To use chat, please login.
Back to contacts

Intraday Trading is gambling

Allan (Arcferreira)
Dec 17 2017 at 08:25
50 príspevkov
I really does not agree. Or agree at all. Let me explain:
All type of investment is a gamble. Even when you buy US treasuries you are gambling, because you don't have 100% garantee that US government will pay you in 10 years.

But the biggest difference between insvesting and gamble is risk management. There is a lot of formulas to calculate risk management. Find one and trade following it. A common risk management is using winning ratio and risk/reward per trade.

A day trade can achive easily 60-80% winning ratio trading only a specific price action candlestick formation called inside bars, using 1:1 risk/reward ratio. It is possible but it nedds at least 3-4h in front of a computer. At this pace he can find 4 or 5 setups daily, 80 to 100 setups a month.

Let's use a 60% winning ratio for this exercise:
60 winning trades x1 - 40 losing trades x1 = 20.

If our daytrader has 100.000 and risks 0.25% of his capital in every trade (daily risk here is less than 1%), we have:
20 x 0.25% = 5% monthly or 5.000 USD. A 2% risk per trade means 40.000 USD. But in a bad day, a 2% risk per trade can result losses at 8-10k, while 0.25% means only 1.250 USD.

Here goes another point... after losing 10.000 USD, our daytrader will keep his mental health and will keep following his risk management??? The answer for 90% of traders is NO, HE WON'T.


Another mistake from wannabe daytraders is the wrong Broker. Daytrader needs low spread, low comission, ECN brokers with rebates over high trade volumes. If you have a 2 pips spread, and your TP is 10 pips and your SL is 10 pips - your reward risk is not 1:1, but 0.8:1
Make the calc again:
60 winning trades × 0.8 - 50 losing trades x1 = -0.2!!!! A negative return.

What am I saying here is:
1) create and test your trading strategy
2) create a risk management strategy that fits in your trading strategy
3) follow 1 and 2
4) with real results, verify if 1 and 2 give the predicted return
5) improves 1 and 2.

Trade safely... Remember, a high Drawdown means a high risk!
Allan (Arcferreira)
Dec 17 2017 at 08:25
50 príspevkov
A mistake...
60 winning trades × 0.8 - 40 losing trades x 1 = 8
8 x 0.25% = 2% monthly or 8x2% = 16% monthly.

Trade safely... Remember, a high Drawdown means a high risk!
kieran (snapdragon1970)
Dec 17 2017 at 16:18
1944 príspevkov
Low spreads are important,but are you really going to worry about tiny details like that ,unless your Scalping or Algo trading, fast execution with no re quotes,24hr help desk are just a few things you should be thinking about,forget about rebates on trading volume,1 or 2 trades per day is more than enough to make good money ,over trading is a major problem in the Retail industry to your Brokers delight.Mistakes in the math above well spotted Allan,there is a stat in statistical trading possibility of 10 losses in a row.

"They mistook leverage with genius".
Allan (Arcferreira)
Dec 18 2017 at 07:22
50 príspevkov
snapdragon1970 posted:
Low spreads are important,but are you really going to worry about tiny details like that ,unless your Scalping or Algo trading, fast execution with no re quotes,24hr help desk are just a few things you should be thinking about,forget about rebates on trading volume,1 or 2 trades per day is more than enough to make good money ,over trading is a major problem in the Retail industry to your Brokers delight.Mistakes in the math above well spotted Allan,there is a stat in statistical trading possibility of 10 losses in a row.


If you are trying to daytrade, small details are important, but a good strategy and risk management are more important. Agree with you about overtrading... but the number of trades for a day is based in your strategy. If a trade fits all rules, why not trade it? Or if any trade fits your trading rules, is better stay away and not trade...

I prefer to use Elliott wave theory to find a good trend, trying to spot a good wave 3 or C in larger timeframes. After this, the good and old price action takes care of the rest in lower timeframes. But I can't consider myself a daytrade... in the last 3 months I did 70 trades for 2400 pips. My average duration was 2 days... and 6 days for longest trade. I use dsily, 4h and 1h charts. And I spend 1-2h/day for trading.

