I've read that locking in small profits is a problem for newer traders, because you cut short your upside potential. I find myself currently in that situation and wanted some advice. My method is currently to take 5 ticks in TF per trade. I can get that with 80+% accuracy. My problem is that about half the time I trade, after I get out with my profits, the market ends up moving 10+ ticks in my favor and I could have made more on the trade. Sometimes 5 is all it will give me, but my system has no way to distinguish when that will occur. Is there anything I can do to increase my profit potential without sacrificing my percentage of favorable trades?
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Right now I'm using a 10 tick stop. But after running a few expectancy calculations, I find that my expectancy is highest by tightening my stop to 5 and staying at 5 for profit instead of increasing my profit to 10 with a lower winning percentage and leaving my stop the same, or even for 5 stop and 10 profit.
Am I correct in understanding that you are trying to balance psychological issues (how you feel when you could have made more) with technical issues (how you set your trailing stop)? I have found that after enough trading (what is enough?) I no longer think of or look at what happened after I exited. My focus is totally on whether I followed my strategy or deviated from it. I sometimes lose. I sometimes could have made more. Would I have exposed myself to undue risk?
Permit me some trading philosophy which has helped my minimize psychological influences on my decision making. My trading outlook is that a trading system has two primary components; the trading strategy and the trader. A good strategy can still lose money if the trader fails. The challenge is to set up your journal such that you can detect the difference between the two. A strategy may begin to fail due to changes in the market parameters upon which the strategy is based. A trader fails primarily because of carelessness (unforced errors in order entry and exit are my primary failings), fudging the rules of your strategy and a whole host of psychological issues.
If it is to be, it is up to me.
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Target 1 is 1/2 of stop, target 2 is next S/R or aim for measure move. I move my stop to entry bar as soon as it is closed and then trailing by 2 bars until either my target is hit or I got stop out.
For example: by eyeballing the chart (i use 5 min), I can see average bar size is 20 ticks, so that is my stop. So my target 1 will be 10 ticks.
I also log every trade of mine and then do some more analysis and see which method give me the most profit. The method that give me the most profit is actually all in all out, but I cannot take it psychologically.
I like exit 1 target early because it is greatly reduce my risk. It usually gave me a risk free trade right after the closed of the entry bar. If my entry is correct, my target 1 is also filled on the entry bar.
Perhaps if you gave us a overview of your trading methodology we may be able to show you how to maximize your profits. Any mental issues you may be experiencing might stem from the fact that your methodology only allows for a small profit. If the bulk of your trades were runners (Large gain) for example, you would have no problem sticking with them.
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This is a common occurrence among newer traders. Let me ask you the following:
- Do you have a daily goal of some sort? Example, monetary amount or just X number of trades that fit within your system.
- If you have a daily goal, what is this based on?
- As Mike mentioned, What are you risking per trade? 1:1?
- How are you entering and exiting your positions? Limit orders via OCO?
- What chart(s) interval are you using when trading?
- What is your entry and exit criteria? (If you want to share that)
I ask these questions because this may be the root of your problem. Are your daily goals attainable with the number of contracts you trading and risk to reward you are using? We know TF will move far beyond 5 ticks on a valid move. The issue is are you attempting to trade the noise in between the day's measured moves? If you are just getting 5 ticks filled and the market quickly reverses, you're trading the noise. When you have a target of 5 ticks and the market goes at least 10, you're most likely in a measured move. This obviously leads to what your set up is and what chart interval are you using. A small/short chart interval will provide many set ups typically but many are head fakes or areas of indecision. This leads to over trading. Remember, the more trades you take throughout the day, the more risk you are assuming and the more commissions you are paying both having an adverse effect on your account equity. Be sure you are using an adequately sized chart setting but be sure to pay attention to the big picture for the over all trend, etc. Also, be mindful of your risk to reward ratio. A 1:1 will have you against the wall at all times. 2:1 will at least provide you with an advantage over what you are risking and allow you to recoup a previous loss and be in the positive. And lastly, one way to stay in your position without taking profit too early is to utilize an OCO where either your target is filled and cancels your stop or you get stopped out and your target order is canceled. Maybe look away while your trade is on for a while to prevent your emotions from affecting your trade. The absolute worst thing that is going to happen is you're entry was wrong and you get stopped out. You then simply analyze what went wrong and wait for price to move somewhere else before looking for your next entry. It's simple but not easy.
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