Using a target price as a means to define risk

[u0362565]

Hi all, I was wondering whether of you have a certain confidence that a market will reach a certain price level but the price is currently falling, can you use this price level or take profit level as a basis for how much you can afford to risk? For example if I think the market will move £400 higher in the not too distance future and each time i try to get into a long position I risk £25-£50 (1-2% of my account) then I could consider that in order for this idea to fail and i lose money I would need 16 trades with a risk of £25 to get back to break even assuming the price reaches the level I expect. Is there any logic in this? Obviously the main issue is if I need too many trades to get into the position then there might not be enough movement left to make a profit. 

[Caseynotes]

4 minutes ago, u0362565 said:

Hi all, I was wondering whether of you have a certain confidence that a market will reach a certain price level but the price is currently falling, can you use this price level or take profit level as a basis for how much you can afford to risk? For example if I think the market will move £400 higher in the not too distance future and each time i try to get into a long position I risk £25-£50 (1-2% of my account) then I could consider that in order for this idea to fail and i lose money I would need 16 trades with a risk of £25 to get back to break even assuming the price reaches the level I expect. Is there any logic in this? Obviously the main issue is if I need too many trades to get into the position then there might not be enough movement left to make a profit. 

no, stick to looking for trends and not hoping for reversals, what you think the market might move to is meaningless, that size target for that size account is way too big, you are trying to run every trade to the moon (risking 1% to make nearly 20%), that's just not going to have a high enough strike rate (win/lose ratio) to be a winning strategy.

Lower your sights to something more realistic and test that the win rate verses the risk/reward ratio is going to be profitable over a number of trades.

see this thread.

Trade Planning and Testing - General Trading Strategy Discussion - IG Community

 

[u0362565]

Yeah thanks, just to clarify I mean it's 1% per trade but really the risk is a multiples of this. E.g I took 8 trades to get into a position so my risk might be 8R but the profit target is 16R 16-8 = 8R profit. Ha all assuming it reaches the target which as you say is probably a big ask. Testing is hard, especially if you're doing or manually, the discipline required is crazy Andy of you're trades last days of could take months to have any idea of expectantly.

[u0362565]

2 minutes ago, u0362565 said:

Yeah thanks, just to clarify I mean it's 1% per trade but really the risk is a multiples of this. E.g I took 8 trades to get into a position so my risk might be 8R but the profit target is 16R 16-8 = 8R profit. Ha all assuming it reaches the target which as you say is probably a big ask. Testing is hard, especially if you're doing or manually, the discipline required is crazy Andy of you're trades last days of could take months to have any idea of expectantly.

It also raises the question for me of this idea that your risk 1-2% of your account per "trade". But what that doesn't say is if you don't get into a position having risked 1-2% then what. So what you thought was happening isn't or it could be it is it's just you're timing is off. The idea of abandoning it because you already lost 1-2% I struggle with because there's a good chance you turn your back and it happens while you're not looking. This very much suggests that I know what the market will do I just don't know when which is a huge assumption of course.

[Caseynotes]

1 minute ago, u0362565 said:

It also raises the question for me of this idea that your risk 1-2% of your account per "trade". But what that doesn't say is if you don't get into a position having risked 1-2% then what. So what you thought was happening isn't or it could be it is it's just you're timing is off. The idea of abandoning it because you already lost 1-2% I struggle with because there's a good chance you turn your back and it happens while you're not looking. This very much suggests that I know what the market will do I just don't know when which is a huge assumption of course.

the stop loss needs to go were if breached the whole trade idea must be wrong and so needs a complete rethink, it's usually going to be a prior high/low or a major support/resistance level.

price is turning all the time, big players with big accounts (with very big stops) can sit back and watch price meander up and down but with a small account having a target even at 3R is hard to keep up. most are better off taking repeatable bites in profit rather than repeated re-entries after a loss. 

[THT]

3 hours ago, u0362565 said:

Hi all, I was wondering whether of you have a certain confidence that a market will reach a certain price level but the price is currently falling, can you use this price level or take profit level as a basis for how much you can afford to risk? For example if I think the market will move £400 higher in the not too distance future and each time i try to get into a long position I risk £25-£50 (1-2% of my account) then I could consider that in order for this idea to fail and i lose money I would need 16 trades with a risk of £25 to get back to break even assuming the price reaches the level I expect. Is there any logic in this? Obviously the main issue is if I need too many trades to get into the position then there might not be enough movement left to make a profit. 

Yes - you obviously can't guarantee it, but I virtually always work to profit targets that are entered on reversals

To do this profitably your method has to be spot on 

 

 

[u0362565]

1 hour ago, THT said:

Yes - you obviously can't guarantee it, but I virtually always work to profit targets that are entered on reversals

To do this profitably your method has to be spot on 

 

 

And there in lies the rub. I like some idea of where I'm headed hence having a profit target but it kind of rules out those times where if you d just had a stop loss you might have done better

[THT]

3 minutes ago, u0362565 said:

And there in lies the rub. I like some idea of where I'm headed hence having a profit target but it kind of rules out those times where if you d just had a stop loss you might have done better

We're responding to your post - we can't see what you're trying to do, it would be easier to see the method and methodology of what you are trying to achieve then we could most likely say - won't work or try this - we're working blind in giving you our opinions

The other thing would be to widen stops

[u0362565]

I'm essentially looking to get into long positions over days with the low being somewhere near the bottom of the Bollinger band set to 20 days, 2 SD. I'm using the 1hr chart to enter so require multiple goes and hence my R is the total of those attempts. That's fine so long as I know that my profit target is realistic and might be close to be the top of the upper band and from recent history when the market hits the bottom it will often then go to the top or at least from how the market had been behaving recently it doesn't seem unreasonable. Assume the stop does not follow up at this stage or at least to break even for this trade (entry attempt) which could be 1R but doesn't mean much given the potential accruing loss of multiple entry attempts (eg 6 attempts would be 6R). 

[u0362565]

Also sorry if my profit target was hit it would equate to 1.76R, might be a big if.

[THT]

I'll leave the finer detail to working out the effectiveness to you - you'll soon know if it works or not - all I would say is test test and test it to master it and then you'll know