Trading advice. A traders’ dilemma. True story

It’s only natural for traders to seek Trading Advice. Today’s I heard from a trader whose problem was a common one. It just wasn’t the problem he thought he had. For the purposes of this story, let’s call him Vitaly – because that’s his real name.

What was Vitaly’s problem? Before giving any trading advice, we first have to take a look at some of his trading stats…

 

Percentage Profitable – 79.59%

Number of winning trades – 429                Number of losing trades – 110

Max consecutive winners – 90                    Max Consecutive losers – 16

Average Losing Trade – $55.31                    Average Losing Trade – $106.95

For full disclosure, I’m a trader, not trading coach. I talk to hundreds of traders every year, Some professional traders and some retail traders. Some are profitable and many struggling. I am the owner of Jigsaw Trading and for those that don’t know, we sell trading tools. Vitaly is a customer and uses our tools daily. He’s one of the customers that’s kept in touch about his progress  as he’s been developing as a trader. So I know Vitaly quite well along with what he’s been doing and how he’s been progressing.

What can well tell from the statistics? Well we don’t want to jump to a bunch of conclusions based on a set of numbers but as you can see in Vitaly’s losers are bigger than his winners. First, we have to consider the win rate to make sure his winning percentage isn’t just because of a skew in risk:reward.

What skew?

Let’s consider a system, where winners were gaining 10 ticks and losers were losing 20 ticks. Entering at random, you should expect 66% of the trades to be winners. As the target is closer than the stop, probability would see you hitting the target first 66% of the time. The system would break even before fees because and would have no edge in it. You get more winners but no profit.

So is Vitaly suffering from R:R skew?

Considering the size of his winners and losers, he’d need to beat a 65% win rate to show there was edge/profitability in what he’s doing. He’s way above that. So it appears that there is merit in what he’s doing. It’s also working over a good size sample, so it’s not as if we are just looking at a handful of trades. So in terms of trading advice, he certainly appears to have something to build on.

So what’s his problem?

His trades are scalps taking 3-5 ticks profit on Crude Futures and he takes many trades a day. Stops are the concern. He has an emergency stop at 30 ticks BUT he actively manages his trades with order flow. In other words, he will exit a losing trade when he feels there is aggressive selling. Price simply isn’t the only factor in his decision making. In effect, he has no hard stop loss. Typically, he’s out at 6-8 tick loss but sometimes it’s just over 10 ticks.

And this is a problem for one reason only. He’s sharing this information with other traders who tell him “You aren’t doing it right”, “You have to have a fixed stop”, “30 ticks is way too far”, “that will never work”.

And his problem – he’s listening to them!

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Jigsaw Trading
After suffering a 30% drawdown at the hands of “independent financial advisors”, Peter started trading in the early 2000’s, figuring there was no point in paying people to lose money for him. By 2005, Peter was day trading NASDAQ stocks and later discovered the value order flow. He struggled with the way order flow data was presented so designed tools that organized Order Flow information more rationally and Jigsaw Trading was born. Those tools are now the #1 ranked software on Investimonials.com.
Today Peter spends his time trading and helping other traders through the Jigsaw community, articles and free one on one sessions.
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Jigsaw Trading

Jigsaw Trading

After suffering a 30% drawdown at the hands of “independent financial advisors”, Peter started trading in the early 2000’s, figuring there was no point in paying people to lose money for him. By 2005, Peter was day trading NASDAQ stocks and later discovered the value order flow. He struggled with the way order flow data was presented so designed tools that organized Order Flow information more rationally and Jigsaw Trading was born. Those tools are now the #1 ranked software on Investimonials.com. Today Peter spends his time trading and helping other traders through the Jigsaw community, articles and free one on one sessions.

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