I trade the emini S&P. Every time I am up 1 point in a trade I face a critical question. Take the money or let the trade play out and try for more. To keep things simple imagine you have a 10,000 account and that you trade 1 ES contract.
If you make that point, which is really $50, in a year you will make more than 100% return on your trading.
It is true that I need and want more money than that. But that is quite a good return and your money will start to pile up in time. You might say here that I can't say that all my trades will make money. Granted. But I think that just using pretty basic indicators you can find good entries that will average out to a point plus every day. (as long as you are patient)
Now I know that I am supposed to set my targets based on fib retracement levels or some resistance and support line. I guess that is the correct way. And yes it would bother me to take a point and then see the market move 10 or 20 more. But how often does that really happen?
What does happen to me, and I mean a lot of the time, is that I am up 1 point or 1.5 and could take the money. But I don't. Now sometimes it moves against me and I turned a winner into a loser. Other times slowly makes more money. But I have to manage it and worry and have anxiety. And once in a while it runs up for a nice profit.
But I feel that life would just be so simple if I just took that 1 point. Milk the cow and go home.
I don't know. It is just that I feel that I lose a lot of money in trades that were already winners. And I am not happy about it. I can't prove that my 1 point theory is true.
But I wonder if the taking the easy money isn't the smarter play. I think greed is costing me money On the other hand if was as easy I am suggesting......
How do people handle the take the profit or risk it for more dilemma?
I thoroughly test whatever approach I am contemplating.
If you test correctly, you should be able to determine if 1 point, or 2 points, or 10 or 20 points is the appropriate target. Or maybe your target varies based on the chart itself, and is not a set point value. The proper target will depend on your entry, your objectives and your trading style. There is no correct answer, or one size fits all answer.
The nice thing, is that once you do this testing, assuming you have performed the test correctly, you just execute what is best, and then second guessing, and all the emotions that come with it, is gone.
If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
Last edited by kevinkdog; July 29th, 2013 at 02:02 PM.
Reason: bad grammar
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@mcteague , this is a tough subject, and only you can answer it.
I have seen people who were great at taking a few ticks here and there try to take larger profits and eventually lose and blow up. The fact is that we all are good at some things, and not so good at others. The answer is not to only stick to what we are good at though, because we will never grow if we do this.
Question: are you consistently good at what you're doing now? For a concrete metric, over a period of time, what is your profit factor (total gains divided by total losses)? What is your max drawdown over that period? Average winning day vs. average losing day? Winning day percentage? These are some good numbers to look at--and if you are doing well with that, then it might be good to gradually increase your profit targets IF (a big IF) you have a reason to do so on a particular trade. It all comes down to this: are you exiting early because you are afraid of losing the profit? (this is my guess) If so, then for the next week, allow your trades to go an additional 2 ticks beyond what your current level of fear allows. If you determine you have an objective reason to exit, then exit. But monitor yourself--is this just normal fear? If so, ignore it and push your boundaries slightly.
I have a threshold for the ES--if the market has moved in my favor, has come back to test a price that should hold, and has gone in my favor 8 ticks, I will not let that trade become a loser. If it goes 12 ticks, regardless of whether it has tested my price, I will not let it become a loser. This is very personal, and I will vary this depending on the current volatility, but it's a general guide. This is because I like to finesse an entry so that my stop is usually 4-6 ticks max. If it does not behave correctly as stated above, I don't want the trade, and if it has gone my way that much, with that well-timed an entry, there is no reason to lose money on the trade. No matter if the premise is still valid or any of that stuff. If I take a trade and took 3 ticks of heat, and now have a 12-tick winner, it would be stupid for me to take a loss on it. People underestimate capital preservation. Letting winners run is wonderful, but so many people simply need to get to some consistent day in and day out profitability before they worry about letting winners run. Having a month with 12 winning days and 2 losing days, as an example, will do wonders for a trader's confidence and can propel him to push forward with more ambitious goals.
