Ha, unfortunately I don't like losing $1,200 a pop. But I think that's close to the best place for the stop loss with the targets set so high. I am probably wrong though. That's why I'm the beginner and you're the veteran.
Would you keep max monthly losses to 6% no matter the starting balance?
I will go test out the "no more than 6% total loss in a month" thing and see what it shows. It's gonna take me some time because I work full time and trade in my off time... (hopefully that will change someday )
That is very interesting. I always assumed "scalpers" were trying to collect 5-10 pips in each trade. Would your methods work on a slightly larger scale? Have you tried larger targets (say 5-15 pips)? Your method fascinates me.
Yes, I would keep it to no more than 6%--and most likely less. I work full time too, but self-study is a fascinating subject and highly instructive.
My trading method does allow me to scalp bigger bites out of the market, but my temperament won't let me wait that long! So while a move is going in my "predicted" direction, I will simply go in and out many, many times, nibbling the market.
STOPS AND TARGETS
Actually as far as where stops should go, the market itself is the best teacher. It is usually the first fractal in the opposite direction on the same time frame....
I am running out to work right now, but I will post pictures and explanations when I get back later today... Good luck!
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You are trading your equity curve not the market. You should not be placing stops based on the amount of money you are comfortable to lose, you should place stops where it technically makes sense in the market, whether that is 10 ticks away or 100 ticks away. You should not arbitrarily say, I can afford to lose 40 ticks, so that is where I will put my stop. The market does not care how many ticks you can afford to lose.
This is where position sizing comes in. You should be placing your stop according to market analysis, then size your position accordingly to achieve or maintain the desired dollar risk. The formula is: PositionSize = DesiredDollarRisk / StopSize. (Search for Van Tharp's R-Multiples to learn more)
Using this method, you can say I only want to risk $50 on any trade, now using the formula you can size your position so that you will only risk $50 whether you place your stop 20 ticks away or 200 ticks away. If your account size will not allow you to do this, then you are under capitalize for the trading method you are using, therefore you should be trading micro lots in order for you to have more granularity in position sizing.
If you are using Ninjatrader here is an on chart position sizing indicator that does all the calculations for you: TradeRuler
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Iīm also a scalper and have good results with using an initial stop of 4 ATR of the tradet timeframe for the Dax. Iīm using a 3 JamRenko chart. If the scalp turns into a trend move, I trail my stop according 4 ATRīs from the next higher timeframe which is a 36 tick BetterLineBreak3 chart. You can check this for Forex if you want and maybe have to adjustet the ATR.
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I read a comment that a trader posted recently on a forex site. He said something that interested me, which is why I started this thread.
He claimed that too many traders emphasize "aggressively capturing pips" (i.e. aiming for 50,75,100, 200, etc. pips) when, in his opinion, they should rather scale back on how many pips they target and aggressively use more capital. He said that he aims for one 5-10-pip move a day and uses ten lots, effectively making $500-$1,000/day.
Now, obviously this begs several questions about indicators, methods, strategies, etc. that he uses to achieve these profits. Also obvious is that he can't just make one trade a day (which he didn't elude to or say that he did), but rather sets his goal for the 10 pips. He also said that he doesn't use stops, which surprised me.
I tried to look up his post but couldn't find it again.
I know there are hundred if not thousands of different mediocre strategies out there trying to be passed off as the holy grail of all tradingdom, so I wouldn't be surprised if this guy was just gloating about another mediocre method. He wasn't selling anything, and he didn't seem to be prodding anyone to ask him for information. He did just seem to be presenting an opinion, so I would like to know your thoughts on this.
Is his basic theory concrete? Market exposure does not seem too appealing, and targeting high amounts of pips opens a trader to more market exposure.
Is this just another opinion that is good or bad based on preference? Are there legitimate rewards to aggressively using capital like that without stops as long as the target is small? (Seems really risky to me)
What are your thoughts on this?
Last edited by Arich; October 3rd, 2012 at 11:55 PM.
IMO itīs a very lucrative and valid trading style. BUT, this is only doable if you know exactly what you are doing and are very good at it (discipline). This means no hopium or hesitation by following your trading plan.
However I have a different opinion regarding stops. of course you canīt work with tight stops but must have at least a whorst case stop for such as broken connection, pc trouble, unecpected major events etc.
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