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Plenty of good questions! I have no problem answering.
- What was your minimum capital requirements before you started employing this strategy of averaging down on your positions?
a.) I don't have any idea what the minimal capital requirements should be. Averaging down in positions has nothing to do with capital requirements. It is the same as going all-in on every entry. So, the question your asking is a very common: how much money to trade futures. Look at the poll on the front page. I personally believe that you need to be able to sustain a draw-down that is roughly 5x you largest losing day. This gives you a buffer to work with. That number is just arbitrary, but you get the idea.
- When you're averaging down and perhaps in a high vol environment that has made large range/volume swing fractals, how are you keeping tabs with how much you are risking $ wise and how much you are willing to risk until your thesis is proven wrong?
a.) This is not something I consciously think about that much these days. I just have a good feel at this point of how much I want to risk. I typically stay within 1-3 contracts just because that is a low-risk and comfortable. I won't typically take the trade if the puke point is too far away. This limits the amount of risk I take in my trades.
- Are you calculating before entering the original position how much % wise of your capital you're willing to risk whilst averaging down and finding the price where you're thesis is proven wrong?
a.) I do not calculate this because I do not think it has purpose. I know that trading 1-3 contracts with the trades I take that I will never have to worry about one bad trade ruining anything. I can take quite a few losses in a row before I may need to consider adjusting capital-risk. But honestly, I would have to fall on some hard times to reach that point. So no, I do not.
- How are you monitoring your PnL and average price when price moves against you?
a.) I am not sure what this is asking but I'll take a shot. Sierra Charts has a chart trader that shows you where your average position price is and the Net PnL of that average.
- How do you determine how many contracts you'll average until your thesis is proven wrong?
a.) I typically stay between 1-3 contracts, however, I use to trade double that in the past (back when markets were moving much more and presented much more reward.) This also depends on my confidence in my thesis as well as how volatile price is. I will add more if the risk is small and I do not think price will move rapidly in the wrong direction.
- Do you take off the added contracts off when price moves in your favour to work out of your losing position?
a.) Yes and no. I typically don't take off my adds before price is past my average. I normally aim for 3-5 points for me adds. I am not sure what you mean by working out of my losing position. I do not add and take profit the second they get profitable. That would defeat the purpose of adding.
I really do respect what you're doing and think that you are offering a great service sharing your thoughts to this forum and admire you're transparency with your strategy. I only have questionable concerns about sharing and inspiring others to acquire your high risk/high returns strategy for some of us here with smaller accounts.
Keep doing what you're doing though!
a.)Thank you for the kind words! I think that your concerns are rationale, however, not entirely founded on hard ground. If you were in the room you would know that I am not a risk-taker and I try to keep risk to a minimum. You say that I have a high-risk, high-reward type methodology. This is far from the truth. My losing trades are less than half the size of me winners. The attendees saw that live today. I hope you stop in sometime! Smaller accounts are not going to take kindly to any futures trading strategy, not just mine. However, I think my "strategy" can be implemented by anyone with the right trade/money management.
We talk a lot about PnL on a longer time-line than on a daily, trade by trade, basis. Being to microintensive can be detrimental to your psyche and your trading. So I look at my PnL by a weekly, and monthly basis. I think this serves me the best.
As I have done before, I will post my PnL track record for the room here in a graph format. The dollar amounts have been removed since they do not matter.
The red lines are my weekly goals. The lowest red line was Week One's target. I missed it when I lost money that Friday. The second red line is Week Two's target. We crushed it and more before the weeks end. The last box was Week Three's target which we beat in the home-stretch of this week.
All in all, I have done fairly well since the beginning of this room. It was our 15th trading day together and I have gotten a LOT of good feedback. I am glad that everyone is getting something from it. I hope to continue to help!
Thanks for your detailed answers Alex and your contribution @DaxyMcDaxFace.
I think the key takeaway from your answers are:
- Trading futures on a hard stop for predetermined targets with a daily risk limit is similar to an asymmetric return strategy in the sense as both forms of trading still should have puke out points that are inline with your own capital and risk limits per day, although I don't believe you can directly compare the two. Trading a 1 lot with hard stop/hard target and a decent sense of risk management requires much less capital than an asymmetric style of trading. Like you said sustaining a drawdown of 5X your biggest losing day should be the acid test to see whether you have the buffer to employ this strategy.
