Ouch. You've got some problems here.
First, the math is very much against you. You won't be able to succeed if the arithmetic doesn't work.
Suppose you can maintain a 70% success rate, and you have a target of 8 ticks and a stop of 16, as you said. After 10 trades, if you get 70% successes, you will have the following:
Wins: 7 trades x 8 ticks = +56.
Losses: 3 trades x 16 ticks = -48.
So you are up only 8 ticks, at best, after the 10 trades. Now, assume that, as is realistic, you have a tick of
slippage on at least some of those trades (meaning, your stop won't really go off at 16, but will execute at 17), and allow for commissions, which you will have for every trade, and the 8 tick profit will vanish and become a loss.
So, basically, the idea of an 8 tick profit target and a 16 tick stop, with a 70%
win rate (which is huge) is going to be suicide. You will, over time, lose everything.
We have actually just calculated your
expectancy, which is much more important than win rate, as mentioned by @
Big Mike. Expectancy is the amount of profit or loss per trade that you can expect to have over a period of time, given your win rate and your average profit and loss.
You calculate expectancy this way:
Expectancy = (Probability of Win * Average Win) – (Probability of Loss * Average Loss)
So here are your (hypothetical) numbers, based on your examples:
Expectancy = (.70 times 8 ticks) - (.30 times 16 ticks) = .56 - .48 = .8 ticks per trade, or 8 ticks per 10 trades, as we just calculated. This is very thin.
Subtract slippage and commissions, and you're negative. The point is that even with a very high win rate, you are either just on the edge of disaster, or over the edge.
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What's causing that? Clearly, the very small assumed profit (8 ticks) and the larger loss (16 ticks). If you cut your profits this short and let your losses run this far, it will not work out. No variation on this theme will fix this.
More importantly, it's a loser's game to go for these very small profits. You give yourself no cushion or leeway for any losses, which will come. If you assign these types of stops and targets, you simply are going to have trouble staying positive. You will need to have much larger profits relative to your losses in order to stay above water.
One part of this issue is that having a very close target order in the market means that you will cut off your profit at that point. It may be comforting, and it may be rewarding emotionally, to take that money and put it into your pocket, but cutting it short so tightly will hurt you, as the calculations above show.
Another part of this issue is that going for such very, very small gains requires that, basically, you must be completely perfect, which no one can be. The reason this is a problem is that if you don't give yourself any leeway at all, if you don't have any cushion for your losses built up from your profits, you will not be able to outlast the bad times, which will come.
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I would say that the fundamental issue is going after very small price movements. Based on several years of observation on this forum, there are a small number of traders who are consistently successful doing what is called "
scalping." It's a very inexact term, but it does apply to the price ranges you have mentioned.
Most people who try it have failed. That doesn't mean that it's inherently an unworkable effort, but the very tight profit margins make it very hard to manage. You may see this from the calculations above. The very good
scalpers are generally exceptionally accomplished, because they are doing something that few traders manage.
If you really want to exploit the opportunities that this kind of trading may offer, then, after thorough consideration, by all means go ahead and give it a shot. You should understand that it usually doesn't end well, however. So if you simply extend your profit horizons and don't let your losses get larger than your profits, you may have better success.
Last point: no one knows what anyone else "should" do. I don't know, therefore, what you should do, either. But there is a lot of material on this forum that you can draw on. Poke around, and see if anything appeals to you that does not involve the very short-term orientation of scalping small profits....
And good luck to you.
Bob.
) chart in Excel or something so you can get a good idea of it's behavior and see if those stop and target sizes are meaningful.
