- 4 months ago
https://tradernws.com
Category
📚
LearningTranscript
00:00all right okay we're gonna just record a quick video because we've got some good discussion
00:05going on kind of R&R and I want to cover off key couple of key points with it and you know
00:09kind of my thought process my process you know what I think is good for newer traders experienced
00:16traders etc so for anybody that's unaware this stemmed from a conversation we were having last
00:22night which was essentially that you know R&R for me personally is very hard to to place
00:29it's very hard to determine R&R first setups it's possible but it's more difficult and so I'll give
00:38you the overview of R&R first and then I'll take a look at why that's difficult for me personally
00:47under my system and why that's that's okay and it's not an issue that that's that's not something I can
00:53do but we'll take a look so like let's say for example we're looking at kind of R&R in general
01:02now one thing that people with R&R are kind of conditioned into is making sure your risk
01:09reward is acceptable so what people look at is you know making sure that they have something you know
01:15around a 3R R&R and that's kind of what we're put towards certainly certainly no less than a 2R
01:23is what you're kind of you know prompted into during kind of trading education now the issue with this
01:31as a whole is that people tend to fixate on R&R they tend to focus on R&R so they'll do things like
01:37they won't take a trade because the risk and reward may not be there for them so in a situation
01:43for example like this you know you might want to try and long this rally and you have to have your
01:49stop loss underneath here and maybe your target's you know the top of this resistance and you say
01:54okay well this is 1.42 and so I can't take this trade because the R&R isn't good enough for me to
02:00take the trade because I'm looking for kind of that two or that three number or maybe even more
02:04now that that approach is that's fine right that's fine if that's the way you want to use R&R
02:15in order to try and manage your risk and determine you know what's what's a stop that looks
02:19unrealistic in comparison to the target that I have that's fine that's a fine usage of of R&R
02:26the trouble starts to come when you start ignoring kind of better setups or for me
02:33where I need to play into setups where I can't necessarily establish that thought process okay so
02:40when we're talking about not using R&R there's an underlying sense of R&R for me because obviously
02:48I'm looking to achieve you know gains in comparison to where my stop is right so I know what you know
02:54an underlying R&R value would be for me but I can't map it out necessarily and the reason being
03:01is because my system uses momentum and it uses divergences okay so if we take a look at BTC
03:06on the 15 minute down here and volumes up because I was looking at some wick off stuff this morning
03:11so if we look at BTC down here and we say okay well look there's a 15 minute divergence down at the
03:19lows over here between here and here so we've got a nice 15 minute divergence down at the lows very
03:25very clear and I'm going to take a position into this so what I'm going to do is I'm going to build
03:30my position down in this region and eventually I come out of this with an entry here okay so now
03:35one thing I've had to do is build my position so when I'm building my position I'm building into a
03:43divergence but you have to remember I don't know at this point in time okay when we're here
03:49if price is going to do this
03:53and RSI is going to do this
03:58so what I'm saying is I don't know if RSI is going to continue the divergence
04:05and go lower which means I can't place my stop immediately
04:09which means I can't work out my target because I haven't even got my entry really confirmed and I
04:15can't place a stop loss because I'm aware that in these situations BTC can lag down again
04:20okay so I can't place this and so I can't work out this as a whole yet and now I can have a rough
04:26estimation in the back of my head now what this also means is that even though I can't map this out
04:33it doesn't mean that I don't know where my invalidation is because I know that if BTC
04:39right does this and the RSI does this then I have to get out of the position
04:48so what I have to manage is my risk while the position is building
04:53if it invalidates the divergence I hope that makes sense
04:58so what I have to be aware of is my invalidation is on the price action
05:05getting below this and the RSI dipping below this
05:08so what I have to do is manage my position
05:10and take it slow when I'm building
