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Targets + Stops
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Targets + Stops

  #1 (permalink)
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Targets + Stops

hi,
just read about the discusions how big a StoppLoss - SL - is allowed to be in ratio to the targets. Lets collect some ideas here !

in my trading i always have bigger SLs than targets - and it works !
there are lots of people (trader and also socalled gurus) out there who pray you only can survive with small SL and big targets - i tried it a long time like this -- and always failed.
I am shure that its also depending on the tradingstyle/setup, but saying it does always kill you, i dont think thats true.

i read about the CL trading : using +8 / +10 ticks targets with -12 tick SL --- why not ! I believe that this can work if the setup + market needs it.
i dont believe in : its only working with target +10 and SL max -8 because the ratio must be like this.

So if the problem is, that your account allows not more then -8 ticks SL when trading 2 contracts and that is why you choose these -8 tick SL -- then its a big wrong thinking ! --- Because in that case the problem is the instrument you are trying to trade ! its the wrong one for your account -
and THIS will kill you !

myself i go up to + 4 tick with a -12 tick SL in some setups - thats even a 1:3 ratio.
shure it kills you with a 50/50 hitrate + its breakeven with 75/25 (without comm.) and its not useful for all tradingstyles.
but its working for me - of course depending on market + setups.

So how our master + intermediate traders think about this subject ?

max-td
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  #2 (permalink)
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Hi Max
Well I think it is hard to make a profit with 1:1 unless you have a high % of wins.
Here are 2 links that discuss this at great length. Very interesting reading.
Mike I hope that these links are OK tto post. There are a couple of very respected people posting there thoughts.
Day Trading Forum - Does anyone really make money trading futures?
Day Trading Forum - Impossible to make a successful career trading

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  #3 (permalink)
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i look for priceaction as targets and trail stopp on high or low ...

also all is variable

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  #4 (permalink)
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max-td View Post
myself i go up to + 4 tick with a -12 tick SL in some setups - thats even a 1:3 ratio.
shure it kills you with a 50/50 hitrate + its breakeven with 75/25 (without comm.) and its not useful for all tradingstyles.
but its working for me - of course depending on market + setups.

So how our master + intermediate traders think about this subject ?

I agree we need this kind of discussion. These kinds of things more than anything else (indicators for instance) are what control profitability.

You've said it. This is why long term this strategy is not going to work.

Examine your average MAE over say 50 cash trades. If the average is that many ticks against you, why not adjust your entry?

Then examine your average MFE vs what the market actually did in that move. Are you sure you can only get the ticks you are taking, or is it really that it is going more but your trade management is not set so that you can capture those extra ticks, bringing it to 1:1 ratio?

Mike

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  #5 (permalink)
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I was not able to prove to myself by backtesting that smaller stops are better. In my automatic system I was working on for more then a year, as an entry for the trade (3 contracts) system is using trend failure signals (looks similar to Mike entry). Eventually, the best on average stops are: 2 ATR (initial stop), 1ATR (after first target of 1ATR hit), break even (after second target of 2 ATR is hit), and then trailing stop (could be EMA21). Still system is not profitable on the long run, but sometimes works extremely well.

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record100 View Post
I was not able to prove to myself by backtesting that smaller stops are better. In my automatic system I was working on for more then a year, as an entry for the trade (3 contracts) system is using trend failure signals (looks similar to Mike entry). Eventually, the best on average stops are: 2 ATR (initial stop), 1ATR (after first target of 1ATR hit), break even (after second target of 2 ATR is hit), and then trailing stop (could be EMA21). Still system is not profitable on the long run, but sometimes works extremely well.

Hi Record100,
what have you found is the good ATR period for your stops ? ie atr5, 7, or more?
thx
Kirk

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  #7 (permalink)
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I just uploaded a video where I plead and beg fellow traders like yourself to work on your money management and not on your chart and indicators. The video talks about money management, psychology, indicators, and journals.

Hope you guys watch it and find it of use:
https://futures.io/free_downloads/educational_manuals_ebooks_videos/89-download.html?view

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

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  #8 (permalink)
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To me, a trader needs to have confidence in his Trading Strategy and in his Trade Execution, and pursue excellence in both.

An effective Trading Strategy consists of one or more trade types that each has a Setup Condition, an Entry Trigger and Trade Management.

Effective Trade Execution requires proper psychology, ability to identify a qualified trade timely and an execution platform that allows efficient application of the Trade Management.

Which of these is most important? People put percentages and extreme emphasis on one over the other, but aren't they all important in order to be able to trade effectively and profitably?

When someone claims to have a 70% winning strategy, what does that mean? If there is no Trade Management component to that claim, it means nothing. If someone says, "I have 70% winning trades, profiting 2 ticks while risking 8 ticks", would that be an effective strategy?

So what is the proper Trade Management for your Trading Strategy?
The one that conforms to it, based on historical trades, to achieve a certain level of profitability.

Your entries have to be sufficiently timely to consistently achieve your profit objectives without assuming too much risk to allow your Trading Strategy to be practically and mathematically successful.

It seem the only way to do this is to consistently identify your recent trades and determine the Maximum Adverse Excursion (MAE) and the Maximum Favorable Excursion (MFE) of each trade, then use this information as the basis for what has been consistently achievable, and go from there.

