Floor reflections on trading


Suppose that a certain system of random selection will produce an average of 50% winning trades and 50% of unprofitable. The average size of positive and negative transactions is the same. If you trade on this system, it would not have been happy, because they had a profit (commissions, etc. is not considered).

On the other hand, you would be with the front 80% of traders who began to trade with you. Because they have suffered a loss. Market volatility offset the success of the method. Moreover, the volatility of the market is not as important as loyalty and profitability of the method. Now assume that you have a method that guesses the direction in 62% of cases, and thus the size of winning trades at 2.5 times the size of losing trades.

In this particular case we know that the best value for Risk / Reward is to use 47% of trading capital on each trade.

It is evident that the need for capital is directly related to the performance of the method. Of course, when the methods are tested for accuracy and profitability, they take profits at the point of profit, are the point of entry, etc. Therefore, these calculations significantly flawed. Required capital necessary to correct for actual use of the method you. Let's go back to the method that we talked about. In theory it will give you 62% of regular transactions and 2.5:1 ratio. In each transaction, the best use of 47% of capital.

But if you use this method for some time, you may find that you guess only 52% of their trades and a 2:1 ratio. And in this case, the best would be to use 28% of the capital. Compare with the "theoretical" and 47% feel the difference!

We see where the losses are almost perfectly disciplined trading for profit model. Is not in the method (you can always find more efficient methods), and in the effectiveness of the actual use of methods. We can always improve ...

How and why to trade 100 shares

You probably know that the day traders standard lot of 500 or 1,000 shares. This is especially true for those who prefer short trades (scalp). Scalp at $ 0.25 at 1000 shares makes a profit of $ 250.00. Do this four times a day - and your annual income will be $ 250,000. But at these rates and trade 500 shares will be a great result! But when one lot of 100 shares scalp becomes meaningless, because even the passage of $ 0.25 may simply not cover the commission. We can certainly say that trading 100 shares is not a goal day trading. You can not do scalping with 100 shares. You have to use a completely different approach.

At the same time, there are enough reasons for deciding to sell a lot of 100 shares. The first reason (in order and by value) is that 90% of traders lose 90% of their capital. Therefore, they have in their accounts simply ridiculous amount at the time when he finally decided to engage with trading and direct their efforts to something more suitable for them. For these people, trading 100 shares - perhaps the only acceptable method of trading.