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In slide 17 of the 13A Always In video, Al points out that traders can stay in the market if prices don't look like they will reverse at the 2x risk level.
Looking at the charts this way seems to make the 2x risk level similar to other support and resistance levels, in that traders look to see what the market will do there.
The paradox I'm trying to understand is that traders entries are totally unrelated to their exits, as Al has said elsewhere in the course. Instead, they are related to the price action that the market is currently creating.
Maybe the guideline is that, given the constant uncertainty of the market, traders can reasonably take profits at a 2x risk level, all other price action considered.
And, the benefit of this 2x guideline is that it encourages traders to stay in the market longer, so that a reasonable amount of profit can materialize.
Any thoughts you all may have about this would be welcome.
Hi Ryan,
I think most traders take at least partial profits at 2X and leave a small portion (maybe 1/3rd of position) as runner. Otherwise a trader will never catch the occasional huge moves for 3x, 5x etc.
One issue in a futures market like the ES is that big trend days are rare... Another issue is when a position is small (1 contract?) it can't be scaled out. I think in that case just take the profits at 2X to satisfy the Trader's Equation instead of trying for more.
What I think this guideline from Al also encourages is to keep thinking bar-by-bar even after entering a trade. Once a trader has secured some profits and still has a leftover position then nothing is stopping them from riding the move further as long as PA support it. It's good practice. But don't forget to pay yourself along the way 🙂
Hope this helps,
CH
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Hey CH,
I appreciate your point about trend days in the ES being rare. I've been trading a version of "Always In" trading on paper that I call "Absolute Reversals", something I made up myself.
Using this approach, I enter and exit trades strictly on a reversal basis. For example, I might trade one MES contract to start, then trade two contracts to "reverse" my position throughout the day, finally trading one contract at the end of the day to exit the market.
Realizing that 2x risk level of profit is a focus on reward. Reward is obviously an important part of the trader's equation. However, until now I haven't been able to effectively factor in the probability part of the equation while I'm watching the market and deciding on trades.
Trading "Absolute Reversals" is helping me focus on the probability that the market will change directions. Trading this way, I withhold my impulse to exit a trade at a support or resistance level and instead wait for price bars to show a "reversal" pattern that indicates the market will probably change from a trend into a trading range. Thus, I feel much differently when watching the chart.
To your point about trend days in the ES futures market being rare: maybe there is another way to respond to the market after it reaches a 2x risk level. Instead of exiting all or a portion of a long position, I could tighten my stops to one tick below bull bars and about four ticks below bear bars or dojis.
In tightening stops this way, I would be taking a slide from Al's videos on Trading at the End of the Day where he suggests tightening stops to similar levels because "risk happens fast" near the end of the day. And, such tightening would allow me to stay in a trade longer while reducing risk and conforming more loosely to the trader's equation.
And, "Absolute Reversal" trading has pushed me to practice limit order trading because the ES, or MES in my case, is so often trading in a range.
Thank you for your response, and I hope this discussion is beneficial to those working on their "Always In" trading skills : )
