Tag Archive for: risk management
Who is More Precious
/by Peter BrandtAn excerpt from the past weekend member report.
Gold (NYMEX)
The possibility of a massive inverted H&S pattern on the monthly graph is noted once again. The daily chart displays a small H&S top pattern. A completion of this H&S top would do some damage to the near-term bullish case.
Platinum (NYMEX)
The WBB advance on Thursday completed a 7- month ascending triangle on the daily chart. Support should exist at the 881 level. The target is 1001. The breakout of this pattern occurred during my nighttime hours and Platinum is a market in which I do not use overnight entry stops.
Factor is flat in the futures market. Instead I bought PPLT, the Platinum ETF as a means to more precisely control sizing. The target on the PPLT daily chart is 92.14.
Factor Membership
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Peter Brandt is a 40+ year veteran of trading. Through his Factor Service, members receive:
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View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work.
Through the Factor Service I endeavor to alert novice and aspiring traders to the many pitfalls you will face – and to offer advice on overcoming those pitfalls. My goal is to shoot straight on what trading is all about. For more information watch my 30 minute webinar where we cover the Factor service in depth.
I hope you will consider joining the Factor community.
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Understanding Trading Outcomes
/by Peter BrandtUnderstanding trading outcomes through the lens of probability theory
Reviewing trades offers the opportunity to unpack the impact of random probability upon a sequence of trading events. An extremely simplified view of probability theory relative to trading goes something like this:
- A prolonged sequence of futures (or FX, equities, cryptos – pick your poison) trades with a fixed $1000 profit target and a fixed risk of $1000 (normalized for underlying trends) should produce profits in 50% of the trades. A net loss would occur over time due to trading fees.
- A prolonged sequence of futures trades with a fixed $2000 profit target and fixed risk of $1000 risk (normalized for underlying trends) should produce profits in approximately 33% of the
trades. I would have a “killer” trading program if I could achieve a 50% win rate with a 2:1 win-size/loss-size ratio. - A prolonged sequence of futures trades with a fixed $4000 profit target and fixed risk of $1000 risk (normalized for underlying trends) should produce profits in approximately 20% of the
trades. Just imagine how profitable this profile would be if only 1/3rd of trades scored a win.
Many traders only enter trades with a profit/risk ratio of 3:1. I understand the concept behind this – although I do not pay much attention to profit-potential/risk ratios in my own trading because I move my stop aggressively even though I may hold fast to a target.
Active and aggressive trade management DRAMATICALLY alters the probability calculus. While the math
is complex, think of it this way:
- My five year ratio of avg. profit size to avg. loss size is 3.8 to 1
- My five year Profit Factor (PF) is 5.1
IMO, the PF is a better metric to reflect the projected ratio of win-size/loss-size for the purpose of understanding the impact of random probability. A 5.1 metric is the rough equivalent of rolling the number 1 on a six-sided die (the probability is 1/6 or 16.6%). It is interesting to note that this percentage figure is similar to the percent of trading events that tend to put in my bottom line in most years. Coincidence? No.
Random probability theory applies best to the “law of large numbers.” Over a shorter series of events just about anything can happen. The point of this discussion is that thinking of trading in terms of “win-rate” over an extended period of time is a meaningless metric. I encourage traders to investigate a deeper understanding of the calculus of trading.
My three “take-aways” from this discussion are:
1. Avoid using simplistic performance metrics such as “win-rate” to understand the dynamics of a trading approach/program.
2. Trade identification (the “signal”) is far less important than risk and trade management.
3. Protecting one’s pile of chips is job #1. All approaches to market speculation run into losing streaks. Things will eventually get sorted out as long as the pile of chips remains mostly intact.
Factor Membership
.
Peter Brandt is a 40+ year veteran of trading. Through his Factor Service, members receive:
.
View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work.
Through the Factor Service I endeavor to alert novice and aspiring traders to the many pitfalls you will face – and to offer advice on overcoming those pitfalls. My goal is to shoot straight on what trading is all about. For more information watch my 30 minute webinar where we cover the Factor service in depth.
I hope you will consider joining the Factor community.
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Factor’s Trade Risk Worksheet Grid
/by Peter BrandtDiscussion on Trading Drawdowns
/by Peter BrandtTrading Drawdowns
The following video comes from one of our Factor Member Webinars where Peter discusses Trading Drawdowns.
- What are drawdowns
- How to handle drawdowns.
- What am i doing wrong?
- What did I miss?
- How normal are they?
Factor Membership
.
Peter Brandt is a 40+ year veteran of trading. Through his Factor Service, members receive:
.
View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work.
Through the Factor Service I endeavor to alert novice and aspiring traders to the many pitfalls you will face – and to offer advice on overcoming those pitfalls. My goal is to shoot straight on what trading is all about. For more information watch my 30 minute webinar where we cover the Factor service in depth.
I hope you will consider joining the Factor community.
SaveSave
Active and Aggressive Risk Management Examples from Factor Member Private Twitter
/by Peter BrandtActive and Aggressive Risk Management
/by Peter BrandtFactor Commentary, December 3, 2018 — Risk management in a day of craziness
/by Peter BrandtBayesian Probability Theory
/by Peter BrandtYour trading Sweet Spot
/by Peter BrandtRecent Posts:
- ChartWizardsNFT Sample Report – September 2024September 22, 2024 - 10:22 pm
- So you want to be a full time trader? Good luck with that one!August 17, 2024 - 6:47 am
- A follow-up regarding my attack on the “we-fund-you” prop industryAugust 13, 2024 - 9:02 pm
- Looking for success in all the wrong places. This is the description of 95% of those wanting to be full-time traders.August 6, 2024 - 11:29 am