Selective trading and structuring good trades are key to success.
Discretionary trading requires emotional detachment and objective decision-making.
Consider probability in trade setups and adjust rewards based on risk experienced.
Deep dives
Trading Approach and Setups
The speaker describes their trading approach, which involves using five-minute charts to identify setups and scalp trades. They aim to structure as many good trades as possible in a day, with an average of 40 one-point scalps and 22-point scalps. They emphasize the importance of not taking every setup but being selective. They also mention knowing several traders who consistently win about 90% of the time and their goal is to win every day of the year.
Trading Style and Strategy
The podcast guest discusses their trading style, which is entirely discretionary. They highlight the importance of being able to truly not care about the outcome of trades and recommend trading with a position size that enables objective decision-making. They suggest turning off trade screens or stepping away from the computer to avoid unnecessary emotional reactions. They also stress the significance of understanding risk, reward, and probability in trade setups and the importance of structuring trades with favorable risk-reward ratios.
Trade Exits and Management
The speaker uses limit orders for entries and bases their exits on the traders' equation, considering risk, reward, and probability. They aim for a minimum reward of two times the initial risk, but adjust the reward depending on the probability of success. They take into account the actual risk experienced during the trade and adjust the reward accordingly. The speaker advises being flexible with exits to adapt to market conditions and trade dynamics.
The importance of considering probability in risk-reward ratio
In the podcast, the speaker explains why focusing solely on risk reward ratio is insufficient when analyzing trades. They highlight the significance of considering probability and how it affects the overall trade setup. The speaker emphasizes that probability plays a crucial role in determining the potential success of a trade. They argue that every trade should be assessed based on the probability of making a profit, rather than solely relying on risk-reward ratios. The speaker suggests that a trade should only be executed if the probability of success is high, typically estimated to be around 50% or above. By acknowledging the importance of probability, traders can make more informed and strategic decisions in their trades.
The profitability of trading during different market conditions
The podcast delves into the various market conditions that traders encounter and discusses the profitability of trading under different circumstances. The speaker explains that about 90% of all bars on a chart present opportunities to buy or sell with a probability of success ranging between 40% and 60%. These market conditions are characterized by channels, bull or bear trends, or trading ranges. During strong breakout movements, the probability of success is higher in one direction, while during trading ranges, traders can aim to buy low and sell high for quick scalping profits. The speaker advises traders to adapt their strategies based on the current market conditions in order to maximize profitability.
