My Journey In Technical Analysis

XRAY27

Well-Known Member
Over all performance of this 11 months ended in positive side,qty traded was raised 2 times,ROC will be calculated at the end of this series for this whole year,significant improvements are on side of psychological level,& non comparison of results with other traders

Sent from iPad
 

onequorauser

Well-Known Member
This reply by madan meant a lot,for me...


madank said:

Logging into TJ after a long time. Whole outlook has changed for better :)

Scaling in vs All-in is a vast topic by itself but based on my understanding - there is no real advantage in scaling-in except for the mental satisfaction of losing less(purportedly losing less) but law of averages would infamously catch up with scaling-in as well. But, if one goes to the bottom-line to understand the parameters, it all comes down to how much we can earn from a strategy(in terms of returns) and how much we are willing to lose (max DD) to attain that average returns.

Without going into further details, i can assure you that all-in is much better in terms of returns(w.r.t risk) but if one needs psychological comfort, scaling-in would suit them. So, it all boils down to individual's preference (maximum retruns w.r.t risk vs psychological comfort). There is nothing right or wrong but there is no empirical evidence favoring scaling-in except for the mental comfort. If we talk about returns/utilising our capital optimally, then all-in is much better.

There was a post that talks about scaling-out vs all-out(exit MM is more important that entry MM in my opinion). Thought of posting it here again.

http://www.traderji.com/community/threads/general-trading-chat.96368/page-4408#post-1175135
Personal opinion here... and this is without any disrespect to anyone including Madan. This may not necessarily be the case. It would be very very case dependant.

The best traders in the world use scale-in and scale out. Turtle traders - the flag bearers of Systematic Trend trading did this extensively. People from Livermore did it and Rakesh Jhunjhunwala does it. And it is more a matter of personal preference than anything else.

The contention against this is that this is done to smooth out the equity curve... well the fact is.. when you dont do it, you are actually betting on the outliers making money for you. So the question really is not whether you want to scale in or scale out- it is really whether you want to make money is few trades or spread it out. BTW outliers will still make money if the strategy involves staying in the trade. This is more of a question if you are scaling out, because when you scale in, you will have the highest position at the highest price.

The problem with relying heavily on outliers is that if you miss one trend- you miss the making money for the whole month. Your health, equipment,internet, pet, surrounding anything could act up during this period causing you to miss the trade and you are left high and dry.

This is especially true in case of intraday trading. You have to have a proactive exit strategy. Even Madan advises this. Although he prefers to have an all in all-out strategy, phased (scale out) approach could give different results. At least my personal testing does indicate it. One could try out in his/ her own testing. Just food for thought here.. if there are a significant number of trades with MFEs higher than your average loser and lesser than your your your all out stop point( point at which you start trailing) it may make sense to have a point in between where you could take a portion off. Anyway this is again very specific to the system in use.

To re-iterate- I am not negating anything that Madan or anyone else is saying. My point is that closing the doors on scaling in scaling out will be more a point of preferance than anything else. Dr. Brett N. Steenbarger says we dont trade the markets. We trade our beliefs. I think this summarises the point that I am trying to make
 
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XRAY27

Well-Known Member
Personal opinion here... and this is without any disrespect to anyone including Madan. This may not necessarily be the case. It would be very very case dependant.

The best traders in the world use scale-in and scale out. Turtle traders - the flag bearers of Systematic Trend trading did this extensively. People from Livermore did it and Rakesh Jhunjhunwala does it. And it is more a matter of personal preference than anything else.

The contention against this is that this is done to smooth out the equity curve... well the fact is.. when you dont do it, you are actually betting on the outliers making money for you. So the question really is not whether you want to scale in or scale out- it is really whether you want to make money is few trades or spread it out. BTW outliers will still make money if the strategy involves staying in the trade. This is more of a question if you are scaling out, because when you scale in, you will have the highest position at the highest price.

The problem with relying heavily on outliers is that if you miss one trend- you miss the making money for the whole month. Your health, equipment,internet, pet, surrounding anything could act up during this period causing you to miss the trade and you are left high and dry.

This is especially true in case of intraday trading. You have to have a proactive exit strategy. Even Madan advises this. Although he prefers to have an all in all-out strategy, phased (scale out) approach could give different results. At least my personal testing does indicate it. One could try out in his/ her own testing. Just food for thought here.. if there are a significant number of trades with MFEs higher than your average loser and lesser than your your your all out stop point( point at which you start trailing) it may make sense to have a point in between where you could take a portion off. Anyway this is again very specific to the system in use.