My maximum leversge these 3 months was 4. So you can imagine that I don't have a huge profit (3-6% monthly). And this year I received near 450 USD in rebates, for 450 rounded traded lots.

Trade safely... Remember, a high Drawdown means a high risk!
Allan (Arcferreira)
Dec 18 2017 at 07:22
50 príspevkov
Sorry 45 rounded lots, not 450...

Trade safely... Remember, a high Drawdown means a high risk!
vontogr (togr)
Dec 18 2017 at 09:51
4862 príspevkov
Arcferreira posted:
I really does not agree. Or agree at all. Let me explain:
All type of investment is a gamble. Even when you buy US treasuries you are gambling, because you don't have 100% garantee that US government will pay you in 10 years.

But the biggest difference between insvesting and gamble is risk management. There is a lot of formulas to calculate risk management. Find one and trade following it. A common risk management is using winning ratio and risk/reward per trade.

A day trade can achive easily 60-80% winning ratio trading only a specific price action candlestick formation called inside bars, using 1:1 risk/reward ratio. It is possible but it nedds at least 3-4h in front of a computer. At this pace he can find 4 or 5 setups daily, 80 to 100 setups a month.

Let's use a 60% winning ratio for this exercise:
60 winning trades x1 - 40 losing trades x1 = 20.

If our daytrader has 100.000 and risks 0.25% of his capital in every trade (daily risk here is less than 1%), we have:
20 x 0.25% = 5% monthly or 5.000 USD. A 2% risk per trade means 40.000 USD. But in a bad day, a 2% risk per trade can result losses at 8-10k, while 0.25% means only 1.250 USD.

Here goes another point... after losing 10.000 USD, our daytrader will keep his mental health and will keep following his risk management??? The answer for 90% of traders is NO, HE WON'T.


Another mistake from wannabe daytraders is the wrong Broker. Daytrader needs low spread, low comission, ECN brokers with rebates over high trade volumes. If you have a 2 pips spread, and your TP is 10 pips and your SL is 10 pips - your reward risk is not 1:1, but 0.8:1
Make the calc again:
60 winning trades × 0.8 - 50 losing trades x1 = -0.2!!!! A negative return.

What am I saying here is:
1) create and test your trading strategy
2) create a risk management strategy that fits in your trading strategy
3) follow 1 and 2
4) with real results, verify if 1 and 2 give the predicted return
5) improves 1 and 2.


You first need to have strategy that long terms provide
60% win profitability with 1:1 risk reward ratio
And dont forget spreads will eat a bit

Allan (Arcferreira)
Dec 19 2017 at 07:13
50 príspevkov
togr posted:
Arcferreira posted:
I really does not agree. Or agree at all. Let me explain:
All type of investment is a gamble. Even when you buy US treasuries you are gambling, because you don't have 100% garantee that US government will pay you in 10 years.

But the biggest difference between insvesting and gamble is risk management. There is a lot of formulas to calculate risk management. Find one and trade following it. A common risk management is using winning ratio and risk/reward per trade.

A day trade can achive easily 60-80% winning ratio trading only a specific price action candlestick formation called inside bars, using 1:1 risk/reward ratio. It is possible but it nedds at least 3-4h in front of a computer. At this pace he can find 4 or 5 setups daily, 80 to 100 setups a month.

Let's use a 60% winning ratio for this exercise:
60 winning trades x1 - 40 losing trades x1 = 20.

If our daytrader has 100.000 and risks 0.25% of his capital in every trade (daily risk here is less than 1%), we have:
20 x 0.25% = 5% monthly or 5.000 USD. A 2% risk per trade means 40.000 USD. But in a bad day, a 2% risk per trade can result losses at 8-10k, while 0.25% means only 1.250 USD.

Here goes another point... after losing 10.000 USD, our daytrader will keep his mental health and will keep following his risk management??? The answer for 90% of traders is NO, HE WON'T.


