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setting targets
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setting targets

  #1 (permalink)
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setting targets

When I see a trade fall out of profitability and become unprofitable because it failed to reach the target and then fell back to a loss I start to question some common trading assumptions. Those are that targets should be based on support and resistance levels, or Fibonacci extensions, or some other method that seeks to maximize the profit of a particular trade. I question the correctness of that thinking when I step back and look at the bigger picture. I think the common way of thinking about targets promotes lottery, or grand slam thinking. The number of losing trades is so high that one looks to hit one out of the park just to stay even.

Any system, or signal, or method you use to select a trade will have a certain success rate. It follows logically that a ten point move is less likely than a five point move, and that a five point move is less likely than a 2 point move, and so on. That is our percentage of successful trades must increase as our target becomes smaller. So, assuming our stock picking system is not complete crap, isn't it best to enter trades looking for very small targets. Wouldn't you have a very high success rate.

I think most people have higher targets because their success rate is so low, but they are wrong. There success rate is so low because their targets are so high. Many years ago a very well known finance guy said “Professionals win small. Amateurs lose big”. I think about that a lot.

People I know who are traders don't agree with me. I do not understand what is wrong in my thinking.
I just think looking for ¼ point moves rather than larger ones would produce astounding success rates.
But I must be wrong because no one seems to do this.

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  #3 (permalink)
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It is generally agreed that the best discretionary traders in the world have a roughly 50-60% win rate, as quoted by several prop firm owners (obviously not talking about trend following, which is even lower). So you need to use this to keep things in perspective. The best of the best,...the traders who trade multi-million dollar accounts, are wrong almost half the time.

What makes them successful is being able to push winners.

Aiming for a high win percentage is not only incredibly psychologically difficult, but also not achievable in almost all cases.

The thinking you're talking about is why so many new traders are attracted to scalping. They think they'll just get in for a couple ticks and then get out. The problem is that slippage, commissions and losses make tiny profits disappear in the blink of an eye.

Diversification is the only free lunch

Last edited by DarkPoolTrading; July 18th, 2014 at 05:39 AM.
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mcteague View Post
I think most people have higher targets because their success rate is so low, but they are wrong. There success rate is so low because their targets are so high. Many years ago a very well known finance guy said “Professionals win small. Amateurs lose big”. I think about that a lot.

I don't agree with this, at least not on futures.io (formerly BMT). From what I've seen, most people on futures.io (formerly BMT) are scalpers, and have very tiny targets and stops. The reason they don't succeed is probably because they are more or less operating on a 50% win rate (flip a coin) but after factoring in commissions and slippage, they are net negative on their account.

Add to that the occasional moving of stops and taking a big loss and they are wiped out.

Personally, I trade with big targets. I take few trades. I trade multiple products on a longer time frame. Commission and slippage is irrelevant for me. But I am somewhat alone in this on futures.io (formerly BMT).

Mike

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Big Mike View Post
I don't agree with this, at least not on futures.io (formerly BMT). From what I've seen, most people on futures.io (formerly BMT) are scalpers, and have very tiny targets and stops. The reason they don't succeed is probably because they are more or less operating on a 50% win rate (flip a coin) but after factoring in commissions and slippage, they are net negative on their account.

Add to that the occasional moving of stops and taking a big loss and they are wiped out.

Personally, I trade with big targets. I take few trades. I trade multiple products on a longer time frame. Commission and slippage is irrelevant for me. But I am somewhat alone in this on futures.io (formerly BMT).

Mike


I use fairly large targets on most markets and they work quite well.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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I'm in the middle of this....I like larger targets but understand my larger targets are someone else's scalp targets. I think trading for 1-5 ticks on pretty much any instrument is going to eventually end in disaster.....unless you are extremely disciplined and some are...but for the vast majority, I think targets need to be large enough to make trans action costs irrelevant....after all, people use to pay big bucks to make a trade and there were profitable traders then....

I am not an intra day swing trader.....meaning I don't hold all day looking to be ultimately right about the days direction. Instead I look to capture some portion of intra day legs and let it go at that....I am right about 60% of the time and generally speaking, my R:R is around 1.5:1 or larger.....so net profitable and if I size right, its even better.

I think straight scalping is ultimately unsustainable for all but the most disciplined traders.....

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I would define scalping by taking the average daily range and comparing your individual trade targets to it. If your target is 10-15% of the ADR, I would definitely call you a scalper. If it's 50% of the ADR then I would call you a day trader. 200% ADR and I would call you a swing trader. etc

Mike

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  #8 (permalink)
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mcteague View Post

I think most people have higher targets because their success rate is so low, but they are wrong. There success rate is so low because their targets are so high. Many years ago a very well known finance guy said “Professionals win small. Amateurs lose big”. I think about that a lot.

People I know who are traders don't agree with me. I do not understand what is wrong in my thinking.
I just think looking for ¼ point moves rather than larger ones would produce astounding success rates.
But I must be wrong because no one seems to do this.

i think one should use targets based on frame and the frames harmonics/ rotations for example the /tf can easily move 10 ticks intraday each move but 2-3 points is a little more difficult

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I would define scalping by taking the average daily range and comparing your individual trade targets to it. If your target is 10-15% of the ADR, I would definitely call you a scalper. If it's 50% of the ADR then I would call you a day trader. 200% ADR and I would call you a swing trader. etc

Mike

By that definition, I fall somewhere between scalping and day trader definitions and that depends on the day of course. I'm ok with that definition for now. It makes sense to me.

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I don't use targets. They are just too speculative. I try to do it from the bottom up, i.e using different trailing stop strategies with the Ninja ATM. During the day, there can be several runners where you can get 20 ticks in a few minutes with the price never falling below the ma 7. I also will sometimes trail up placing stops below the moving average 7 or 13.

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