The goal of every swing/position trader should be to maximize his profits by being concentrated in the fastest moving stocks while limiting the drawdown when the market is pulling back.
Love this Alex, the content is fantastic and very valuable. I swing trade on the ASX and will look to bring some of these concepts into my exposure rules. Currently using a modified version of the trading journal you shared, I look forward seeing what new additions you have created. Appreciate your time and effort.
I am a bit confused by what you mean by "Exposure".
Seems like you have divided your portfolio into 5 tranches (20% each). If the market is healthy you take up to 5 positions at a time and each position is 20% of your account. Correct?
Now you mention that you reduce your exposure to 50% is the 10 DMA < 21 DMA. In this context does exposure mean that you are reducing your position to size to 10% of your account? You can still take up to 5 trades, but each is now only 10% of your account?
Hey! it's really guidelines and I try not to be too rigid within it, but I'm trying to stay within. That being said, My position size (5-10-20%) is normally impacted by both the market and my own performance. If I trade bad, then I scale down to 10 or even 5% initial positions, and if the market is bad and I want to trade intraday, I will use 10% or 5% max too. For the total exposure, it depends on the state of the moving averages yes. BUt I can have more than 5 positions because as I trim them or reduce the exposure based on my selling rules, I then can only have a runner and add another full position for example. So it's best to rely on the maximum % of exposure and not the # of positions.
Great article Alex! Such a simple explanation of progressive exposure. Can you tell me what DMA is? Is that a displaced moving average? I can't seem to figure out how to set up in Trading view
Regarding this comment " 10dma > 21dma = I begin to build exposure up to 50% if breadth confirms a move & we got a good sell-off extension"
>> Could you elaborate how you use breadth to confirm a move? e.g., % of stocks above 50MA bottom out and increase above 20% , or Net New highs/ lows move above 0?
Hello ! Yeah you can check the "breadth" section of my daily letter for that. I basically use TA on MMFI chart, look at net advances/declines for a trend or bounce and Net New high (1M & 52W) for an healthy environment.
You wrote "You want then to calculate the overall open profit you have in all you’re positions, and determine the overall exposure you can go based on a fixed risk parameter. For me, I use a fixed 5% risk in order to calculate it.The exact formula I use will be detailed in a future article & probably in the next version of my trading journal I’ll share soon with you folks."
Do you mean overall open profits, backstopped profits or book profits? Have you shared the exact formula yet?
You also wrote:
"A ratio above 1 is indicative of a positive expectancy while below 1 means you’ll lose money over time.".
I don't agree 100% with this. Even with an RRR>1 you can lose money. For each combination of payoff and win rate, there is an optimal ratio between % winners and % losers. If the optimal ratio is exceeded, the cumulative total return decreases and can even become negative. A simple example: Win rate 40%, loss rate 60%, avg. Win 48%, avg. Loss 24%. So we have a payoff of 2:1 and weighted by the win rate, the RRR = 1.333. First look for a positive expectancy. The cumulative total return after ten trades is -7.55% (example account size $1000 --> $1000 x 1.48^4 x 0.76^6 = $924.55). These are the losses that work against you geometrically from a point onwards, even if the expectancy is > 1.
Hi Alex, thanks so much for the rich information you share with the public, it indeed inspires a lot of people like me. I just have a quick question about your RRR calculation, in Mark Minervini's book, he uses avrg win%/ avrg loss% to calculate RRR, one of Richard Moglen's video, he also explains the RRR calculation using Mark minervini's method, but yours is like the adjusted one, as you also include the win and loss rate in the calculation, may I please know some reasons behind it? Which way is like the most accepted ways to calculate RRR? Thanks again for all of your sharings!!!
Question1: I mainly use the S&P (SPY) for the general market direction. It gives better indication as it's not only focused on growth & tech.
Comment1: This particular has been transferred from my first attempt this wknd on Revue. It could be the reason because all the new daily article I see them in High res. Could you validate with yesterday daily Update if it's in high res?
Comment2: Thanks for pointing that out. I'm born French, so English is still a work in progress for me ;) Thanks for being forgiving. That being said, I'll take your (right?) comment .
Love this Alex, the content is fantastic and very valuable. I swing trade on the ASX and will look to bring some of these concepts into my exposure rules. Currently using a modified version of the trading journal you shared, I look forward seeing what new additions you have created. Appreciate your time and effort.
Great to hear my friend! Cheers! ✌️
Hey Alex,
I am a bit confused by what you mean by "Exposure".
Seems like you have divided your portfolio into 5 tranches (20% each). If the market is healthy you take up to 5 positions at a time and each position is 20% of your account. Correct?
Now you mention that you reduce your exposure to 50% is the 10 DMA < 21 DMA. In this context does exposure mean that you are reducing your position to size to 10% of your account? You can still take up to 5 trades, but each is now only 10% of your account?