Another mistake from wannabe daytraders is the wrong Broker. Daytrader needs low spread, low comission, ECN brokers with rebates over high trade volumes. If you have a 2 pips spread, and your TP is 10 pips and your SL is 10 pips - your reward risk is not 1:1, but 0.8:1
Make the calc again:
60 winning trades × 0.8 - 50 losing trades x1 = -0.2!!!! A negative return.

What am I saying here is:
1) create and test your trading strategy
2) create a risk management strategy that fits in your trading strategy
3) follow 1 and 2
4) with real results, verify if 1 and 2 give the predicted return
5) improves 1 and 2.


You first need to have strategy that long terms provide
60% win profitability with 1:1 risk reward ratio
And dont forget spreads will eat a bit


You are correct! If you have 1:1 reward risk and 60% winning ratio... you will be profitable.
Yes, easy. But there are variables in this equation: Patience and learing curve.
I spent near 2 years to have patience enough. Market has its own time - you need to be patient to wait price action.
After learning patience, your learning curve take cares of the rest.

 

Trade safely... Remember, a high Drawdown means a high risk!
Mario (SwingFish)
Dec 29 2017 at 20:29
25 príspevkov
daytrading does not work with 1:1 ratios, as the noise is too large.

in daytrading it is by far more profitable to have a much lower win rate but a larger ratio.

as you can compensate over serval trades.

i myself have a hit rate of 44% only but thanks to the large Ratio, i can have 10 losers in a row and still get out of the day green

Professional Canned-Tuna Eater
Mario (SwingFish)
Dec 29 2017 at 20:44
25 príspevkov

Make the calc again:
60 winning trades × 0.8 - 50 losing trades x1 = -0.2!!!! A negative return.


there is one other major flaw (not in your message but in the day trading dream itself)
in order to make a living, you need to have the capital to trade with.
lets say you cheap and go with 50k or so ..
but then in order to capitalize on a 10-15 pip move on a decent risk-reward ratio.
there are 2 more problems.

1. slipage
2. quotes

slipage is somewhat controllable (if you know what you are doing)
but regarding the quotes, as most traders use software like metatrader, this will become a loosing game.

try to fill like 35-50 lots via marketorder, if your order line is then like 10 pips above the price, thats not slip, thats just the market has no quote for your size at the displayed price.
you will need to have software, broker and connections that actually support this kind of orders.
(order book, DOM and so on)

even with a limit order on MT4 there is very very very little chance, you get the price you are asking for. as the software is designed to do just that (not give it to you and make sure you have no proof of it afterwards)

i do daytrade as well, and especially in low voaltility times, this distances can be massive.
so if you buy like 50 lots for a 15 pip move at a 5 pip stop
you get filled 3 above (if you lucky) that puts your stop to -8 instead of -5 .. and makes your risk far greater.
the target also is 3 pips closer, which will cost you on the reward side as well.

on TP fill (this are market orders) you will have another 3-4 pip slip and if there is no momentum this will be likely negative.

totals: 5 pip stop becomes 8
8 -20 = 12 - 4 slip = 8 .. and your 1:3 trade becomes a 1:0.8 (if you lucky) because you have a higher risk due the longer distance to the stop and a shorter gain distance. as well.

there is a difference in trading if you trade with 1% risk of 100 bucks or 1% of 100.000 bucks!

Professional Canned-Tuna Eater
kieran (snapdragon1970)
Dec 29 2017 at 21:47
1944 príspevkov
SwingFish posted:
daytrading does not work with 1:1 ratios, as the noise is too large.

in daytrading it is by far more profitable to have a much lower win rate but a larger ratio.

as you can compensate over serval trades.

i myself have a hit rate of 44% only but thanks to the large Ratio, i can have 10 losers in a row and still get out of the day green


Agree with your statement ,45-60% is the normal hit rate for professional institutions, RR is where it makes a huge difference.

"They mistook leverage with genius".
Pre zaslanie komentára sa musíte najskôr prihlásiť.