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Hi, i notice that quite a lot of people have a strategy that stops trading after hitting their goal and quite a number of people have a USD100 per contract per day goal.
Would like to know why stop after achieving the 'goal' if you have a edge and a positive r/r strategy?
Btw, I'm really new to trading. trying to figure out things here... thanks!
You can actually end up losing over time, because you're going to have losses too.
If you cut your profits too soon, there will be less cushion for when the losses come. Theoretically, it might seem that if you are completely disciplined and also cut the losses early, you can still be OK -- and, indeed, that can work out.
But:
(a) you're not a machine, and you may have trouble with closing that loss quickly. If so, your 2-point profitable trades give you very little breathing room for error in your losses.
(b) you can't expect to get perfect fills
(c) trading for such small wins probably puts you in the noise, where exploitable opportunities are hard to see and take advantage of.
Certainly people can and do, but it can be harder than it appears.
Having a fixed profit target, large or small, is one way that people try to corral risk -- you put the money in your pocket and the trade is over. No more risk. This can work, and if it's part of a thought-out method that makes money over time, then fine. But an alternative idea is to hold a trade until it stops working. This may keep you in for the large moves... assuming that you have them.
You may want to adapt the method to what you believe the current character of the market is: use targets and quick exits in a ranging market, hold longer in a trend. (Always assuming you know which is which .)
So basically, it's a kind of balancing act, and you have to make decisions about how to play it based on your method, risk tolerance and what you can make work over the long haul. There's usually more than one way to decide these things.
I haven't figured out what kind of strategy to use yet. The strategy of stopping once target is met seems to be one which notice quite a bit when people talk about stopping for the day.
Most often such a strategy is employed by people who trade part time or as a hobby. Usually they trade few hours due to time constraints. If you are a full time trader, limiting your profit is not really profitable in the long run. If you run a business selling milk, will you stop when 10 carton of milk is sold ? You may survive but there wont be much progress years ahead.
If you trade to contain your risk, you will be a breakeven trader at the most.
I don't consider myself a great trader, so take what I say with a grain of salt, but I think it has to do with not giving profits back, staying fresh and level-headed, etc. Also commissions add up and can cannibalize one's profits.
I view trading as a job, as such my own goal is to make consistent daily profits (more than $100 though). When I reach my goal I stop, usually before noon, but not on days like today, making money is just too easy today.
From experience (and paraphrasing Al Brooks) I have found that if you try to pick too many cherries you end up picking a lot of bad ones, better to pick a few good ones and quit when you are ahead.
Makes no sense to me. Maybe you hit your target in the first hour, and you have a positive expectancy with your trades. Meaning, on average, if you continue to trade during that day you make more money. So you are losing out. Only reason you should stop is if you think your edge is gone. You are fatigued/mental state not adequate, or market is not suitable for your methodology. Otherwise, stopping early is playing to lose. Its scared trading.
Understanding yourself is just as important as understanding markets.
I see this more as a lack of confidence in trading ability. I guess the fear of giving back profits is the dominant theme in this behavior. I was here once (raises hand).
I can understand how someone would want to limit draw down so they don't blow up an account but limiting upside doesn't really make sense to me. When you know you're out of touch with the market, it's best to just take your ass kicking and live to fight another day. However, cutting yourself off early is the equivalent of the mistake to taking profits too early.
I never once saw Michael Jordan stop taking shots at the basket because he reached a goal and didn't want to miss shots.
In trading, shortcuts lead to the longest path possible.
.)
