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Protecting the days profits
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Protecting the days profits

  #1 (permalink)
PTA, Gauteng
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Platform: Self built + Sierra + TWS
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DarkPoolTrading's Avatar
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Protecting the days profits

Hi All,

What is your strategy around protecting your daily profits? I currently have a 200 point loss limit for the day which trails behind my high water mark for the day.

For example:
  • if I start the day and lose 200 points straight off the bat, im done for the day
  • if I make 200 points, and subsequently hit my daily loss limit ill be back at zero and done for the day
  • if I make 400 points, and subsequently hit my daily loss limit ill be down to 200 points profit and done for the day
and so on...

But im starting to feel I may be giving up too much of my profits with this strategy.

This question doesn't really apply to those who have profit targets for the day. But for those who trade every opportunity that arises (provided you haven't hit your daily loss limit), what is your strategy for protecting profits? How do you allow yourself to take the next trade without finding yourself risking too much of what you've earned for the day?


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  #2 (permalink)
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  #3 (permalink)
Trading Experience: Intermediate
Platform: NinjaTrader, OpenQuant
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daily/weekly drawdown

for your method. you can check the "drawdown" which is very nice parameter as it tells you how much continuous loss/drawdown for a given period for your method.
say If I test for 3months, though it may give profit of 2k, it would have had a drawdown of 1.5k at some point and recovered.

But this is easy to test using a strategy, but can be quite hard in discretionary, but still possible.

just 2 cents

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  #4 (permalink)
PTA, Gauteng
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DarkPoolTrading's Avatar
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I watched FT71's latest webinar on BigMike's this weekend. I was glad to hear the discussion around stopping at a target for the day versus taking every opportunity.

I think I will do some investigation into possibly reducing size at a certain target, rather than stopping all together. For example I generally get anywhere between 1-3 trades per day. Any more than 3 is highly uncommon and in my case could possibly be considered over trading. However on those days I generally find im in tune with the market and trading well (I would need to go through my stats to confirm this, but this is my feeling). So a rule along the lines of the following might make sense:

- If i've made 3 trades for the day (and my P&L is up a certain number), any further trades must be made on 50% size. If I lose 2 trades in a row at that point im done for the day. Essentially what that results in is allowing myself to trade more on a day that im doing well, while still protecting what i've made so far. By losing two trades in a row on 50% size, I actually only lose 1 full trade. The downside being obviously if I continue to trade well, I only make 50% of what I would normally.

I haven't gone over my stats to see if this is something that would make sense. I was just glad to heard the concept of stopping at a target versus taking every trade being discussed on the webinar.

Does anyone else have any thoughts or ideas around this?

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  #5 (permalink)
Denver, CO
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One random thought...many traders believe that they will make the vast majority of their profits on those days that are statistical outliers.

For example, if we consider AIG in early 2009:

(hmm...I can't post a link or image, but pull up a daily chart of AIG from 2009-03-01 to 2009-05-01, and you'll see what I'm referring to)

If you were trading this $10 stock, and you had a good feel for it on the day and felt like you were trading it well, you'd be silly to go home after taking $1 out of it because you hit your profit target, and then sit on your hands while it moved another $7.

Trading AIG that one week could have potentially made your whole year. I'm guessing it did exactly that for many folks.

Not saying that's the only thing someone should trade, but I am saying that certain anomalies may occur that make for unique trading opportunities...and I think it's our job as traders to maximize the opportunity we have if it seems everything is lining up...

If you have any questions about Tradervue, please send me a Private Message or use the BMT "Ask Me Anything" thread.
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  #6 (permalink)
PTA, Gauteng
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DarkPoolTrading's Avatar
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Good points @gr2020. Thanks

I guess just like everything else in trading, there isn't one correct answer. On the one hand you want to be open to trading the outlier days where big profits are possible. But on the other hand you want to protect what you've made so far the day.

I guess ill have to sit down and go through my historical stats to see what would have worked better:
1 - Take every trade through the day
2 - Stop trading at a certain target
3 - Reduce position size at a certain target

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