To re-iterate- I am not negating anything that Madan or anyone else is saying. My point is that closing the doors on scaling in scaling out will be more a point of preferance than anything else. Dr. Brett N. Steenbarger says we dont trade the markets. We trade our beliefs. I think this summarises the point that I am trying to make
Well, as you said , lot depends on system we trade and result of back test...i could not found way to address add-on with rule based mechanics ,so all-in suited me ,which is based on mechanical way of trading,earlier i'm a discretionary trader, but volume scaling is very difficult for me in that...so changed to mechanical, it took good one year to up my psychological level,as that requires lot of points to unlearn...
 

ncube

Well-Known Member
Personal opinion here... and this is without any disrespect to anyone including Madan. This may not necessarily be the case. It would be very very case dependant.

The best traders in the world use scale-in and scale out. Turtle traders - the flag bearers of Systematic Trend trading did this extensively. People from Livermore did it and Rakesh Jhunjhunwala does it. And it is more a matter of personal preference than anything else.

The contention against this is that this is done to smooth out the equity curve... well the fact is.. when you dont do it, you are actually betting on the outliers making money for you. So the question really is not whether you want to scale in or scale out- it is really whether you want to make money is few trades or spread it out. BTW outliers will still make money if the strategy involves staying in the trade. This is more of a question if you are scaling out, because when you scale in, you will have the highest position at the highest price.

The problem with relying heavily on outliers is that if you miss one trend- you miss the making money for the whole month. Your health, equipment,internet, pet, surrounding anything could act up during this period causing you to miss the trade and you are left high and dry.

This is especially true in case of intraday trading. You have to have a proactive exit strategy. Even Madan advises this. Although he prefers to have an all in all-out strategy, phased (scale out) approach could give different results. At least my personal testing does indicate it. One could try out in his/ her own testing. Just food for thought here.. if there are a significant number of trades with MFEs higher than your average loser and lesser than your your your all out stop point( point at which you start trailing) it may make sense to have a point in between where you could take a portion off. Anyway this is again very specific to the system in use.

To re-iterate- I am not negating anything that Madan or anyone else is saying. My point is that closing the doors on scaling in scaling out will be more a point of preferance than anything else. Dr. Brett N. Steenbarger says we dont trade the markets. We trade our beliefs. I think this summarises the point that I am trying to make
With Mathematics we can easily analyze this:
1552002148378.png


What this table highlights:
1. We used a system which has 50% success rate for each buy signal to the next buy signal/target
2. We keep 2 points SL for each buy signal.
3. For the same risk of 60 points, no scale-in will give us a reward of 90 points (1:1.5 RR) vs 50 points (1:0.8 RR) for scale-in.
4. Probability of win at the Buy-3 is only about 25% from the start, hence one should pyramid when scale-in.
5. From this analysis we can conclude that mathematically No scale-in is better than scale-in.

But does Scale-in Works?
1. Yes, definitely if one is able to get in at the beginning of the trend he will make good profits if the trend sustains. But its an outlier.
2. Scale-in works at higher time frame and preferably on commodity futures where the trends are usually sustainable and volatility will be low if one has good idea about the demand/supply.At lower time frame volatility is more and higher chances of pull backs before continuing with the trend.
3. If you read about the legendary traders like Turtles, Seykota, Jesse, Rakesh etc they all traded at higher time frames and quantity and preferred commodity futures over stocks or were lucky enough to trade in a period when the markets used to give nice trends.They were to some extent contrarian traders and when they got hint about trend change they first tested the waters and if its proved their expectation they scaled in rapidly and were out once the trend started reversing.
4. However these days the playing field has leveled and traders have better tools and everyone get to see the trend formation almost at the same time which makes the trend continuation at lower time frame difficult and one can expect frequent pullbacks.
 
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onequorauser

Well-Known Member
With Mathematics we can easily analyze this:
View attachment 33764

What this table highlights:
1. We used a system which has 50% success rate for each buy signal to the next buy signal/target
2. We keep 2 points SL for each buy signal.
3. For the same risk of 60 points, no scale-in will give us a reward of 90 points (1:1.5 RR) vs 50 points (1:0.8 RR) for scale-in.
4. Probability of win at the Buy-3 is only about 25% from the start, hence one should pyramid when scale-in.
5. From this analysis we can conclude that mathematically No scale-in is better than scale-in.

But does Scale-in Works?
1. Yes, definitely if one is able to get in at the beginning of the trend he will make good profits if the trend sustains. But its an outlier.
2. Scale-in works at higher time frame and preferably on commodity futures where the trends are usually sustainable and volatility will be low if one has good idea about the demand/supply.At lower time frame volatility is more and higher chances of pull backs before continuing with the trend.
3. If you read about the legendary traders like Turtles, Seykota, Jesse, Rakesh etc they all traded at higher time frames and quantity and preferred commodity futures over stocks or were lucky enough to trade in a period when the markets used to give nice trends.They were to some extent contrarian traders and when they got hint about trend change they first tested the waters and if its proved their expectation they scaled in rapidly and were out once the trend started reversing.
4. However these days the playing field has leveled and traders have better tools and everyone get to see the trend formation almost at the same time which makes the trend continuation at lower time frame difficult and one can expect frequent pullbacks.
I agree with you on the time frame.. personally scale in has not worked for me either. I am working on scaling out though

Haven't been able to completely get the system you have mentioned but maths on this amy not be very straightforward as a lot of them really buy retracements and short rallies they will not be the same as buy signals.

