How many trades in a row do you guys average?

[forex777]

Thanx Greentea777,

I appreciate the clarification. The hypothetical examply was PERFECT.

I knew what you meant, I just wanted to hear it from you due to the wording.

Thanx dude.

What kind of trader are you????

Na' I'm sorry, forget it, don't answer that. We will open up a can of worms may turn this into a 1000 post thread

So, thanx for the clarification. Have a great week.

[KPcurrency]

I have never understood this type of trading Greentea.

If you feel that a signal is a "1" lot signal and you have "3" lot signals, this tells me that your "3" lot signals have a greater expectancy percentage (amount of times correct). Now, if this is the case, why would you even bother taking the "1" lot trades?

It seems to me that by placing bigger bets on some trades than others, you are saying some trade set ups are worth more than others. So again, why take the lesser trades.

Now, of course it is not possible to know what trades will be winners and what trades will not be. But again, if you have two sets of signals and one type is worth more lots, couldn't you just take those signals? You could increase your win loss ratio (which isn't really important but is nice on the psyche).

It may be that they, the "3 lot" signals don't win more, but tend to be bigger wins when they do win and therefore you pile it on. Still why place more lots at the beginning rather than add lots as the market proves the signal correct?

Don't get me wrong, multiple signal types make sense. I understand that method. It just seems that once you make the distinction about lot size you have basically said "I trust this signal more than that one" and to wit I have to ask, Why take the ones you trust less in the first place?

[TheSundanceKid]

Originally Posted by KPcurrency

I have never understood this type of trading Greentea.

If you feel that a signal is a "1" lot signal and you have "3" lot signals, this tells me that your "3" lot signals have a greater expectancy percentage (amount of times correct). Now, if this is the case, why would you even bother taking the "1" lot trades?

It seems to me that by placing bigger bets on some trades than others, you are saying some trade set ups are worth more than others. So again, why take the lesser trades.

Now, of course it is not possible to know what trades will be winners and what trades will not be. But again, if you have two sets of signals and one type is worth more lots, couldn't you just take those signals? You could increase your win loss ratio (which isn't really important but is nice on the psyche).

It may be that they, the "3 lot" signals don't win more, but tend to be bigger wins when they do win and therefore you pile it on. Still why place more lots at the beginning rather than add lots as the market proves the signal correct?

Don't get me wrong, multiple signal types make sense. I understand that method. It just seems that once you make the distinction about lot size you have basically said "I trust this signal more than that one" and to wit I have to ask, Why take the ones you trust less in the first place?

Hi KP,

Well assuming your assumption about GreenTea's trading methodology/reasoning is correct:
If "the ones you trust less" are still profitable in the long run, then why not take them? Maybe GreenTea's larger trades have a higher rate of success, but are much less frequent. Conversely, maybe GreenTea's smaller trades have a lower rate of success (but are still profitable overall), but are much more frequent.
If this is the case, then by taking both types of trades, his net profitability will be greater than if he only took the larger trades.
It also may serve to smooth/reduce his drawdowns through diversification.

Then again, maybe your assumption is incorrect, and his position sizing techniques are not determined/influenced by the probability of the outcome of the trade(s). His position size could be a function of some completely different or unrelated.

Good Trading,

Sundance

[KPcurrency]

You make some good points Sundance.

First, if my assumptions are correct and the "3" lot trades are the ones he trusts more and they are signaled less often, why not go down a timeframe or two? He may get more signals as he compresses time.

If that is not possible, I would say there are two things most trader lose sight of:

1. It is good to under trade in BOTH size and frequency.
2. Not being in the market IS a trading decision.

These are not in conflict with trading smaller timeframes to make more trades, as long as the trades set up used is high quality you can take as many of them that come. However, it is unwise to have many lesser quality trade set ups just to always be making trades.

Plus, it is not a good idea to add to a position by more than one's original amount. So if he takes a "1" lot trade to enter the market and then gets a "3" lot signal, what does he do? This sets up a bad situation. The only way to pyramid is to reverse pyramid. for example: 5 lots on initial set up, 3 lots on first add on, 2 lot on the next and then 1 lot as long as there are signals and the market is proving you are in tune with it.

Again, this is not in violation of the two above rules, the initial size of five would be for an account that could have a position much large than five lots. And adding on to a winning position (when more signals are present) is not the same as trying to have as many entries as possible.