05:14because if we get the downside move here then obviously I need to make sure
05:18that I'm not losing more than my acceptable kind of risk tolerance for this setup
05:22but it means that I can't place this you know I could maybe say yeah look it's probably here
05:31if the RSI if you know if this comes down but it's more difficult for me to do
05:36because I don't know if that's going to be here it's going to be here
05:39is it going to be down here are we going to wick back up and confirm the div still
05:42you know what does that look like for me
05:44so it's a harder process for me to be able to kind of map out this fixed stop
05:49and therefore give myself the first part of this process of you know mapping out R&R
05:53and then what we're looking for in terms of you know targets for momentum
05:59it's also different because my targets for example
06:04you know I can look at saying well I'm going to try and aim for the first resistance area
06:07which should be up here around 31,250
06:10that's kind of where my first target should be
06:13but at the same time
06:15the way that I trade is I'm looking to follow the momentum
06:19right I'm looking to follow where price is going where the momentum is taking us
06:23and so as you can see with BTC you know as we start moving up here
06:27like sure this could be a first take profit zone for me to realize some of the position
06:31but under the under the sort of you know outlook of my system
06:36the momentum is just getting started
06:39because we've now crossed the 50 level
06:42and so I don't want to close a long position from down here when I've got the momentum on my side
06:46okay then we carry on
06:50okay so now we're up here
06:55potentially a divergence forming
06:57maybe an opportunity for me to try and realize
07:00it's not the strongest divergence because we're not in the extreme
07:03okay and then we eventually pop up invalidating this you know dodgy divergence anyway
07:11but you can see that
07:14I can't have a fixed take profit point in terms of you know
07:18I will exit 100% of the position here
07:19because it's not the way my system is designed to play
07:22my system is designed to watch the follow-through
07:25watch what happens
07:26allow the momentum
07:28to carry on
07:30and me just tag in behind it
07:32so in terms of setting fixed
07:34take profit points
07:36more difficult
07:37now if you think about the underlying concepts
07:39I have an invalidation still
07:44so I've got a rough area that I know my stop needs to be in
07:47but it's not fixed
07:48so there's no fixed R&R for it
07:51the second thing is
07:52I know where my target is and where I can take profit
07:55so if I need to realize some profit
07:57and you'll have seen this from me previously
07:59in things like the sole positions
08:00right where I took profit off
08:03because we were developing things like bullish divergences
08:06so I take profit off the table
08:08so there are areas
08:11where I can look at taking profit off
08:13resistance levels etc
08:15in the same way that we would set target regions
08:18when we're talking about you know
08:19a fixed risk reward setup
08:21however
08:24I also need to have
08:26a period where I can allow price
08:29to continue developing
08:30because all of this action that happens here
08:32you know all of this that's developing
08:35this isn't enough to pull me out of a position
08:37because this is still good for me
08:40right
08:40RSI is reset to the 50 level
08:43we've still got bullish momentum
08:44and then we get the move again
08:48so all of this is still good
08:51right if we're talking about you know
08:53this setup from down here
08:54and now we pop up to the top
08:57we break through this level
08:58and now perhaps the trade evolves
09:01because now in this position
09:03you know I'm thinking about
09:04well I can't see price get below here anymore
09:06so now maybe I can shift my stop up
09:09to this level
09:10because now
09:12I don't want to see price getting below here
09:14we should have a support level through here
09:16at 33,000
09:17and I can let the price action develop again
09:21you know and then we get more price action
09:24that you know comes through this region here
09:26and then eventually you know looks at popping us out at the top
09:28when we come to the current price action
09:31so you can see the way that kind of for me
09:35mapping out fixed risk reward is
09:38is very difficult to do
09:40and something that actually is not beneficial for me to do
09:43because I need to let the price action develop
09:45I need to let it play out
09:46I need to watch where the momentum is
09:48I need to watch where we cool off
09:50and where we expand again
09:51now that's not to say that I don't have any invalidation