For short-term day trading, the simplest evaluation: is there a 1:1 Loss:Win ratio that you can employ that gives you an average 65% or greater win rate? In a 1:1, all in, all out, simple Trade Management, you have to overcome a 55% winning percenatge in order to move beyond breakeven, net of commissions.

Beyond that, employing Stop Loss adjustment techniques of moving it to Break Even or Trailing is more complicated, and more challenging to identify on historical, static charts, as intrabar price movement may not be as obvious. You must then go down to smaller size tick charts to make sure these Stop Loss adjustments are effective over time. The challenge of these adjustment strategies is the possibility of taking more smaller wins while taking plenty of full losses.

That's more than enough for now from me. I look forward to additional thoughts and discussions on this important topic.

And thank you Mike for your video encouragement to put the work in on establishing an effective Trade Management for our Trading Strategies.

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  #9 (permalink)
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Neal View Post
To me, a trader needs to have confidence in his Trading Strategy and in his Trade Execution, and pursue excellence in both.

An effective Trading Strategy consists of one or more trade types that each has a Setup Condition, an Entry Trigger and Trade Management.

Effective Trade Execution requires proper psychology, ability to identify a qualified trade timely and an execution platform that allows efficient application of the Trade Management.

Which of these is most important? People put percentages and extreme emphasis on one over the other, but aren't they all important in order to be able to trade effectively and profitably?

When someone claims to have a 70% winning strategy, what does that mean? If there is no Trade Management component to that claim, it means nothing. If someone says, "I have 70% winning trades, profiting 2 ticks while risking 8 ticks", would that be an effective strategy?

So what is the proper Trade Management for your Trading Strategy?
The one that conforms to it, based on historical trades, to achieve a certain level of profitability.

Your entries have to be sufficiently timely to consistently achieve your profit objectives without assuming too much risk to allow your Trading Strategy to be practically and mathematically successful.

It seem the only way to do this is to consistently identify your recent trades and determine the Maximum Adverse Excursion (MAE) and the Maximum Favorable Excursion (MFE) of each trade, then use this information as the basis for what has been consistently achievable, and go from there.

For short-term day trading, the simplest evaluation: is there a 1:1 Loss:Win ratio that you can employ that gives you an average 65% or greater win rate? In a 1:1, all in, all out, simple Trade Management, you have to overcome a 55% winning percenatge in order to move beyond breakeven, net of commissions.

Beyond that, employing Stop Loss adjustment techniques of moving it to Break Even or Trailing is more complicated, and more challenging to identify on historical, static charts, as intrabar price movement may not be as obvious. You must then go down to smaller size tick charts to make sure these Stop Loss adjustments are effective over time. The challenge of these adjustment strategies is the possibility of taking more smaller wins while taking plenty of full losses.

That's more than enough for now from me. I look forward to additional thoughts and discussions on this important topic.

And thank you Mike for your video encouragement to put the work in on establishing an effective Trade Management for our Trading Strategies.

Well Said Neal and worth repeating because people may assume they know this but they shrug it off and don't actually take the necessary action to employ this type of mentality in their trading plans. To do so (not employ it) is to lose money in a mindless fashion.

People focus on what they think they can easily change. Real change takes time and hard work. The right thing to do and the hard thing to do are usually the same. Developing a robust trading plan that is simplistic enough to be obtainable and sophisticated enough to be profitable is no easy task, and then the real work begins afterwards: following it.

Winning percentage is meaningless, as you've said, without the details. 90% winners sounds great, until you find out the stops are huge and the targets tiny.

Your idea about reviewing the MAE and MFE are spot on. These values tell you a lot about your trades. If you add another field to manually input an 'perfect mfe' which would indicate how far a trade "would have" gone if you had not exited, in other words how far until the signal was no longer any good under your rules for reversal, then you can begin to measure your effectiveness.

Then you take this information and string it together to see how much percentage of the moves you are capturing. Not every move of the market, but the moves where you had a signal and took it. Did you capture 50% of the move? 10%? 100%? Working this angle will help you create an enhanced exit strategy on your trading plan, one designed to capture the most of each move. It is not nearly as easy as it seems because in the effort to catch 100% or 90% etc from a dynamically changing exit you often will give back much vs a fixed target. This method absolutely requires multiple contracts being traded to be of any use.

I really enjoy this type of conversation. It is very stimulating and in my humble opinion this discussion board needs more of this and less of the whiz-bang charts everyone is trying to work on all the time.

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  #10 (permalink)
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I was using period 14 to calculate ATR and did not study, whether period 5 or 7 is better. Before, i was experimenting with exact values for the stops, like 20 tick, then 19 tick etc. and tried to find optimal values for them, found it more convenient to use ATR.
Also you could experiment with different trailing stops, like ATRtrailing, % trailing, supertrend etc. from my opinion they are not better then, say EMA(21) or SMA(6)[4] but could require more computation power.
The worst thing is - reasonable money management was built into the system, general philosophy of traiding is stating, right money management could help you win, even if your traiding signals are not perfect. Was not able to prove it also.

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