Trading Methodology, reasons and insights into why TA fails.

neo1599

Active Member
#1
Hello,

Was having a discussion in another thread, just posting a new one to keep it more open to newbies and comments/opinions/advice from older/experienced members.

Realistic Goal

Just something very basic, but at the start of learning TA, this is an essential piece which I see most people don't understand.

It's not a complete file, just the start of a 4-5 hour strategy development webinar I did some time back.

I haven't made changes to account for futures instead of Spot FX, the fundamentals remain the same just shift the terminology and do some calculations.

Lets see what kind of response/questions it gets. I am more interested in questions.

Oh..a thread:

Cheers
 

Rkji

Well-Known Member
#4
Realistic Goal - NSE Traded Stocks (No Futures / Options - Only Cash)

Starting Capital : Rs 100,000
Acceptable Risk : 1 % per week (Rs 1000 per week)
Screen Time : 6 hrs (approx period for which indian stock market is open)
Goal : 0 - 6 % a month (assume 3 % as goal)


Q 1. Since your goal is to achieve 3 % return a month consistently & trading hours are short (6 hrs/day), which category would you prefer - intraday or swing ?

Q 2. What will be your position size on each trade ?

Q 3. What reward : risk ratio will you keep on each trade ?


Lets see what kind of response/questions it gets. I am more interested in questions.
 

neo1599

Active Member
#5
Realistic Goal - NSE Traded Stocks (No Futures / Options - Only Cash)

Starting Capital : Rs 100,000
Acceptable Risk : 1 % per week (Rs 1000 per week)
Screen Time : 6 hrs (approx period for which indian stock market is open)
Goal : 0 - 6 % a month (assume 3 % as goal)


Q 1. Since your goal is to achieve 3 % return a month consistently & trading hours are short (6 hrs/day), which category would you prefer - intraday or swing ?

Q 2. What will be your position size on each trade ?

Q 3. What reward : risk ratio will you keep on each trade ?
Hi Rishi,

Glad you like it.

Q 1. Since your goal is to achieve 3 % return a month consistently & trading hours are short (6 hrs/day), which category would you prefer - intraday or swing ?

Swing or rather Trend based trading with excellent Risk-Reward.

Intra-day trading smacks of gambling till you can possibly get all the angles covered.

The above being said, since we are basing things on TA(I don't base anything on TA alone).
I would never suggest an intraday trade, lets face it, the tools required for intraday trading(read charts, levels, week, EOD study et al) are just not available without a price to retail investors/traders.

For Example, if you don't know whether the price hit a weekly support/resistance just below intraday/above intraday levels you will lose money.

1 Time-frame doesn't work.
------------------------------------------

Q 2. What will be your position size on each trade ?

Position sizing depends on RR, position study over the weekly charts for various charts and a pre-ordered list of selection of positions over the EOD/Weekly chart.

For example, if I come up with 3 positions on 3 different stocks:

No.1: 1:3
No.2: 1:5
No.3: 1:10

Now these are not positions I will enter till say xx price on each hits. Suppose No.1 becomes available for entry I would have to have a definite plan of, say, 10% of funds going for this position.

Sometimes it is frustrating to see that a week went by and the 1:5 or 1:10 opportunity did not materialize.

Its more frustrating to see the opportunity materialize, work out perfectly while not being able to take it because all the funds have been utilized.

Then again the full amount will rarely be completely utilized due to the Risk cap on the account, remember NEVER are you allowed to have open positions where total risk(read all SL's hit) exceeds max account risk.
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Q 3. What reward : risk ratio will you keep on each trade ?

Anything under 2.5 : 1, usually makes me throw out the entry.

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Cheers
 

whisky

Well-Known Member
#6
Excellent Neo & Rishi, looking forward to it. :thumb:
 

neo1599

Active Member
#9
Hello


How do you know before hand about the RR for every individual trade ??

The trade entry is just a higher probability of price going our way, and RR is an average taken form the system performance how can you define it for a single trade at the time of or even before the entry signal.


Regards

When I say RR,

I calculate the Stop-Loss and T1 hit returns. So if something has a stop-loss of 100 and the T1 @ 300 then ratio = 1:3.

I am not clear what you are trying to say in the second part but I will have a shot at what I understand:

The trade entry is usually the highest probability at which trend/consolidation/etc will make the price move in the direction of my trade.

We are not calculation the RR of the system as a whole as we have already defined this in the very beginning i.e. max SL of 1%(can't remember the exact figure) and the reward @ 6%(where 3% is good).
So your system is already set-up with a RR of: 1:6 or 1:3

How can we define the RR for single trade or even before the entry:

Simple we never take a position which hasn't been worked out earlier either on EOD data or Weekly or monthly or any other TF.

Gambling on a position would be not knowing the max loss(i.e. stop-loss hit, profit potential, % funds towards a position).

Hope that clarifies, else I haven't understood the second part.
 

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