The idea about having to have a massive bank account to trade long-term is incorrect and can easily be rectified by proper position sizing. Let's look at two hypothetical trades, one short-term and one long-term.
Trade #1
Let's say you are a short-term swing trader who is looking to take a trade with a 200 pip target and a 100 pip stop. That's a Risk:Reward of 1:2. Let's also assume that you are trading a currency in which you make $10 USD per pip.
Let's also say you are trading five standard lots per trade. So with those five lots you are looking to make $10,000 and are willing to risk $5,000
Reward - 200pips x $10/pip x 5 lots = $10,000 Risk - 100pips x $10/pip x 5 lots = $5,000
Trade #2
In this situation you are looking to make a long term trade in which you are looking to make 1,000 pips while risking 500. This is also a Risk:Reward of 1:2.
On this trade you have two options. One is that you can trade the same position size that you did on your short-term trade, in which case you'd be looking to make $50,000 while risking $25,000
Reward - 1000pips x $10/pip x 5 lots = $50,000 Risk - 500pips x $10/pip x 5 lots = $25,000
In this case you would indeed need a large bank account to withstand the losses. But there is another way to manage these trades so that they aren't such a big deal.
Let's take the same trade with a 1,000 pip target and a 500 pip stop. But in this trade let's only trade one contract instead of five. Here's the results of this new trade:
Reward - 1,000 pips x $10/pip x 1 lot = $10,000 Risk - 500 pips x $10/pip x 1 lot = $5,000
Now here's the reason why I think this is a better way to manage your trades. You'll notice that your proposed profit and loss, in dollar terms, on the long-term trade with only one lot is exactly the same as the profit/loss, in dollar terms, of your short-term trades with multiple lots. The only difference is that you changed the number of lots that you were trading. You spoke of the Law of Averages earlier. Managing your position sizes in this way truly takes advantage of this principle of averages. Everybody understands that as a trader you lose some trades and you win some trades. For the person who makes both long- and short-term trades, you never know which trades you will win and which trades you will lose. If you win a bunch of small trades and lose one or two big trades, you may end up with a net loss. But, if you manage your trades so that your dollar profit and loss is exactly the same for short-term trades as it is for long-term trades, then it doesn't matter which trades you win and which trades you lose. Based on the Law of Averages, if you win more trades than you lose, then you will always come out profitable if you have proper position sizing.
Many thanks Justin for explaining this...it seems,it all goes back to MM and position sizing!
need some time to undersatnd and make sense of all pieces...
you said:
"Based on the Law of Averages, if you win more trades than you lose, then you will always come out profitable if you have proper position sizing"
dont you think we should rephrase it to: ...If you lose more trades than you win then you will always come out...??
Wow...what a beauty! I would love to have gotten Ford for a buck! I actually drive a Ford so I glad to see the bullish spin on it.
That is a convincing argument for one more decline in stocks Justy. However, should that happen, I personally believe that stocks, and/or specifically the Dow once new highs are made, the dangers for another crash would be eminent. I don't get the flat theory you spoke of in the Dow however. If you wouldn't mind posting a longer term count illustrating this, it would be greatly appreciated.
Sure, here's what I'm looking for on the DOW long-term. The main reason I think this is a flat is because of what I have labeled as wave (B). That wave counts best as a three-wave rally (I see it as a 15 wave rally, which is corrective). Plus, if you look at the component stocks of the DOW you'll see that several of those did not follow the DOW itself to new highs in the 2002 - 2007 rally, but instead made clear-cut three-wave rallies to normal retracement levels of the 2000 - 2002 decline.
1.76 is realistic if the count is correct.
In my chart, v of C equals to i of C at 1.764. See the chart.
A little bit different position of i of C compared to yours, I use Jamie's i of C position.
C mellon ----
This is among the best bullish long term wave-counts i have seen for Gbp/Usd pair
( complete with targets )
Do you have an update chart you can post in here for us ?
"I don't think scalpers should be messing with Elliot
.
I sensed this that EW trading and Scalping is VERY WRONG THING!and didnt know why...Itam,you're sopt on here...you never can be sure what patterns will be unfolding in the next 5 minues...you think you got it but it could be anything!
the chart below is an example how I messed up as scalper! it had all features of a triangle and I was expecting it to go to make 5th but it kept lulling me till it went to unexpected direction...!
I sensed this that EW trading and Scalping is VERY WRONG THING!and didnt know why...Itam,you're sopt on here...you never can be sure what patterns will be unfolding in the next 5 minues...you think you got it but it could be anything!
the chart below is an example how I messed up as scalper! it had all features of a triangle and I was expecting it to go to make 5th but it kept lulling me till it went to unexpected direction...!
where was your entry price ? ................. where was your stop price ? ........... and what was your target price ?
it doesn't say on your result chart you just posted ! ///////////////////////
Is everyone (among Ellioticians) now Dollar Bullish ?
Hi, guys,
here is one link, where Mr. Prechter speaks about the Dollar, why and also for how long is he bullish.
Also of interest are the comments on the web site... See the link here
Now it looks like every Elliotician, including the biggest ones, is dollar bullish
Damn, that is not what i's like to see while holding my long term EUR.USD short position. But what can i do ?
Pls see my Elliott wave count for Eur/Aud 30 mins chart..
I had no problem in counting 1,2,3,4,5 impulse waves. But i had some difficulties in counting corrective waves. In my chart i label corrective wave as (a), (b) and (c).
Wave (a) is subwaves of i, ii, iii, iv, v - (5)
Wave (b) is subwaves of a, b, c - (3)
Wave (c) is subwaves of a,b,c - (3)
According to EWP, there are only 4 types of correctives waves. They are
1) Zigzag (subwave - 5,3,5)
2) Flat (subwaves - 3,3,5)
3) Complex (subwaves - 3,3,3)
4) Triangle (subwaves - 3,3,3,3,3)
But in my above chart, correctives are subwaves into 5, 3, 3..
My question, the corrective waves in my chart are not belongs to any of 4 types of correctives wave listed in EWP books. So is it alright to count it the way i counted? If its incorrect, how to count it in other/right way?
please help!!
The correction you outlined is only a part of the complete picture. You need to start from an important low or high. You started in the middle of the pattern. Anytime this happens, back up to the next completed wave. My chart is a 1 hour chart but you see the pattern is unfolding as a 3-3-5.
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Originally Posted by justy10125
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