological)If you apply judgement, you allow emotions to interfere with your trading and while not all discretionary decisions have a negative outcome, they can raise or erase your confidence in an unjustified manner. In a fixed probability model, (which is what trading is) a discretionary (or judgement based) decision has the same chance of a positive vs negative outcome than a coin toss -- but for the reason that you consciously and deliberately took that decision, you could be fooled into thinking that your experience (rather than the law of probability) will be able to tell you more accurately whether a trade will turn out the "right" or "wrong" way.
Consequently, if you rely on judgement, you may find yourself in a state of fear at a time when you should have the courage to take the trade and vice versa.
The concept of trend following relies on the "Babe Ruth" priciple: frequency vs magnitude. This alone makes the concept a psychological challenge for most traders (including myself) because the majority of the time, we produce losing trades which we have to take in order not to miss the few massive winners that compensate and moreover produce the rewards.
If you try to trend follow in a discretionary way, you set yourself up for failure. Why? Because after a serious losing streak, your confidence in your ability to judge the market correctly will almost be non-existent. (especially with the relatively high draw-downs experienced in trend following)
If you have a mechanical system and you follow it without questioning, losing trades will become part of an equation and not a fault derived from your own personal judgement. Furthermore, this helps me to deal with the emotional struggle of losing 10 trades in a row.
All the above stems from personal experience and shared experiences from other traders and is intended to be thought provoking in a positive way.
regards
daytrading
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