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Can you please clarify what the 40%-60% probability of any given setup refers to in terms of reward?
In other words, what does a trader have a 40-60% probability of? A risk:reward ratio of 1:1 or a r:r = 1:2 for example?
Thanks,
Josh
40% trades are 1:2 while 60% trades are 1:1. Only on rare occasions you will have 60% with 1:2 because someone has to take the other side of your trade, and they will not accept 2:1 and 40%.
I also have some confusion about Al's probability ideas. For example, when referring to an MTR, he says the probability is 40% of it becoming a trend in the opposite direction. If so, then the R:R would almost certainly be a lot more than 1:2 , if holding for at least Ten Bars 2 Legs.
Also, during a strong BO, he says the probability might be as high as 70%. But with what target exactly ? A fixed point scalp, or a MM target ? Since your Stop will usually be far away, the R:R must be a lot less than 1:1 on the scalp.
also have some confusion about Al's probability ideas. For example, when referring to an MTR, he says the probability is 40% of it becoming a trend in the opposite direction. If so, then the R:R would almost certainly be a lot more than 1:2 , if holding for at least Ten Bars 2 Legs.
Yes, the trend can go much more than 1:2, the trader's equation gives you the minimum to be profitable, not the maximum.
Also, during a strong BO, he says the probability might be as high as 70%. But with what target exactly ? A fixed point scalp, or a MM target ? Since your Stop will usually be far away, the R:R must be a lot less than 1:1 on the scalp.
A scalp is a actually a 1:1 trade so if the BO height is 10 points your initial risk and therefore your initial profit target is 10 points as well. Once the trade goes your way you can switch to actual risk, reducing your profit target accordingly.
also have some confusion about Al's probability ideas. For example, when referring to an MTR, he says the probability is 40% of it becoming a trend in the opposite direction. If so, then the R:R would almost certainly be a lot more than 1:2 , if holding for at least Ten Bars 2 Legs.
Yes, the trend can go much more than 1:2, the trader's equation gives you the minimum to be profitable, not the maximum.
Also, during a strong BO, he says the probability might be as high as 70%. But with what target exactly ? A fixed point scalp, or a MM target ? Since your Stop will usually be far away, the R:R must be a lot less than 1:1 on the scalp.
A scalp is a actually a 1:1 trade so if the BO height is 10 points your initial risk and therefore your initial profit target is 10 points as well. Once the trade goes your way you can switch to actual risk, reducing your profit target accordingly.
Am I correct to assume that when switching to AR you would need to have a PT of at least AR2?
What I'm wondering is how taking AR2 wins repeatedly with the occassional IR1 full stop affects the PnL? If your average AR2 wins are much less in size than the IR1 full stop losses, the result would likely be a negative PnL over time, no?
Am I correct to assume that when switching to AR you would need to have a PT of at least AR2?
Mathematically, as per Al, same thing with AR: for the trader's equation to be positive you still need 1:1. Yet, as always, this is the minimum so in real trading you can hold for 1:1 IR or even more, depending on the context.
What I'm wondering is how taking AR2 wins repeatedly with the occassional IR1 full stop affects the PnL? If your average AR2 wins are much less in size than the IR1 full stop losses, the result would likely be a negative PnL over time, no?
To be honest, I don't have this in mind when I trade so I can't give you an answer (I first studied this in the books and at the time I was convinced and then I forgot).
Why I say that? Because I will never allow my IR stop to be hit. In general, if I bought a BO is because I thought there was a surge in buying and I wanted inmediate FT. If next bar was bad FT, no surge at all, I was wrong and exited quickly (of course, all this depending on the context but you get the idea).
I think exiting soon when the BO is not behaving the way it should is the key to start making money with BOs. Otherwise, as you said, taking full-stop hits will kill your account.
Sorry I haven't answered your question!
Am I correct to assume that when switching to AR you would need to have a PT of at least AR2?
Mathematically, as per Al, same thing with AR: for the trader's equation to be positive you still need 1:1. Yet, as always, this is the minimum so in real trading you can hold for 1:1 IR or even more, depending on the context.