Merci!
Hey! it's really guidelines and I try not to be too rigid within it, but I'm trying to stay within. That being said, My position size (5-10-20%) is normally impacted by both the market and my own performance. If I trade bad, then I scale down to 10 or even 5% initial positions, and if the market is bad and I want to trade intraday, I will use 10% or 5% max too. For the total exposure, it depends on the state of the moving averages yes. BUt I can have more than 5 positions because as I trim them or reduce the exposure based on my selling rules, I then can only have a runner and add another full position for example. So it's best to rely on the maximum % of exposure and not the # of positions.
Makes sense.
So total exposure is the sum total of all positions or the capital at risk if all stops are hit?
mhh not exactly. The exposure = total capital invested / capital. The one you refer to is the open heat concept. cheers
Thanks!
Great article.
"The first metric I use is the Risk-Reward Ratio for my last 20 trades"
This is for closed trades only? Or for trades still open?
This is for open trades as well! thx and cheers :)
Great article Alex! Such a simple explanation of progressive exposure. Can you tell me what DMA is? Is that a displaced moving average? I can't seem to figure out how to set up in Trading view
Thanks for the feedback Sue :) DMA means Daily Moving Average, cheers !
Awesome Alex for this article.
Regarding this comment " 10dma > 21dma = I begin to build exposure up to 50% if breadth confirms a move & we got a good sell-off extension"
>> Could you elaborate how you use breadth to confirm a move? e.g., % of stocks above 50MA bottom out and increase above 20% , or Net New highs/ lows move above 0?
Hello ! Yeah you can check the "breadth" section of my daily letter for that. I basically use TA on MMFI chart, look at net advances/declines for a trend or bounce and Net New high (1M & 52W) for an healthy environment.
Thanks Alex for this superb article. Just to check - Are you using 21 exponential moving average, or 21 day simple moving average here?
Thanks ! Yes, I am using 5,10,21 & 50 exponential ma. cheers!
Hi Alex, thank you a lot for sharing this!
You wrote "You want then to calculate the overall open profit you have in all you’re positions, and determine the overall exposure you can go based on a fixed risk parameter. For me, I use a fixed 5% risk in order to calculate it.The exact formula I use will be detailed in a future article & probably in the next version of my trading journal I’ll share soon with you folks."
Do you mean overall open profits, backstopped profits or book profits? Have you shared the exact formula yet?
You also wrote:
"A ratio above 1 is indicative of a positive expectancy while below 1 means you’ll lose money over time.".
I don't agree 100% with this. Even with an RRR>1 you can lose money. For each combination of payoff and win rate, there is an optimal ratio between % winners and % losers. If the optimal ratio is exceeded, the cumulative total return decreases and can even become negative. A simple example: Win rate 40%, loss rate 60%, avg. Win 48%, avg. Loss 24%. So we have a payoff of 2:1 and weighted by the win rate, the RRR = 1.333. First look for a positive expectancy. The cumulative total return after ten trades is -7.55% (example account size $1000 --> $1000 x 1.48^4 x 0.76^6 = $924.55). These are the losses that work against you geometrically from a point onwards, even if the expectancy is > 1.
Hi Alex, thanks so much for the rich information you share with the public, it indeed inspires a lot of people like me. I just have a quick question about your RRR calculation, in Mark Minervini's book, he uses avrg win%/ avrg loss% to calculate RRR, one of Richard Moglen's video, he also explains the RRR calculation using Mark minervini's method, but yours is like the adjusted one, as you also include the win and loss rate in the calculation, may I please know some reasons behind it? Which way is like the most accepted ways to calculate RRR? Thanks again for all of your sharings!!!
Great content as always! I'm learning a lot reading your posts and tweets! Just two questions/comments:
Question: When you are talking about: "Above 50dma", what dma are you checking? NASDAQ? RUSSELL? NYSE? Sectorial ones?
Comment: It would be great if images are embedded with more resolution ;-), if not, it's hard to inspect the details.
Comment: There are a lot of "you're" that should be "your".
Thanks for your time and dedication, and keep on!
Hi Mike! Glad you enjoy the newsletter! :)
Question1: I mainly use the S&P (SPY) for the general market direction. It gives better indication as it's not only focused on growth & tech.
Comment1: This particular has been transferred from my first attempt this wknd on Revue. It could be the reason because all the new daily article I see them in High res. Could you validate with yesterday daily Update if it's in high res?
Comment2: Thanks for pointing that out. I'm born French, so English is still a work in progress for me ;) Thanks for being forgiving. That being said, I'll take your (right?) comment .
Cheers buddy!
Dear friend, completely understand you, I'm Spanish native, so we are all trying to do our best haha ;-)
Regarding the resolution of figures, yes, I confirm you that yesterday images were perfect.
Ok great! HAGD!