AlpeshPatel.com

From Swing Trading & Momentum Trading

AlpeshPatel.com

Making Money By Not Losing Money

“The Trouble With A Loss Is Not Only The Loss Of Money,

But Also The Loss of Ego.”

Pat Arbor, Chairman Chicago Board of Trade – world’s largest derivatives exchange

How find the initial fixed maximum stop loss?

Method Average Range

How find the initial fixed maximum stop loss?

Method: Average True Range (ATR)

SL= 2 x ATR. Fixed At Entry

Because it is not ‘noise’ if 2 x ATR

How find ATR? Use ATR indicator

2 x ATR = 2% of Total Risk Capital 3 x ATR = 2% of Total Risk Capital

ATR = 25 pips 2 x ATR = 50 pips 3 x ATR = 75 pips

ATR = 25 pips 2 x ATR = 50 pips 3 x ATR = 75 pips Assume Total Risk Capital = 100k 2% of 100k = 2k = 2xATR (50 pips) = 40gbp per pip

ATR = 25 pips 2 x ATR = 50 pips 3 x ATR = 75 pips Assume Total Risk Capital = 100k 2% of 100k = 2k = 2xATR (50 pips) = 40gbp per pip 2% of 100k = 2k = 3xATR (75 pips) = 27gbp per pip

ATR = 25 pips 2 x ATR = 50 pips 3 x ATR = 75 pips Assume Total Risk Capital = 100k 2% of 100k = 2k = 2xATR (50 pips) = 40gbp per pip 2% of 100k = 2k = 3xATR (75 pips) = 27gbp per pip

Note: Loss is 2% of Trading Capital Whether Falls to 2 ATR or 3 ATR So Why Not 3 x ATR? Because only 27gbp per pip NOT 40gbp per pip so make less profit eventually on winning trades

ATR Benefit Costs Overall

2 Total Loss Is Fixed - 2% Stopped Out More Often Of Potentially Profitable Trades Than If 3 ATR

Win/Loss Ratio Lower, But Profitability Higher on Wins

3 Total Loss Is Fixed – 2% Position Size Smaller Than if 2 x ATR So Make Less Profits On Profitable Trades

Win/Loss Ratio Higher, But Profits Lower on Wins

Trading Has No Staff Costs You Can Eventually Hire An Assistant

Outsource Accountancy

No Staff Training

No Employer’s Liability Insurance

No Statutory Paid Leave

No Employer NI

No Staff Pension Fund

No office

No shop

No commuting

Just need a computer and internet

No Marketing Costs No Blogs/Social Media

No Adverts

No Business Cards

No Google Adwords

No Shop

No Foreign Low-Cost Provider Of Your Product

No Price Competitor Next Door

No Supplier Price Hikes

Trading Platforms are Free

Trading Brokerages are Commission Free

FX and Indices and Commodities Never Change

Nothing To Make You Obsolete

If Your Broker Goes Bust – Your Account Is Underwritten By The Government

YOU Benefit From Government Bailout!

Always A Buyer On The Global Market

No Price Haggling, Discounts, Sales Offers

No Warehouse, Storage, Delivery

Instant Execution – Move On To Next Deal

No Commissions

No Middlemen Sales Fees

Dell Computer – fast, allows multiple monitors: www.dell.co.uk (as for multiple monitors) approx gbp450 Or add extra monitor (e.g. Samsung) to your existing PC

(gbp100) Fast Broadband

www.investingbetter.com

Analyse • Analyse Each

Chart Constantly

More Analysis

• Have To Analyse Each Time Frame Constantly

Interpret

• Interpret Each Chart In Keeping With The Rules

Wait For Exit and

Entry

• Computer Tells You Buy and Sell

Calculate Position

Size

• Based on Your Trading Risk Capital

Place Trade

• Click Of A Button

Once a security risen 10% into profit, if it falls back into loss, you are less likely to make money

Some make money who are right only 4 times out of 10 – they close a lot of losing trades quickly

Forex traders were particularly successful – trend following and reverting trade

Those who bet small amounts, but did more trades, were more profitable than those trading big size but infrequently

Long trades took longer to make money than short trades

Those who took a systematic approach, did better than an opportunistic approach. When they won, they won more than what they lost when they

lost. I.e. Average win bigger than average loss. Wins to losing trades were 55-45 to 60-40 i.e. almost equal.

There were no big losing trades among winners, unlike losers, who had some big losses

Losers and winners looked the same, except, losers had some big losing trades which wiped out their otherwise good record, it was not that losers just kept losing all the time.

Losers did this: Trades which turned out to be losses, were held longer than the average holding period for all trades they held.

Winners held on to losing trades for shorter time frames than their winning trades and the average holding period for all their trades.

90% of trades for winners made as much as they lost. The remaining 10% of trades is where they made the money. I.e. a few big winning trades. But only very few.

Based not on the amount of money they bet, but letting those wins continue i.e. those few winning trades were held for longer than average once they knew they had a winner. But winners did not let wins turn into losers by holding on.

Losers held on longer than average once they knew they had a loser.

Run Profits When you are right, you have to add to your position and let those profits run

How do you decide when to buy more in

the middle of a winning trade?

That is the ART of the

Trader

Run Your Profits: Add To Your Position Method 1

Run Your Profits: Add To Your Position Method ATR

Add same position again at every 0.5 ATR price interval move after initial entry.

Example: ATR = 1.20 First Position Entered at 28.30 Second Position Entered at 28.30 + (0.5x1.20) or 28.90 Third Position Entered at 28.90 + (0.5x1.20) or 29.50 Fourth Position Entered at 29.50 + (0.5x1.20) or 30.10 If you do add additional positions then raise the initial 2 x ATR stop-loss to be 2 x ATR

from latest entered position

ATR = 1.20

Entry Price Stop

First 28.30 25.90 i.e. 28.30 - (2 x 1.20)

Second 28.90 26.50 i.e. 25.90 + (0.5x1.20)

Third 29.50 27.10

Fourth 30.10 27.70

1. An Alpesh Patel trading book 2. Exclusive eBooks/eGuides on trading and investing 3. Exclusive subscriber-only webinars 4. Exclusive subscriber-only videos on trading and investing 5. Access to my personal Facebook page to keep in touch 6. Access to my Twitter account for social investing 7. My monthly newsletter and free access to my daily newsletters on stocks

and FX 8. My top picks reports during the year