2009.09.10 DRAIN THE BANKS - LIKE A RAT

[TheRumpledOne]

I would wager that most of you are:

1) over trading

2) not trading with correct position size

3) trading like a Yale student

or

4) all of the above.


If a 10 pip stop loss is a 2% risk then all you need to make is 10 pips to have a 2% return on your account.

10 * 1 = 10

5 * 2 = 10

4 * 3 = 12

3 * 4 = 12

2 * 5 = 10

2 * 6 = 12

2 * 7 = 14

2 * 8 = 16

2 * 9 = 18

1 * 10 = 10

The pips add up.

If you have traded more than 5 times a day and you have not made 10 pips net, are you sure you are trading like a rat?

[gangsta1]

I would wager that most of you are:

1) over trading

2) not trading with correct position size

3) trading like a Yale student

or

4) all of the above.


If a 10 pip stop loss is a 2% risk then all you need to make is 10 pips to have a 2% return on your account.

10 * 1 = 10

5 * 2 = 10

4 * 3 = 12

3 * 4 = 12

2 * 5 = 10

2 * 6 = 12

2 * 7 = 14

2 * 8 = 16

2 * 9 = 18

1 * 10 = 10

The pips add up.

If you have traded more than 5 times a day and you have not made 10 pips net, are you sure you are trading like a rat?

TRO, thats all good and well risking 2% of the account and shooting for 10 pips a day, no problem...

BUT you are not taking into account losses that may occur before those winners. If we are stopped out once or even twice before nagging a few pips we have alot of ground to make up in order to reach the 10 pip daily target. UNLESS, after multiple losses we go for a big runner. That is how I see it.

10 * 1 = 10

1.WWWWWWWWWW
2.LWWWWWWWWWWWWWWWWWWWW
3.LLWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW
--------------------

5 * 2 = 10

1.WWWWW
2.LWWWWWWWWWW
3.LLWWWWWWWWWWWWWWW

--------------------

4 * 3 = 12

1.WWWW
2.LWWWWWWW
3.LLWWWWWWWWWW
--------------------

3 * 4 = 12

1.WWW
2.LWWWWW
3.LLWWWWWWWW
--------------------

2 * 5 = 10

1.WW
2.LWWWW
3.LLWWWWWW
--------------------

2 * 7 = 14

1.WW
2.LWWW
3.LLWWWWW
--------------------

2 * 8 = 16

1.WW
2.LWWW
3.LLWWWW
--------------------

2 * 9 = 18

1.WW
2.LWWW
3.LLWWWW
--------------------

1 * 10 = 10

1.W
2.LWW
3.LLWWW
--------------------

Those scenarios suggest that we either get winners right of the bat or a few losers. They also show how many uninterrupted winners after a loser or two we would need to reach our modest 10 pip target. NOT taking into account losers that will occur whilst trying to recover from decefit. The hit ratio would need to be VERY high.

Now shooting for a runner would mean that however much has been lost, one has the opportunity to gain it back and reach the daily target in a single trade. However setting a breakeven in order to catch a runner often causes the trade to be cut short.

[bredin]

gangsta,

you should have very few losers with the rat and heres why:

the daily low/high tends to occur in lower timeframe supply or demand zones, on M5 they are almost always less than 10 pips wide. This holds true even when the current high/low is not the final daily high/low
When a 3 sema occurs at the D1 low/high the entry is about as good as it is going to get and price should rebound out of the s/d zone quite quickly, often getting 5-10 pips in a couple of minutes.
If price doesnt rebound quickly and immediatly I close at or near be, sometimes only grabbing 1 pip, because this is an indication to me that either a) I may be holding this trade for quite a while (large buyer/seller balance) and cant then look for other, faster, opportunities or b) I may be looking at a larger tf price stall rather than a reversal.
I have found that over time holding a slow moving trade almost always causes me to miss a good one on another pair. btw, I only allow myself to hold two open trades at a time.

