SJD's Notes

[jain.er]

I am sorry if I am hijacking the thread but as a newbie, I look to keep SL according tho my RR, so for Nifty i keep 15 as my SL and 40 as my target (For intraday trades). I know its rough, but I like to keep my loss and profit known.
That gives RR 1:2 after cost. What do you guys think of my SL and RR ?

 

[EagleOne]

I am sorry if I am hijacking the thread but as a newbie, I look to keep SL according tho my RR, so for Nifty i keep 15 as my SL and 40 as my target (For intraday trades). I know its rough, but I like to keep my loss and profit known.
That gives RR 1:2 after cost. What do you guys think of my SL and RR ?

Keeping SL according to R:R looks great on paper but in reality it is a dud concept. Volatility etc. doesn't come into picture on the paper, sirji. Even so, 7 out 10 times this kind of tight SL in fast moving nifty will have more chances to get hit than the target getting hit. Why? 7 out of 10 days are sideways days.

Hona ultaa chahiye, right?

 

[sanjosedesi]

Yes this paper RR vs real RR ... how different !!

One of the documents I review once in a while is http://www.nseindia.com/archives/indices/update/indup.pdf

This is a summary of NSE data with many parameters aggregated for past 1 year. If you do not have any other way to calculate a stocks' volatility, you can at least reference the past here. You can also find if the stock is tightly or loosely co-related to Nifty. Like they say, past data is no guarantee of future results, but at least you have a starting point. Stock wise details start at page 8. Many other interesting parameters if you have time to read.

 

[Smart_trade]

I am sorry if I am hijacking the thread but as a newbie, I look to keep SL according tho my RR, so for Nifty i keep 15 as my SL and 40 as my target (For intraday trades). I know its rough, but I like to keep my loss and profit known.
That gives RR 1:2 after cost. What do you guys think of my SL and RR ?

Keeping a stoploss as per your RR is not good practice as market neither knows nor cares what your RR is...but keeping it on chart points is a better idea. You should vary the quantity you trade on a trade which will be decided by your risk percentage. To illustrate, if you are trading on a trading capital of say Rs 5 Lacs and you risk 1 % of your capital on a trade ( ie Rs 5000 ) and the stoploss as per chart point is say 20 [points away, dont keep 15 points as your stoploss but keep it at 20 points and trade 5000 /20 = 250 quantity.....

In daytrading, it will be rare to get a one way move of 45 points in Nifty Fut too often.....so in daytrades you have to trade with 1.5:1 or 2:1 RR ....you can hit larger Reward/Risk ratio when you start trading on extremely tight stops ( on small inside bars, tiny pivots etc ) and start taking adds...but both these things are very difficult for a new trader.....so getting 45 points on risking 15 points look good on paper but difficult in actual trading......

Just my views......

Smart_trade

 

[EagleOne]

I think, the most practical SL is the tried and tested pivot low/high after the due retracement. The greatest advantage is, it is visual and in real time. If market has decided to move in one's trade direction, pivot based SL generally wouldn't get touched. If it hits, then it means market wants to go the other way. Good, no worries. Time to go SAR. That is, as saint's signature says: Time to adjust your sails!

 

[sanjosedesi]

Keeping a stoploss as per your RR is not good practice as market neither knows nor cares what your RR is...but keeping it on chart points is a better idea. You should vary the quantity you trade on a trade which will be decided by your risk percentage. To illustrate, if you are trading on a trading capital of say Rs 5 Lacs and you risk 1 % of your capital on a trade ( ie Rs 5000 ) and the stoploss as per chart point is say 20 [points away, dont keep 15 points as your stoploss but keep it at 20 points and trade 5000 /20 = 250 quantity.....

One of the Eureka moments I had a few days back ... I have traded and intend to trade on hourly charts, but I always worry about the gaps. Lets assume my max loss on any trade is 1.5% and lets also assume that overnight gaps might kill the stock by 2.5%. So should I use 1.5 when calculating my entry or should I base the quantity on 2.5?

Well, I started assuming 2.5% which obviously gave me smaller quantity to trade. If you can afford to lose 1.5 on 100, then gap of 2.5 implies you can not put in more than 60. Rest you do not invest/trade.

But no ... it turns out 1.5 is the right number to use. If I enter a stock on hourly charts, and next day it gaps down 2.5% ... the only way I can lose 2.5% is if the stock did not move at all during the day. Would you keep that stock overnight? I would not. So back to using 1.5. And if the market moves only 0.5% during the day in your favor, then either get rid of some quantity or close the trade rather than taking the risk of 2%.

 

[sanjosedesi]

I think, the most practical SL is the tried and tested pivot low after the due retracement. The greatest advantage is, it is visual and in real time. If market has decided to move in one's trade direction, pivot based SL generally wouldn't get touched. If it hits, then it means market wants to go the other way. Good, no worries. Time to go SAR. That is, as saint's signature says: Time to adjust your sails!

E1 bhai, its time for you to show a picture ... of pivot based SLs ! I did describe pivots way early in this thread, but pivot based SLs ... I still flounder.

 

[EagleOne]

E1 bhai, its time for you to show a picture ... of pivot based SLs ! I did describe pivots way early in this thread, but pivot based SLs ... I still flounder.

Come on, SJD. You recently did Axisbank trade. And did very well. I almost followed that trade in realtime with you. As far as I remember, you were using pivot based SL and TSL all along!

But sure. Next time I will do a trade based on this concept, I will post the chart.

 

[sanjosedesi]

No it was a percentage based trail, with further optimizations I described a few posts before. Basically increase the TSL percentage for each percentage of gain, although the numbers were not what I described in the example.

 

[EagleOne]

One of the Eureka moments I had a few days back ... I have traded and intend to trade on hourly charts, but I always worry about the gaps. Lets assume my max loss on any trade is 1.5% and lets also assume that overnight gaps might kill the stock by 2.5%. So should I use 1.5 when calculating my entry or should I base the quantity on 2.5?

Well, I started assuming 2.5% which obviously gave me smaller quantity to trade. If you can afford to lose 1.5 on 100, then gap of 2.5 implies you can not put in more than 60. Rest you do not invest/trade.

But no ... it turns out 1.5 is the right number to use. If I enter a stock on hourly charts, and next day it gaps down 2.5% ... the only way I can lose 2.5% is if the stock did not move at all during the day. Would you keep that stock overnight? I would not. So back to using 1.5. And if the market moves only 0.5% during the day in your favor, then either get rid of some quantity or close the trade rather than taking the risk of 2%.

SJD, just an addition to your above thought. If you are faithfully, patiently following hourly charts - that too in stocks, not indices - very rarely you will have your profits wiped off in gaps. Reason, you will have less noise in charts during the trade. That would translate into clear decisions as to whether to book the profits or carry the postion. Besides, hourlies normally go beyond 2.5 R, so if you are loaded with positions, either you can lighten the load and partial book the profit or buy an ATM/OTM option to hedge it.