I've wondered the same thing for a while. I definitely think a daily loss limit is necessary for success. I often times Implement a timeout when I get a negative trade and have a three trades worth loss as a timeout for the day. These rules help me become consistent.
Sometimes I'll strike out and continue to trade hitting profit over and over. I use discretion for when to pull myself away from my screen when it comes to daily profit limits. Sometimes when I'm on a roll I'll just keep trading till I get two losses in a row. I have a rough estimate of what I'm looking for the day and after that It's really what I'm in the mood for. I'll often find myself distracted after a few positive trades and I'll meander off and do other things like socialize or check up on other interests. But I am curious if perhaps its best to just go with the going if the going is good and I'm in the zone. It's hard to really draw the line if greed is good in this respect.
I've seen how other traders make use of weekly profit limits like explained in this video
Maybe someone could add their thoughts to profit limits or lack there of?
The following user says Thank You to Itchymoku for this post:
I think the emotional benefits of a daily/weekly/monthly loss limit may outweigh the possible long term lower profit. This would apply primarily to discretionary trading, but possibly also automated/mechanical trading.
I don't think limiting the profit in the same way is helpful, or wise.
The following user says Thank You to kevinkdog for this post:
This is an old thread but I have to ask why you think a daily loss limit is useful.
Is trading not about following the rules? Would you stop your automated strategy because after three losers it might be "having a bad day"?
Trading around profit and loss is the wrong metric. The right metric is whether or not we've enter the trade according to our tested rules. This really doesn't matter whether or not the trade is discretionary or not. It doesn't matter whether the trade is a winner or loser. Did we follow the rules?
Obviously if I haven't followed my rules after one trade, maybe even two, then I might need to sit on the sidelines and figure out why I have a discipline issue. But outside of that I need to trade the setups as I see them.
Last edited by empty; May 18th, 2014 at 12:57 AM.
The following user says Thank You to empty for this post:
you'd be right if humans could act with the consistency that machines act but many times human's can't. Often times even mechanical systems will work off of some degree of discretion that gives the user the power to take multiple trades on a varying degree of signals that will most likely work if the market is lets say trending. Sometimes, I don't care what the system, the market will buck around like a disobedient bronco stopping out the trend trading system or the range trading system or any other system that follows rules. Regardless if the trader was acting outside of their rules or they were just identifying that the market simply as being chaotic or volatile there needs to be some solid stopping point. This stopping point does two things 1. it lets the market work out of whatever bizarre state it's in which could last the rest of the day and 2. lets your mind work out whatever state it's in. And believe me often times it's hard to decipher which of the two you're up against.
The following 5 users say Thank You to Itchymoku for this post: