I need some advice from guys who have been successful for a year plus only please.
I try to seek a risk/reward of at least 7:1. I'm a big believer of letting profits run and cutting losses short. Problem is that my win ratio is extremely low due to high reward target. What are some intra order management that you guys utilize to book profits? I trade only 1 contract and want to keep it that way. I'm seeing a lot of times my entries are fairly good and they run my way for a good bit but they turn into losses or break even. I try to move to break even when I get 3:1 risk/reward. My MFE/MAE is also 3:1. Meaning most of my trades go favorable at least 3 points vs they go against only 1 point.
Trading only 1 contract is extremely difficult. You need to really trade 3 or more, so you can scale in and out of positions.
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I'm wondering to what extent that's contributing to the difficulty? I found trading 3 lots very much more conducive to becoming profitable, by effectively adding to winning trades with the overall effect that a significant proportion of my risk-exposure is at times when the odds are more in my favour.
It's not easy to offer suggestions without a little more information, but have you looked retrospectively at what the effect would have been, if you had (for example) done all your same last 100 or 200 trades with a reward-to-risk target of 3.5:1 instead of 7:1?
I agree. I do much better when breaking trades down into 3 parts. I usually enter with 2 parts with 1R and 2R targets, then I often scale in 1 more part if the price comes against me (averaging down) without showing real strength in that direction, or I add 1 more if the price moves strongly in my direction and there is plenty of room left for the trade.
Scaling out for a small profit on 1st part is very important psychologically. We never know how far a trade will go in our favor. If we were in the green for a short time, then lost on the trade, we would be upset for not taking profits.
I often will move my first target if price came close but didn't trigger my target. I move it 2 ticks closer than the last extreme price. For example, If I was short at 1000 and my first target was 9970, but price stopped at 9974 after a quick drop. I would move my target to 9976 right away. The probability for price to return to 9974 area is pretty high within a minute or so. If it doesn't hit my target within this time, I just close that target at market price.
Taking profits when they are available is my most important rule!
On the other hand, if price moves strongly in my direction, I will keep looking for opportunities to add to my position on pullbacks. This is called pyramiding or campaigning. It usually works best on first and second pullbacks. I try to load up to take full advantage of being in a profitable trade, with my stops moved to better than break even. Now I wouldn't expect the price to keep moving very far in my direction. I would scale out most of those new contracts just before the nearest swing, and maybe keep one or two for the next level just in case I get lucky. It's always advisable to have at least one stretch target and/or runner.
So, hopefully you now see the reason for the rule of three! One for quick profits (psychological), one for standard profits, and one for occasional windfall profits!
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I think what you are asking for is very difficult, if not impossible in today's markets. General rule of thumb is that everything evens out one way or another. So if you want reward/risk of 7:1, then you should expect to have 1 profitable trade for every 7 put on. Only way your 7:1 would work is in a strong trend environment, and probably on a bigger time frame (daily chart or bigger.) The markets just aren't like this now.
Since you want to trade only 1 contract, I assume you are either under capitalized or seriously risk adverse, and I strongly recommend trading a different market. SPY is very good. If you want leverage, trade SPY options. They are very liquid, have tight spreads, and move very freely. Plus, you could more easily implement your 7:1 reward/risk ratio goal by assuming you will risk the entire premium paid for the long option. Buy long options only. Beware of time decay. If you expect trade to last a day or less, use expiration dates at least 2-3 weeks out. If you expect trades to last several days or weeks, choose expiration dates that are at least 4-6 weeks out. The option premium will be your risk, multiply by 7 to get your reward, see if you have a good chance of getting the corresponding price within your trading time frame.
I think this is the best way to use options. Don't place any stop orders. The option acts like a stop, but it actually will rarely lose all of its value, even if it is a losing trade. On the other hand, options don't gain value as quickly as the underlying does when you are in a winning trade. Choose strikes that are near the money to keep things simple. These options will gain about 50% for every gain in the underlying. Keep that in mind when working out your 7:1 targets.
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