If you are having trouble with the rat like I was 3 months ago, do some reading on zlines, or watch Sam Seidens videos on supply and demand zones. Either of which should help you to SEE why the rat works, and why the best entries are immediately following a 3 sema.

Cheers
G

[bredin]

I should add that with some knowledge of s/d or zlines you will know when to "shoot for a runner" and how far to shoot for

Cheers
G

Hmm, I sure hope I havent just gone to YALE....

[TheRumpledOne]

Bredin:

Looks like you realized just in time you were about to cross into Yale territory.

Remember, a semafor usually indicates a breakout first, which is usually followed by a reversal.

The RAT REVERSALS wait for 2 bars to close BEFORE an entry is made. On M5, that is at least a 10 minute wait. You can check if the range on higher time frames have been exhausted. The main thing to do is WAIT. BE PATIENT. You know price will reverse - wait to SEE IT.

[TheRumpledOne]

Bredin:

Looks like you realized just in time you were about to cross into Yale territory.

Remember, a semafor usually indicates a breakout first, which is usually followed by a reversal.

The RAT REVERSAL waits for 2 bars to close BEFORE an entry is triggered. On M5, that is at least a 10 minute wait. You can check if the range on higher time frames have been exhausted. The main thing to do is WAIT. BE PATIENT. You know price will reverse - wait to SEE IT.

[daveM]

I located one I will post the url

http://transcripts.fxstreet.com/2008/07 ... -fore.html

TRO seems to base a lot on S/R, these videos might be quite helpful to learn from.

Hopefully is ok to post that URL in here, delete the post if not.

[frang0nve]

Hi Gangsta,

Check this:

When to exit?

I created frequency distributions for the green rat and red rat.

Looks like the rats get 5 or more pips about 80% of the time.

Looks like the rats get 10 or more pips about 70% of the time.

How much cheese do you want?

If that is correct in average we can expect in 100 trades:

80 winners * 5 pips - 20 losers * 10 pips = 200 pips (5 pips TP, 10 pips SL)
70 winners * 10 pips - 30 losers * 10 pips = 400 pips (10 pips TP, 10 pips SL)

Of course trying to catch more pips the distribution of winners/losers and the amounts are modified.

With this system:

I know the feeling.

What I do is protect ME from ME.

AT +5 pips, I will be ready to bail at +3 if price pulls back.

At +10 pips, I will enter a trailing stop of 4 or 5 pips.

**At +15, I will cancel the trailing stop and enter a hard stop at +10.

**Then I will move the hard stop up if price moves up.

At +25, I may move the hard stop up to +25 or to a price ending in 0 or 9.

Sometimes, I may exit 1/2 of my position at +20 to lock in a 1% gain.

The idea is to be CONSISTENT. You'll miss out sometimes, but you only need ONE big run and you are done for the day.

Remember, the daily goal is 2% or more and DO NOT OVER TRADE.

With TRO system quoted above in the worst case within stats (if we don't catch any winner with profit >= 10 pips) you'll get:

Trades with profit < 5 will be losers (-10 pips/20%).
Winners with 5 <= profit < 10 will give you 3 pips (80%).

In average 100 trades we can expect:

80 trades * 3 pips - 20 trades * 10 pips = 40 pips profit in 100 trades in the worst case (remember: No winner with profit >= 10 pips).

Please let my know if my calculations are very optimistic or just wrong.

Cheers

Francisco

[daveM]

Because we are subjective with our entries and exits, I would think that we would have to actually keep statistics on our own entries in order to generate a summary.

Perhaps replaying a month's data in a trade simulator would give something that is closer to valid.

[frang0nve]

And from the same TRO stats we can see than we should expect 30% of winners with profit >= 10 pips, with TRO exit strategy we'll get at least 5 pips from each one, so our pessimistic expectation should be:

In 100 trades.

30 trades * 5 pips + 50 trades * 3 pips - 20 trades * 10 pips = 100 pips profit. (if we can't catch in ANY trade more than 5 pips ).

Cheers

Francisco