Expectancy question for experienced traders

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Wow Graeme, you put a lot of work into that post! I understand what you're after; however I do believe that some of your thinking is flawed. Until recently I thought the same way. I thought it was better to get higher returns than a higher probability trade; however I no longer this to be true. In fact, I believe that the smaller you are as a trader, the more important it is to your success that you find a high probability trade to take! Without it you are almost certain to become market fodder.

You mentioned in your previous post that you can have a 90% signal and still go broke, whereas long term traders might only be 30% accurate and yet turn a profit. While these instances can be true I believe that the real reason the 90% signal people go broke is because they are small traders, who lack discipline to stick with their signals. They try to trade like the big traders (or more accurately how they "think" the big traders trade) and their small accounts don't allow them to hang on. Conversely the 30% long term traders are usually better funded (you can't trade long term positions without wide stops) and by nature tend to be pro's, who are better disciplined than their small spec counterparts. These traders take huge positions and are more focused on their overall position, which might number several hundred contracts, instead of the results of one or two contracts.

With a little bit of discipline it is nearly impossible to go broke trading a strong signal. How do I know? Because I've done it! When I first started trading I used to try "swinging for the fences" and nailing the big trade, which I managed to do every so often; however, after a while I noticed that the big winners didn't add up to the same net results from the smaller "surefire" winners! I always thought my targets were tight, but recently I've made them tighter still. If you start investigating the really successful traders out there you'll find that, almost without exception, they all have very small targets. There's a young women in Europe that Rob was talking about the other day who trades the German Bonds. She makes $10 million dollars a year trading for one tick at a time!

Here's an accountant type question you might like. Below is an October Feeder trade which we just did. You can see we sold Feeder's on a strong move lower through 116.47. Our initial stop is 117.42 so we have $475 in risk per contract. Our target is 110.15 and I'm confident we'll see those prices eventually, but my question to you is: you have $500 in profit, another $475 in risk (total risk as of the close $975), how do you manage the trade? How much money are you willing to lose in an attempt to gain more?

Do you know what the market will do tomorrow (don't peak at your chart, the market already moved!) Will it go lower? Will it go higher? If you can say with any amount of certainty then you are a much better trader than I. However consider this: I can tell you with a great deal of certainty that Feeders would move $500 after breaking lower. Would it not be better financially, not to mention easier on the nerves, just to take the $500 when we have it?

If I can say that a market will move $X on a signal then I can take multiple contracts to add some snap to the trade. I have 3 open positions in this market; therefore I can either have $2925 at risk ($975 x 3) or I can have $1500 profit ($500 x 3). I would hope this is a "no brainer". However by doing this my R is messed up, yet I'm making money. And isn't that the name of the game?

I'm beginning to think that all the trading axioms that we take as gospel wrong and are leading traders down the wrong path. I have similar issues with Golf magazines as I find their advice tailored for the "pro" and not the amateur. Pro's and amateurs have different problems, if fact they are exactly the opposite. However the magazines spew the same advice year after year and golfers fail to improve. Same with trading.

No, I say forget the R. Forget the risk/reward and go for probability. Take the "sure" money when you have it, then use multiples to pile it on. The big trade is for big traders. If you're a small trader you have to take small profits or you'll die trying to nail the big one.

As they say "a beer in the hand is worth two in the fridge".

Sorry for the long post, but I believe this is a very important subject. Thank you so much for bringing it up.

Erich