[tim_nn]

I realise that you're asking GreenTea and not me, obviously; but since I do exactly the same myself, I thought I'd offer my answers for comparison (and please excuse my butting in if they're unwelcome!).

Originally Posted by KPcurrency

If you feel that a signal is a "1" lot signal and you have "3" lot signals, this tells me that your "3" lot signals have a greater expectancy percentage (amount of times correct). Now, if this is the case, why would you even bother taking the "1" lot trades?

For me, that's absolutely what it means, and I take the 1-lot trades because they have a positive expectation all of their own and there are an awful lot of them.

Originally Posted by KPcurrency

It seems to me that by placing bigger bets on some trades than others, you are saying some trade set ups are worth more than others.

For myself, I am indeed saying that.

Originally Posted by KPcurrency

So again, why take the lesser trades.

Because I make money with them, and it's part of how I make my living and grow my business and pay my mortgage and support my family and all this stuff. To me, the question is "why not take them?

Originally Posted by KPcurrency

Now, of course it is not possible to know what trades will be winners and what trades will not be.

Of course not, but you have your estimates based on several hundred or thousand trades of each type, and you work out your position-sizing accordingly.

Originally Posted by KPcurrency

if you have two sets of signals and one type is worth more lots, couldn't you just take those signals?

Speaking for myself, I could, but that would cost me money. Opportunity cost. I would liken this to economic theory: if a country can export two different things, one of which is a lot more profitable than the other, it should still foster and develop industries to export both, for all sorts of reasons. "Eggs and baskets" if this idiom isn't too quaintly English to lend anything to the conversation.

Originally Posted by KPcurrency

You could increase your win loss ratio (which isn't really important but is nice on the psyche).

As you say, that isn't really important. What's important is how much I can pay into the bank each month.

Originally Posted by KPcurrency

It just seems that once you make the distinction about lot size you have basically said "I trust this signal more than that one" and to wit I have to ask, Why take the ones you trust less in the first place?

Becuase I make money from them.

[TheSundanceKid]

Originally Posted by KPcurrency

You make some good points Sundance.

First, if my assumptions are correct and the "3" lot trades are the ones he trusts more and they are signaled less often, why not go down a timeframe or two? He may get more signals as he compresses time.

Well if this is the case, then generally speaking it probably would be wiser to take these trades instead - but that would really depend on a number of unknown factors. Also, just because a certain trade works on say, the daily bars, does not necessarily mean it will work (or be as profitable/worthwhile) on the 4h bars (or shorter).

Originally Posted by KPcurrency

If that is not possible, I would say there are two things most trader lose sight of:

1. It is good to under trade in BOTH size and frequency.
2. Not being in the market IS a trading decision.

I would have to say I disagree with #1 (in general). I believe your trading capital should always be used as efficiently as possible, providing you're not exposing yourself to an unreasonable amount of risk, of course.
If you can make profitable trades, then why not take them? If you can make 10 profitable trades per day, why only take the 5 most profitable? You should take as many profitable trades as possible while still being able to maintain a low rate of risk. This way you're making your money work for you as efficiently as possible, and you're able to increase both your potential and realized profit.

Originally Posted by KPcurrency

These are not in conflict with trading smaller timeframes to make more trades, as long as the trades set up used is high quality you can take as many of them that come. However, it is unwise to have many lesser quality trade set ups just to always be making trades.

Assuming the "lesser quality trade set ups" are worthwhile, then why not take them? If you have the opportunity to take trades with higher quality setups also, then obviously it would make more sense to take them instead of the lower quality ones - but otherwise I don't see the logic in your statement.

Originally Posted by KPcurrency

Plus, it is not a good idea to add to a position by more than one's original amount. So if he takes a "1" lot trade to enter the market and then gets a "3" lot signal, what does he do? This sets up a bad situation. The only way to pyramid is to reverse pyramid. for example: 5 lots on initial set up, 3 lots on first add on, 2 lot on the next and then 1 lot as long as there are signals and the market is proving you are in tune with it.

Again, this is not in violation of the two above rules, the initial size of five would be for an account that could have a position much large than five lots. And adding on to a winning position (when more signals are present) is not the same as trying to have as many entries as possible.

