Saturday, April 26, 2014

Statistics don't lie, play by the rules

We've been trading using the Diamond Setups system for nearly 4 years now, we know the the winning ratio ranges from 60 to 80%, market repeats patterns over and over again and we profit from that information, we take ALL setups that trigger according to our own trading style, be it scalping, day or swing trading.

OK. Now let's take a look at an example of a typical trading week on ES (S&P500 E-minis) using one of our day trading setups:

Day traders usually get at least 2 trades a day, sometimes 3 or even 4, but usually 2, so let's use an average of 2 as our example for a normal week.

One trading week would give us 10 trades, if we take them all we will be profitable on 6 to 8 of them but we'll use 6 here as our example.

We know that profits range from 3 to 7 points most of the time, sometimes we will see 10+ points trades, in our example let's use 5 points as our average on the winners.

On the losing side our max STOP is 3.50 points, but sometimes we use much less than that, so, as an average we'll use 3 points. Now let's do the math:

From the 10 trades on the week we would get:

6 winning trades at +5 each = +30 points

4 losing trades at -3 each = -12 points

On ES each point is equivalent to US$ 50.00 profit/loss, so 2 contracts would be US$ 100.00/point.

Result = +18 points on the week, if you trade 2 contracts, then you'd make: +US$ 1,800.00

If we play a little bit with the numbers, even if we make only 3 points instead of the 5 in the example above, which is the minimum we make on each winning trade, we would still be up +6 points on the week, or +US$ 600.00 if we trade just 2 contracts.

Trading is really not easy at all but if you apply a winning set of rules and follow them religiously, you will be profitable week in, week out.

Have a great trading week, best of luck.

In spite of your fear, do what you have to do. - Chin Ning Chu

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