09:56it's not to say I don't have any take profits
09:57because they're both still present in the thought process
10:00they're just not
10:01I'm just not able to put that kind of nice
10:04clean trading view R&R tool on the chart
10:07to map it out in a fixed way
10:09there are times where that's slightly different
10:12and it's usually on divergence confirmation
10:14so when we look at things like this
10:16and we look at this move here
10:18if I'm to enter this 15 minute divergence up here
10:21then absolutely I can have a stop loss under here
10:24because now this should be the divergence starting to move
10:28and this should be where we should not expect price
10:32to go back below
10:33right this should not be now entering back below this low
10:36so now I can have a fixed stop
10:38so if I'm building a position in here
10:40then now I'm able to set a fixed stop
10:43but that's late
10:45right that's late
10:46you know ideally you'd want to set it here
10:48because a lot of people want to know at the point of entry
10:50what does this look like for me
10:53which is something like I said
10:54under the rules of my system
10:56I simply cannot do that
10:57well what that comes down to for me
10:59is making sure that I'm positioning appropriately
11:02in these build-up regions here
11:04and making sure I'm not over-risking
11:06and making sure that if we do get a big sell-off
11:09that comes down here
11:10then I'm not you know massively affected
11:12in terms of the risk that I have put towards this position
11:15in establishing it here
11:16now again key points
11:20like if you use R&R
11:22and that's been helpful to you
11:24by all means continue to use it
11:26I'm certainly not saying
11:27do not use R&R
11:29or you know R&R is not a good thing to use for trades
11:33it's fine
11:34it's absolutely fine
11:35this is just playing into the thought process
11:38of showing you why it's particularly difficult
11:40in my situation
11:41in order to place fixed R&R
11:44at the point that I'm building a position
11:46once the position has started moving
11:49it's easy for me to place a fixed stop loss
11:52however the targets are still kind of up in the air
11:55because I need to be fluid about them
11:57I need to see what happens
11:58when we hit the resistance level
12:00do we break straight through
12:01is the momentum still in my favour
12:02and what does that look like
12:04so lots of different ways of kind of
12:08you know thinking about R&R
12:09but it does not mean that the underlying principles of it
12:14these stop losses
12:14the take profit regions
12:16are not in the mind of somebody
12:18who is trading without these fixed R&R sort of positions
12:21if it works for you
12:25continue using it
12:27if it's helpful in you managing your risk
12:29and setting out the parameters
12:30around what your position looks like
12:32and helping you to establish
12:33what your position size should be
12:35100% continue to use it
12:37however there are some people out there
12:40that will have systems and thought processes
12:42that make it more difficult
12:44to establish that up front
12:45and if you're one of those people
12:47you need to be very careful
12:48around the way you position into things
12:50because that's where you're going to get caught out
12:51you don't want to be somebody
12:53who starts positioning into this
12:55and then price does this
12:58and you continue to hold
13:00because you say oh shit
13:01well I've positioned here now
13:02and I think we're going to recover anyway
13:04so I'm going to hold on to this position
13:05and then price does this
13:06and then you're like oh fuck me
13:09you know like
13:10I really did not expect this
13:12and I entered a full position size here
13:14and now I've been caught out
13:16because I didn't have a stop loss
13:18I didn't have kind of an area
13:20that I was looking for
13:21so just be very careful
13:23but again this is you know
13:24expanding into a far bigger talk
13:26than I imagined it would be
13:27but I hope this was helpful
13:29in kind of discussing R&R
13:31as a thought process
13:32and as a concept
13:33just don't let it ruin good setups for you
13:36if you have an R&R setup
13:38that is you know
13:39under a threshold
13:41that you would like to take
13:42reduce your position size
13:43right
13:43that's how we deal with these things
13:46when we've got an R&R setup
13:47that's like a two to one
13:49but you still really like the setup
13:51then obviously you're reducing your position size
13:53to be able to deal with things
13:55like a wider stop
13:56okay so the risk is still the same to us
13:59just reducing the position size as a result
14:03so anyway
14:05I hope this was helpful