A Window into My Trading Brain and System: I've posted many threads like this prior, but for many it may be a nice refresher.
Trading is about 2 distinct yet intertwined variables to me. I may add it took my way too long to actually learn this discipline and then execute it. I went through the school of hard knocks, for longer than any individual should ever admit. I'm not a trader by nature, My brain is not made for trading, its quite the opposite unfortunately. I'm a gambler. I could not for the life of me incorporate my above avg analysis early on into being a successful trader. no matter how many good calls i came up with i always lost money.
I could go into this story for pages. But the short version (well it likely wont be short laugh) is I went cold turkey, cut myself outta trading for a whole year. Made myself painfully watch the market everyday. Do fake trades. Do setup trades on paper, follow through watching and managing them. This year was the best thing that ever happened to me. I'm thankful i had the foresight to do it. It taught me to watch the tape, to listen, to have a thesis and a back up. To monitor the said thesis, but then adapt when the tape changed. I slowly learned objectively how to be one with the tape, ie not fight it. now i know i couldnt have learned this had i had money on the line. Because i was a prideful sob...i couldn't take losses because to me it was a negative reflection of my worth. So i held em...and in fact added to make more. Terrible terrible strategy. Why you see me never add to losers unless its a planned scaling in trade....i only buy up or into my winners. It didn't stop there, it took me a few years outta this dreadfully low place in my trading career to continue to increase my knowledge and analytical ability, and to really hone in a trading discipline. I came up with a strategy that allows me to harness the gambler in me and allow my analysis to pave the way for my trading. Where it was the opposite before, the gamler and therefore trader always overpowered my analysis. Because one bad trade would cost me umpteen good trades, i was always in quick sand, i could never get out. So this is my holy grail. I've shared it here often and its the only way I've turned myself into a profitable trader.
2) Risk to reward or what i refer to as skew
When you combine them you get the recipe for accruing profits over time.
When i posted here at 2720...that i was at the NET longest exposure i had been in quite a long time i was incorporating both. When i added more leverage here at 2705, i even had more of the combined ingredients above.
At 2720 risk was what i though at the time and posted in the thread down to 2700 and 2680...we bottomed at 2692. The reason i felt quite comfortable in ratcheting up my long exposure so drastically was 2 fold...again the ingredients above.
1- probabilities. Given the TA and EW setup we had there it favored holding that area more than 50% of the time...i could argue in my experience that setup holds maybe 55/70% of the time, so its better than a coin-flip.
2- Skew or risk to reward - this is the Kicker and why i trade large size when this is in line with the above probabiltiies. We had a fantastic skew. where one could risk up to 40 ES or SPX handles for a reward of 80/100+....using options i posted trades where easily had skews of up to 6x1 reward to risk....
when i combine the 2 big Variables in my trading system...probabilities and Skew...i know i will accrue profits over time. I know i also will not WIN EVERY TRADE. I know i will lose between 3-4.5 trades out of 10. and sometimes 50-60% losers when i hit a rough patch.
But I know that those winners will FAR EXCEED paying out my said 30-45% losers. because of SKEW. I know that my system really actually pays out when i hit 40-50% winners...but when i can hit the 55/75%, my profits simply accrue more rapidly and larger.
So is the Skew at 2800+ the same as these outline trades. Nope. Therefore these worked, Im much smaller size wize than i was....and Im looking to the next good setup. Where the probabiliy setup is greater than a coinflip and my skew is more than 3x1 or more....till then i can't be as long as i was, mathematically my system doesnt allow it.
By living by my said rules, I don't allow for enormous draw down periods either, because when the markets go through transitional periods as you notice i post a lot less and trade a lot less...till the 2 ingredients come back to life.
may have gone a tad long...shocking....but hopefully a strong nugget or two can be taken from it.