Hi
I just looked at one of Macks Live trade: https://www.youtube.com/watch?v=oddGcvYhOGc
I noticed that he is using the exact same method today as he did 10 years ago. Scalp 4 tick and a runners. What was the normal ATR ten years ago?
ATR 10 yrs ago and now
Re: ATR 10 yrs ago and now
Nice catch!
Mack may still go for 4 ticks now adays but the volatility has significantly increased, as has the number of bars that individuals can make an error on w/o a good plan or eye
.
You do not really need to bring up 21 atr to determine this though. Simply review 21 bars historically and you can estimate fairly well how much each bar moves on average! In the graphic, average bar size appears as about 6 ticks or slightly more.
This is one of the reasons that reasonable tick targets must be increased to maintain a 67% ratio as break even (roughly) - 1/2 ATR, or roughly 1/2 the average bar size. Of course, depending on personality or eye, if the ATR is 3+ some individuals go for 8 ticks or 1:1. These are additional options.
Can one scalp for 4 ticks still? Yes. However, when you realize one needs the ability to recognize 80%+ probability and only execute on that -> 1 point win, 3 point loss = 4 point coverage. 3/4 -> 75% w/o margins . . . Much more difficult. Also, it takes more than 2 trades to break even. With higher probability one is taking fewer trades per day, and requiring more days to make up for errors or bad events. . . . Psychologically much more difficult to do. . . . Hi I lost on Monday and perhaps on Thursday I'll be back to break even. . .
Hopefully helpful and good trades to you!
Mack may still go for 4 ticks now adays but the volatility has significantly increased, as has the number of bars that individuals can make an error on w/o a good plan or eye
. You do not really need to bring up 21 atr to determine this though. Simply review 21 bars historically and you can estimate fairly well how much each bar moves on average! In the graphic, average bar size appears as about 6 ticks or slightly more.
This is one of the reasons that reasonable tick targets must be increased to maintain a 67% ratio as break even (roughly) - 1/2 ATR, or roughly 1/2 the average bar size. Of course, depending on personality or eye, if the ATR is 3+ some individuals go for 8 ticks or 1:1. These are additional options.
Can one scalp for 4 ticks still? Yes. However, when you realize one needs the ability to recognize 80%+ probability and only execute on that -> 1 point win, 3 point loss = 4 point coverage. 3/4 -> 75% w/o margins . . . Much more difficult. Also, it takes more than 2 trades to break even. With higher probability one is taking fewer trades per day, and requiring more days to make up for errors or bad events. . . . Psychologically much more difficult to do. . . . Hi I lost on Monday and perhaps on Thursday I'll be back to break even. . .
Hopefully helpful and good trades to you!
Re: ATR 10 yrs ago and now
Eric, do you think the average stop loss will continue to get bigger as years pass? One of my concerns was dealing with large stops as it was a problem last year especially trying for 4/8 ticks. I've recently been testing out 1:1.
Re: ATR 10 yrs ago and now
It is one of the variables which will change over time, and one which traders will have to adapt with.
Understanding the 21 ATR volatility, across a period of weeks gives you that sense of what you need to design the target/stop loss. Simple enough. This also allows one to be aware of abnormally high or low volatility times, which is also important.
As markets have a very long term upwards bias, I would expect for this to grow. However, it isn't a linear function. There are periods of great shrinking volatility. Compare the 2008 markets with 2013. Compare 2020 (whoa!) against now (much more tame now).
At the end of it all, trading will require you become comfortable with adjusting this metric. Also, when the skillset is developed, there isn't anything preventing a less volatile or challenging market to be traded instead.
The really good news is knowing PA, you do not have to worry about systems becoming stale (which is a larger threat to most).
Understanding the 21 ATR volatility, across a period of weeks gives you that sense of what you need to design the target/stop loss. Simple enough. This also allows one to be aware of abnormally high or low volatility times, which is also important.
As markets have a very long term upwards bias, I would expect for this to grow. However, it isn't a linear function. There are periods of great shrinking volatility. Compare the 2008 markets with 2013. Compare 2020 (whoa!) against now (much more tame now).
At the end of it all, trading will require you become comfortable with adjusting this metric. Also, when the skillset is developed, there isn't anything preventing a less volatile or challenging market to be traded instead.
The really good news is knowing PA, you do not have to worry about systems becoming stale (which is a larger threat to most).