- I'm totally for halving your position size as @DaxyMcDaxFace pointed out. Perhaps when you believe there could be a great level to obtain a better average price and reduce risk on the add. I've recently started doing to a good effect. However I'll only do this if volatility/range/volume on the day is higher, that a pullback rotation isn't greater than a 50% Fib and if we have previous buy/sell side support (on your trending side) where that had been a previous puke out as the trend commences - kind of a revisit the scene of the crime type. Anyway, didn't mean to get into my strategy - just wanted to voice my thoughts on when when i see this strategy working and whether you do something similar?
- An interesting discussion could be when to take off recently added contracts when the market moves in your favour and when to hold on to those in the view of your original thesis still being in play.
When do you find the point that your original thesis is failing for you to start working out of the original position? (reducing your loss or potentially making a small gain on the losing trade). I guess this is key for you to keep your losing trades small and sweet or making a few pennies on them when things aren't working out. Obviously you're not wanting to get shaken out and giving it time and space for the trade to work - just would be interesting to gage your thoughts on when the tide starts to turn, how you define that (with help of indies, volume metrics etc) and your start switching your thoughts on hitting original targets to capital preservation? Perhaps it's a feel thing.
Hoping to learn from your answers - there are few in the retail world with your asymmetric strategy and many in the prop world who do trade in a similar way so it's awesome to have you answer questions about what goes through your mind when in the heat of the battle! Thank you.
Oh and by the way, would love to attend your room however it's hard being in Oz as I previously mentioned. Would you consider recording segments of the session? That would be so cool to see
I can't answer for Alex, of course, but I think that trying to get a good understanding of how he trades, and why, and how he looks at the issues you are raising, via these written forum posts may not be the best idea.
I completely understand about the time difference and the difficulty it presents to you. However, his room is only open about 2 hours or so, from 8:00 to 10:00 (sometimes a little later) AM US Central Time. If I've figured out the time zones correctly, that would be from midnight to 2:00 AM AEDT. (Apologies if I didn't get it right. )
I think that if you could manage to stay up late for a couple of nights in a row to attend, you would get a much better sense of what he thinks is important, and what he is doing, than any number of text exchanges here. (You can pose questions live in the room, too.) A few nights would probably answer all your questions, and then you could go back to having a full night's sleep.
My take from reading your posts is that you are coming at the issues from a very different perspective (tight fixed stops and targets, focus on risk, etc.) Not wrong, just different. Actual demonstration of what he is looking at may make it much simpler to understand. I may not be correct about the difference, if any, of course.
There's nothing wrong with the fact that your two viewpoints may be different, but the best way to understand it is to see it.
I should also point out that, although I have sat in on Alex's room and have enjoyed it and benefited from it, I am not advocating for or against anything he has done there, or that he employs in his trading.
It's just that, to get an understanding of something, it's better to have an experience of it than just a description of it.
Hi Bob, good post, i hope you dont get accused of plugging the chatroom.
For me, it comes down to this:
Albeit an opinion based on a small timeframe/sample size, i have concluded that Alex is a really nice guy. He is a rarity in life, let alone in a cut throat industry where participants are measured (arguably incorrectly) in $$$.
This type of behaviour should be encouraged, and is paramount to improvement in oneself, and society. If 1% of attendees reciprocate then thats a bonus...whether it be by sharing trading methods or helping people in need, whatever the circumstance.
The chatroom unequivocally compliments the forum. One chatroom attendee indicated he was upgrading to elite membership because of his experience within the room. Obviously this is anecdotal and possibly a random event, but from a personal point every time i meet an 'alex' it instills the desire to help others who are in need.
And Bob, i totally agree...until you experience something its very hard to understand that something. Reading about trading is a gateway, listening to someones thought process whilst trading is a whole new level. A forum cannot compete with that, but it can accomodate it. And if it does, then it will also benefit, as will everyone else. Similarly, to pass comment on something with limited experience is equivalent of reviewing a film you havent watched. Poor skills by some on here.
Thank you VERY much for all the considerate and kind posts
@DaxyMcDaxFace, I really appreciate your post. It really makes what I am doing worthwhile. This exact forum is the only reason I am where I am today; without it, I would be just another failed trader. I owe it all to those who contribute out here. I hope that together we can turn this snake-oil selling industry into something better. @Big Mike has done a tremendous job by providing a home for this industry-wide revolution, and I am only doing my fair share.
@bobwest, you know what I think of you, so I won't type TOO much . I hope that you are getting some value from my room and I hope that I have made a positive impact on you and your trading. (Maybe give an update in your journal? :becky)