What I'm wondering is how taking AR2 wins repeatedly with the occassional IR1 full stop affects the PnL? If your average AR2 wins are much less in size than the IR1 full stop losses, the result would likely be a negative PnL over time, no?
To be honest, I don't have this in mind when I trade so I can't give you an answer (I first studied this in the books and at the time I was convinced and then I forgot).
Why I say that? Because I will never allow my IR stop to be hit. In general, if I bought a BO is because I thought there was a surge in buying and I wanted inmediate FT. If next bar was bad FT, no surge at all, I was wrong and exited quickly (of course, all this depending on the context but you get the idea).
I think exiting soon when the BO is not behaving the way it should is the key to start making money with BOs. Otherwise, as you said, taking full-stop hits will kill your account.
Sorry I haven't answered your question!
@ludopuig, I appreciate your honesty. It is a very important point to note, in my opinion, that the math the way Al describes it can only work if your total risk on any given trade is constant. That in itself is next to impossible to accomplish on the ES if you want to use the correct swing stop. Just something to think about before one gets too excited that the math will somehow magically work out in the end 😉
Am I correct to assume that when switching to AR you would need to have a PT of at least AR2?
Mathematically, as per Al, same thing with AR: for the trader's equation to be positive you still need 1:1. Yet, as always, this is the minimum so in real trading you can hold for 1:1 IR or even more, depending on the context.
What I'm wondering is how taking AR2 wins repeatedly with the occassional IR1 full stop affects the PnL? If your average AR2 wins are much less in size than the IR1 full stop losses, the result would likely be a negative PnL over time, no?
To be honest, I don't have this in mind when I trade so I can't give you an answer (I first studied this in the books and at the time I was convinced and then I forgot).
Why I say that? Because I will never allow my IR stop to be hit. In general, if I bought a BO is because I thought there was a surge in buying and I wanted inmediate FT. If next bar was bad FT, no surge at all, I was wrong and exited quickly (of course, all this depending on the context but you get the idea).
I think exiting soon when the BO is not behaving the way it should is the key to start making money with BOs. Otherwise, as you said, taking full-stop hits will kill your account.
Sorry I haven't answered your question!
@ludopuig, are you sure about a 10 point 1:1 trade being a scalp? Al scalps all day long and his scalps are NOT 1:1 trades. He has said himself that he will usually use the "appropriate" stop, which he calls catastrophic stop, that never gets hit because he will exit/reverse before that. As far as I remember he scalps for a minimum of 1 point but that depends on volatility. These days he may scalp for 2 or 3 points. Maybe just a play on words but I do think it's important to clarify this.
From the trading room, after watching more than 6 months of recordings it is clear that Al scalps have something between 1:3 and 1:5 in reward:risk, ie. usually he scalps for 1 point risking 4p, sometimes 5 points... During the recent volatility increase (march) he scalped sometimes for 10 points or even 20 points... As already said, if you think 1:5 is bad, yes, but Al would never take a full loss, so in reality it becomes closer to maybe 1:3, where probability is in the 90% zone, so mathematically it makes sense.
Personally, I scalp for a 0.33R (1:3), which is working good form me, and if FT is disappointing I try to get out at BE and if I'm unable to I end up usually taking 50% of a full loss (0.5R).
@infojoshlewis-se I meant it is 1:1 as a maximum, so anything with a reward less than the risk is also a scalp, as @giowcklngmail-com points out.
Having said that, Al advice is to not waste too much time with names. You know the trader's equation so you place your stop and reward accordingly and if you want to call a 1, 2 or 3 point trade a scalp or not is not important.
What I'm wondering is how taking AR2 wins repeatedly with the occassional IR1 full stop affects the PnL? If your average AR2 wins are much less in size than the IR1 full stop losses, the result would likely be a negative PnL over time, no?
To be honest, I don't have this in mind when I trade so I can't give you an answer (I first studied this in the books and at the time I was convinced and then I forgot).