I do disagree on contrarian part..I think most of them were breakout traders. Took losses when things didn't go in their favour and when the BO evolved into trends the rode it as far as possible. They only added in a contrarian way

And yes I have seen a lot of old timers complain about trends not being as persistent as previously
 

ncube

Well-Known Member
I agree with you on the time frame.. personally scale in has not worked for me either. I am working on scaling out though
>> Scale out is fine and is a profit protection strategy, however it involves discretionary decision making and difficult to define mechanical or systematic rules.

Haven't been able to completely get the system you have mentioned but maths on this amy not be very straightforward as a lot of them really buy retracements and short rallies they will not be the same as buy signals.
>> It does not matter which system one uses, if the buy/sell signals are consistent (Systematic/mechanical), the results will be same. The system I have considered in the table is a normal pivot breakout strategy. Again if you are considering discretionary trading it will boil down to the traders experience and skills.

I do disagree on contrarian part..I think most of them were breakout traders. Took losses when things didn't go in their favour and when the BO evolved into trends the rode it as far as possible. They only added in a contrarian way
>> What I meant by contrarian is that they basically look for new trend formation, for example, after a period of downtrend, if the price action is making higher highs and they anticipate that this would be the beginning of new trend, they will look for entry at first breakout to test the waters with lower quantity. If the price action behave as per their expectation they scale in fast at every opportunity else they will not have the buffer to sit tight to ride the trend when there are normal reactions.

And yes I have seen a lot of old timers complain about trends not being as persistent as previously
>> There are trends, but far in between. If one is following trend trading and not diversified well, then if he misses one good trend trade it will drastically bring down his total returns.

Again I am talking from the perspective of mechanical/systematic trading, discretionary is a different ball game where success directly depends on the traders skills.
 

XRAY27

Well-Known Member
Joe Ross Explains

Fearing Losses
There is a huge difference between being risk averse and fearing losses. You must hate to lose. In fact, you can program your brain to find ways to not lose. But not losing is a logical thought-out process, rather than an emotion-based reaction.Two human -based tendencies come into play. The first is the sunk-cost fallacy and the second is the exaggerated-loss syndrome.

Sunk-cost fallacy: You are in a trade that begins to go against you. You reason that you have already spent a commission, so you have costs to make up for. Moreover, you have spent time and effort researching and planning this trade. You reckon that time and effort as cost. You have waited for just such an opportunity and you are afraid that now that it has come you will have to miss this trade. The time spent waiting for opportunity is something you also count as cost. You don't want to waste all these costs, so you decide to give the trade a little more room By the time you realize what you’ve done, the pain is almost overwhelming. Finally, you have to take your loss which is now much larger than it might have been. The size of the loss adds to your fear of ever losing again. The end result is brain lock and inability to pull the trigger on a trade

Exaggerated-loss syndrome: You give the importance of losing on a trade two to three times the weight of winning on a trade. In your mind, losses have greater significance than wins. In reality, neither is more or less important than the other. In fact, wins do not have to be as numerous as losses as long as the wins are significantly larger in size than the losses. Of course, best is to have more wins than losses with the wins greater in size than the losses

IMO ,Sticking to the system to its core solves this problem combo of intra+swing providing enormous advantage
 
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XRAY27

Well-Known Member
Every traders wants to earn ,but stock market is zero sum game,traders are two types discretionary and systematic traders ,discretionary will almost have problem with trade size scaling,provided he is expert in his discretionary skills,other wise he will end in blowout ,systematic traders needs to follow his system like slave ,he should remember that your system dictates your actions, not your emotions or desires.

Systematic trader have to face deadly DD phase,his MM should be FRMM in case of Fut and FFMM in case of cash market ,have to follow his system irrespective of DD and mechanics to keep DD under tolerable limit is the most key factor for this..
 

VJAY

Well-Known Member
Every traders wants to earn ,but stock market is zero sum game,traders are two types discretionary and systematic traders ,discretionary will almost have problem with trade size scaling,provided he is expert in his discretionary skills,other wise he will end in blowout ,systematic traders needs to follow his system like slave ,he should remember that your system dictates your actions, not your emotions or desires.

Systematic trader have to face deadly DD phase,his MM should be FRMM in case of Fut and FFMM in case of cash market ,have to follow his system irrespective of DD and mechanics to keep DD under tolerable limit is the most key factor for this..
Dear Xray bro...whats this FRMM & FFMM!!!!
 

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