Also, consider momentum. When ES is pushing in one direction, monitor the prints--if your side has control, allow them to push for your a little longer. Then, if you get a momentum burst, consider exiting strategically (that does NOT mean to take the other side--completely different). There is no benefit to being in a trade for 3 hours for 20 ticks when you can get in and out for 15 ticks in 20 minutes. Vertical movement makes us money, not sitting and waiting on a trade which is stalling and risking losing profit. If I can take a sure 15 ticks vs waiting for consolidation/pullbacks/rotation, I'll take the 15 and consider re-entry. Sometimes if I think it has a good chance I'll trail a stop very closely and if I get lucky and it pushes further, good for me--but if my ideal exit is 24 ticks, and the market pushes strong to 18, it would be silly for me to only take 6, losing a sure 12, in order for a possible 6 more. Again, just my opinion. Not saying it's "the way," it's just one way, and it's how I like to operate. I will say this last thing: 4 ES ticks is not that much, even on slow days. If you are "right" with your general idea, usually ES will pay at least 6-10 ticks for your risk, even if the risk is small, providing you get an excellent entry. Your win rate needs to be very high taking only 4 ticks, because I assume your risk is at least 3 ticks which does not give much room for error.
These are just some thoughts, and understand that no one will have an answer for you, just things to think about as I have given you above. Ultimately you must take responsibility for your trade management and it is vital that you make your own decisions regarding it. But I hope the above will give you some things to think about.
Last edited by josh; July 29th, 2013 at 03:02 PM.
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1) reactionary traders coming in late to the trend
2) protective trading, where your trade has a positive top side blow off higher than you expected, and prints, say +100 (whether on 1 car or on 2), and then settles +50 (if you were to close), and its pinging between +50 & +75 (neither of which, if you press "close" / market close order, would you achieve).
protective trading is what Josh was describing and that was a very good suggestion to just press pause for 2 ticks and then eventually let that grow,
2 comments ago, one said he "finesses the entry". ok, try to remain serious about this topic, because that speaks for itself...
but his waiting for a better entry, usually works for contracts other than the ES monster, solely because volume and share participation in most contracts always show retrace from temporary highs, and waiting sometimes allows your pending commitment to take an active position (whether long or short) rewarded with a better entry, as the price temporarily retraces before resuming its trend...
frankly there is no peace, one has to decide relative to their present situation, whether they need to print a win and rack up gains, or one needs to minimize commissions (brokers hate seeing these discussions) and stay in a position all day (or an hour; or until a fib level is reached; or a pivot is crossed).
there is no peace, just look at all the failed traders (so many threads on what they did), and all these other traders diaries....
“One common adage on this subject that is completely wrongheaded is: you can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance.”
– William Eckhardt
Don't think I need to elaborate on this but I will just add that the entire basis of Kahneman and Tversky's Nobel prize is Prospect Theory which is where the "The problem in a nutshell..." part of the quote comes from. Always remember, the market is trying to take your money, plain and simple. How does it do that? By taking advantage of your weaknesses.
Seek freedom and become captive of your desires. Seek discipline and find your liberty. - Frank Herbert
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If you can make the point (and not just saying it is possible by being patient etc..) then take the point.
Learn how to make $ and become consistent. Soon enough, you'll gain enough confidence to trade 3-5 lots, then you can start scaling in and out of trades, and potentially let some trades run while pocketing your profit and managing your losses better.
100% return looks nice on paper, but reality is quite different. Many say they can relatively easily make 100$ a day trading 1 lots. Yet, most can't manage to do so for x reason. One needs to always push harder and try to grow (nice and steady). Status Quo simply doesn't work for most, and until you rack up a few years experience, you won't know if you're any different.
All the best
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Watch the NYSE TICKs in a small timeframe as if you were watching price action and when they start coming back in from the extreme of the move get to breakeven or better immediately. A moving average may be applied to them as a visual aid. Then if you understand what is happening in the ES you should be able to keep a piece on for 12 to 16 ticks if you are trading from good locations and just taking 2 or 3 setups a day.
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If this was something you could do often enough and not be distracted by any milk left behind then sounds like a plan.
For single contract trading, I have my trading platform place an automatic OCO for Target and Stop Loss at the start of my trade. After I place the trade I then adjust the OCO based on market conditions and expectations at the time. Any time after my initial adjustment to stop loss and target for my trade I do my best to stick to a rule of only adjust in the direction of the current price for both stop loss and target if moving them at all.
Ultimately you will have to use what works for you coupled with good money management.
I hope that you are able to get what you want in abundance in the future.