Why I say that? Because I will never allow my IR stop to be hit. In general, if I bought a BO is because I thought there was a surge in buying and I wanted inmediate FT. If next bar was bad FT, no surge at all, I was wrong and exited quickly (of course, all this depending on the context but you get the idea).
I think exiting soon when the BO is not behaving the way it should is the key to start making money with BOs. Otherwise, as you said, taking full-stop hits will kill your account.
Sorry I haven't answered your question!
From the trading room, after watching more than 6 months of recordings it is clear that Al scalps have something between 1:3 and 1:5 in reward:risk, ie. usually he scalps for 1 point risking 4p, sometimes 5 points... During the recent volatility increase (march) he scalped sometimes for 10 points or even 20 points... As already said, if you think 1:5 is bad, yes, but Al would never take a full loss, so in reality it becomes closer to maybe 1:3, where probability is in the 90% zone, so mathematically it makes sense.
Personally, I scalp for a 0.33R (1:3), which is working good form me, and if FT is disappointing I try to get out at BE and if I'm unable to I end up usually taking 50% of a full loss (0.5R).
Hi ludopuig and jurij
I have a problem and I hope you guys can help me.
Let me explain:
When I read through this thread, I noticed both of you mentioning
- having followed AL in his trading room for quite some time
- buying a BO and THEN analyze the quality of the Follow-Through.
I have to say I watched the whole Forex Trading Course and took notes..and I was always under the impression that AL teaches to enter a BO mainly AFTER there has been at least some FT (at least a doji = minimum requirement for FT). But in both of your posts which I quoted above, you guys seem to do the following:
- If you see a decent/good BO, you enter a trade BEFORE there has been FT
- and then, depending on the FT, you stay in the trade or try to exit quickly (ludopuig) or at BE (Jurij).
I don't want to sound dramatic..but I'm a bit shocked. 🙂
Is this what AL propagates in the Trading Room? Is this how he trades himself? You are both Trading Room subscribers.
I hope you can help me make sense of this!
From the trading room, after watching more than 6 months of recordings it is clear that Al scalps have something between 1:3 and 1:5 in reward:risk, ie. usually he scalps for 1 point risking 4p, sometimes 5 points... During the recent volatility increase (march) he scalped sometimes for 10 points or even 20 points... As already said, if you think 1:5 is bad, yes, but Al would never take a full loss, so in reality it becomes closer to maybe 1:3, where probability is in the 90% zone, so mathematically it makes sense.
Personally, I scalp for a 0.33R (1:3), which is working good form me, and if FT is disappointing I try to get out at BE and if I'm unable to I end up usually taking 50% of a full loss (0.5R).
Would you be kind enough and post a chart of recent PA and mark what you consider to be setups in the "90% zone" based on what Al teaches please?
Thanks 🙂
@jurij I don't want to sound dramatic..but I'm a bit shocked. 🙂
Is this what AL propagates in the Trading Room? Is this how he trades himself?
The FT will always increase your probability but when the BO bar is good enough in a good context you can buy it straight away. It is a decision and, yes, this is something Al does regularly. As always, it is better seen with an axample, so I have pasted below the opening of the emini, yesterday:
8 is a big BO, COH after a possible low of the day (gap up, wedge but doji SB) candidate, so it is a buy, specially with the strong magnets above. Therefore, 8H was for sure a swing but, if you waited for the FT, your probability went clearly high above 9H and next bars to be also a scalp (BTC MKT).
Had 9 been a weak FT, instead of the MKT going clearly AIL and entering a BTC rally the TR open would have continued and I would have exited maybe above 1, because probably the MKT would have reached there (TR open and second leg up likely after 8 surprise bar up).
In the course, I can't tell you exactly where in the BO videos, Al says that for the MKT to enter AIL you can have 1 single huge bar, 2 big sized bars or 3-5 small bars, so today bar 8 is an example of the first option, one huge bar in a great context.
That totally makes sense. I wasn't considering AIL/AIS (and what can trigger AIL/AIS) when thinking about this issue. Thank you so much for taking the time to respond and illustrate your point and AL's methodology! You're great help, as always.
