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Which is more profitable? Small targets or medium/large targets?
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Which is more profitable? Small targets or medium/large targets?

  #1 (permalink)
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Which is more profitable? Small targets or medium/large targets?

Hi all,
I'm not sure if there's a thread on the forum regarding this topic but here goes...

I've been beating my head against the wall for years trying to figure out a way to consistently hit 35 tick - 50 tick targets mainly on CL. I've come across the concept that taking smaller targets more frequently is much more profitable even after subtracting slippage and commissions. I know I just need to do some extensive statistics gathering and calculate the results but I'm fighting Lyme disease and am really foggy-brained. If anyone else has these statistics I would LOVE know what they concluded.

I also believe for me there's a psychological component. I was a competitive athlete so I frequently use sports analogies to help me conceptualize trading concepts. I see taking smaller targets as hitting singles in baseball (mainly with bunts), being a retriever in tennis or 'defense wins the game'. My psychological reaction is YUUUCK!! Let me swing a little harder! I know I probably need to re-wire my brain to get excited about bunting but before I do, I would like to hear other traders opinions about this topic.

Thanks so much!

  #2 (permalink)
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  #3 (permalink)
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The key is to make sure you optimize your transactions costs. Personally I wouldn't trade with targets less than 50 ticks. With a 50 tick target and 40% win rate your transaction costs (slippage and commission) are about 6% of gross trading revenues. As you reduce your targets and assuming the win rate doesn't change the slippage and commissions (cost of doing business) become so monstrous as a % of trading revenues the trader has virtually no hope whatsoever. The problem is many traders don't even factor in the costs of slippage so are completely oblivious to the true costs of doing business.

Now this assumes 1 tick of slippage. CL can be brutal on slippage so this is conservative.

This was covered extensively in this thread.


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  #4 (permalink)
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Thanks for the reply. My win rate goes way up when I take smaller targets. I think it's because of how often price will go in my direction then come back and stop me out when I'm holding for larger targets. However, commission still eats a very large chunk of the profits...

I was told to "trade larger" if my win/loss % was high with smaller targets - I guess meaning add more contracts and take them off at smaller targets. The questions I have with that money management strategy are -should I leave a runner or just take them all off relatively early and look for another trade; will that money management strategy hold up to the greater commissions and slippage costs?


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This is a dupe of thread mentioned in post 3.



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