Well if you're broker allows hedging, then getting two different trade signals with opposing directions would not be a problem - and even if you were'nt able to hedge, an alternative solution would be to just open a sub-account.
I don't know what you're trying to accomplish with your pyramiding example, but I don't think it would work.

Good Trading,

Sundance

[KPcurrency]

tim_nn:

It seems to me that the real opportunity cost is that while you have margin tied up in a "1 lot" trade of the Swiss Franc, that margin could be better used to trade a "3 lot" trade in the Yen. Why tie up margin on a trade you trust less when you could trade multiple instruments and only trade the signals you trust the most?

Plus, while one should try to under trade in size, why not just trade more than 3 lots if you want more money? You want more money, trade more contracts. Therefore, it would seem like the best alternatives would be to:

1. Trade lower timeframe for more "3 lot" signals. ( they're all just lines on a chart, and if your method fails in various timeframes it may be suspect to begin with). Remember, markets are Fractal.

2. Trade more instruments. More currencies, or maybe Bonds or Cotton.

3. Trade more contracts on the best signals. This option does not mean take more risk just for the sake of making more money. You should still be trying to under trade in terms of size versus margin required.

As far as pyramiding example goes, the point is that one should not add on by more that the initial buy/sell. Therefore the largest buy/sell should be the first entry. But if the "1 lot" signal comes first and then you get a "3 lot" signal in the same direction, what do you do?

I would again state that most traders make the mistake of trading too much. It makes sense to focus on the higher quality tho less frequent signals. IT IS OKAY TO BE OUT OF THE MARKET. BEING OUT OF THE MARKET IS A TRADING DECISION

[tim_nn]

Hi Kp,

Originally Posted by KPcurrency

tim_nn: It seems to me that the real opportunity cost is that while you have margin tied up in a "1 lot" trade of the Swiss Franc, that margin could be better used to trade a "3 lot" trade in the Yen.

I have expressed myself badly, then (not for the first or last time!) because it doesn't seem that way at all to me.

Originally Posted by KPcurrency

Why tie up margin on a trade you trust less when you could trade multiple instruments and only trade the signals you trust the most?

I wouldn't do that (tie up too much margin I might want for a better trade) but my "best signals" don't come as often as I'd like.

Originally Posted by KPcurrency

Plus, while one should try to under trade in size, why not just trade more than 3 lots if you want more money?

Well, I was going along with your figures for the sake of the discussion. If you want me to be realistic about it, I don't really trade "lots" at all. I use spread-betting (it works out the same, but it's tax-free at the moment in the UK because of a strange situation with the tax laws; and it's better regulated and safer too). But it's true that I stake a lot more on some trades than on others, and I'm quite comfortable with that.

Originally Posted by KPcurrency

Therefore, it would seem like the best alternatives would be to: 1. Trade lower timeframe for more "3 lot" signals. ( they're all just lines on a chart, and if your method fails in various timeframes it may be suspect to begin with). Remember, markets are Fractal.

Agreed about the "fractality" of the market (is there such a word? ) but as someone points out above, it certainly doesn't follow AT ALL that you can take a complete system, speed up the periodicity of the charts with which you trade it and expect the same or better results!

Originally Posted by KPcurrency

2. Trade more instruments. More currencies, or maybe Bonds or Cotton.

This is a point. Unfortunately, however, my "best entries" are only available on a limited range of instruments.

Originally Posted by KPcurrency

3. Trade more contracts on the best signals.

Well, I've gradually been doing that as I go along. Of course, like any self-employed, home-based trader I have the problem of simultaneously trying to increase my trading-fund and also withdrawing enough from the profits every month to feed my family, pay my mortgage and all the bills and so on ... and unless you've been steadily successful for a very long time, or had an awful lot of capital to start with, this is always a bit of a "balancing act".

Originally Posted by KPcurrency

As far as pyramiding example goes, the point is that one should not add on by more that the initial buy/sell. Therefore the largest buy/sell should be the first entry.

I have insufficient experience of "pyramiding" to be able to debate that point; sorry.

Originally Posted by KPcurrency

I would again state that most traders make the mistake of trading too much.

I couldn't agree more. I feel absolutely convinced that this is a major contributory reason towards the failure of so many would-be traders.

Originally Posted by KPcurrency

IT IS OKAY TO BE OUT OF THE MARKET. BEING OUT OF THE MARKET IS A TRADING DECISION

Agreed - you'll get no argument from me about that one!