Candlestick Price Action Set Risk Objectives

This article will explain the overarching risk objectives of my Candlestick Price Action sets, currently which are: LINK/ETH, ETH/cUSDC, and ETH/BTC. For details on the trading method that I use you can read that here. In the article whenever I refer to “benchmark” I am referring to ETH which is what all of my Candlestick PA sets are benchmarked against.

Objectives

The primary risk objectives of my price action sets are to take trades that are high conviction and that offer asymmetric risk/reward opportunities. High conviction trades are those trades that I feel offer the highest chance of success (I deem success my first price target at a minimum). Asymmetrical risk/reward opportunities are those trades where for every 1 dollar I risk, I stand to potentially make 2, 3, 4 or more dollars. These two objections are at the heart of every trade that I take.

In addition to the risk objectives I also have specific risk tolerances for per trade and overall drawdown. Per trade I aim to never risk more than 1–2% of the set. This means the maximum loss I would be willing to accept on a single trade is 1–2%. In addition, I would not want to see a drawdown become greater than 10% and I would consider a drawdown of 20% to be extreme (this is referring to drawdown vs the benchmark ETH). While I have no control over what trades will become winners or losers, these rules help minimize the chances of having very large drawdowns.

The Difference

The difference is seen in the overall volatility of my sets vs. their benchmark. What will be obvious over time is that my sets will not make many extremely risky YOLO trades (trades where the set is 100% in the risk asset), but it will make many modest/moderate risked trades where the set is 10–25% in the risk asset. The goal is that overtime these sets make modest/moderate gains that overtake the small losses and achieve smoother, lower volatility returns.

Summary

Hopefully this will help current and future set holders understand the long term objectives and make sense of the trades that I make. If you are looking for a set that will YOLO every trade (a.k.a. gambling), then these sets are probably not be for you. If you are looking to pick up alpha against ETH while at the same time not wanting to risk taking huge losses on individual trades then these sets are worth considering. While I cannot guarantee that these sets will be profitable long term (although that is the goal), I believe these risk objective offer the greatest chance to achieve that.

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