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I don't think this is straying from the question necessarily, but not the best way to approach the solution. OP's problem isn't one of probabilities or volatilities. I think that addressing the problem in a "Use XYZ Fibs, 50% winners but 3:1 R, Opening Range Type" sense is wrong. It removes the problem from the trader. It externalizes the issue.
It allows ANYBODY reading this--not just OP, because I'm sure that thousands of other traders struggle with this--to say "Hell, that's why it wasn't working! I blew out because I didn't trail a stop/use the 61.8/trade the zipper/pick the good trades".
And that's not why traders blow out. I've blown out big before. I've blown out big over long time frames, blown out big on single trades in a matter of minutes, and blown out by thinking that I couldn't do it. The problem was never my strategy (though daytrading the ES open via phone app between meetings surely isn't a good one ); the problem was that I didn't care enough to stop doing what I was doing.
To all traders out there who blow out: The problem isn't in your charts. The problem doesn't lie with your broker. The problem isn't the spouse, dog, doorbell, or a hundred other things. The problem is you. How much do you want to change to get better? If you can't be bothered to change, then have fun continuing to blow out.
As others have pointed out there is more to the OP's question than just the small part I have offered. But to noobforlyfe's question: Here are the ways you can quantify volatility.
Looking back at past data as a guide. (Tricky to use on the Market Opens for obvious reasons)
1. Volatility is simply range of market movement over time. So this would just be Max(period) - Min(Period) where period is the time period you are observing. This shouldn't be something too small like 5 ticks but it shouldn't be 3 hours either. You have to find the range that is applicable to your style of trading. This of course is a lagging not leading approach, and won't be useful until you have a baseline of data.
2. There are a number of indicators that you can use that try to quantify volatility. I am not a chart trader myself, but I think average true range, Max, Min, Range, and a few others in combination can help you derive this fairly easily.
Predictive / Leading indicators for volatility:
1. Level 2 volumes: On the DOM you can tell what the volatility will be like very easily. For example on the ES if every price level has 1,000 resting limit orders. You are in for a very low volatility period coming up. (Supply of limit order > supply of market orders by a huge amount) By contrast if there are only 50, 100 to 200 resting limit orders on every price level (This is very thin and the supply of market orders may be even or even greater than the supply of limit orders) then you are in an extremely high volatility scenario and the market is getting ready to move. I watched the DOM levels for about 2 weeks recently where they were thin like this and the market was constantly in high volatility. So this correlation is fairly easy to see.
2. The speed of the price level changes: If you look at measuring the speed of the price level changes, this will typically be very fast in higher volatility and very slow in low volatility. For chart traders this could be easy to convert to number of ticks per K seconds or minutes. How much data do you see on a 100 tick chart vs. a 10 tick chart. In Slow volatility you could actually make sense of a 10 tick chart, but in high volatility a 100 tick chart might be running too fast. So this can give you easy to read clues.
3. The speed of level 2 volume changes. If you look at the DOM and see the volumes being updated very slow, vs. very quick this can tell you a lot about future volatility. In slower periods the volume changes will be slow, subtle, and easy to read. In high volatility periods you won't be able to even process what you are looking at. Because the numbers will be flashing and changing very quickly.
I think these are all fair ways to quantify volatility and if you can master this part, and know what type of exit setting to use, you can pick up a decent edge using the previous concepts I mentioned.
But these techniques alone won't overcome some of the common mistakes that traders make. But if you already have a solid system this will be a nice way to polish up the missing edge that you need to push you over the finish line.
Happy Trading!
Ian
In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.
A few other considerations in regards to daily loss limits. There are a few other relevant factors.
1. Can you integrate the new information to improve results? If you can, a larger DLL may improve results. This is very difficult to achieve.
2. Are you trading more contracts with tighter stops/targets? My experience is that if you trade more contracts within tighter risk constraints then a smaller DLL will usually work better. The reason is that it is very difficult to be able to preserve information when trading with tighter stops-- you will instead be more likely to be stopped out. Instead, you need to be able to capitalize and really rack up profits when conditions are good. In fact, what I've seen is that the bigger size I trade, the more I need to drop the DLL unless I were to raise it significantly. The other reason a smaller DLL works better is that it doesn't take much to close out worthwhile profits. If you are on target/point you will normally not have many losers in a row. But, if you are not then having several consecutive losses at larger size really add up quick. The point is if you can keep from having those large losing days and you are normally on point, you can run account up fast. The point is if you can set your DLL to say 50%-120% of what you make best winning days then you are more likely to be profitable simply because you will win most days or take a loss about what your average winning day is.
3. Can you still read the market well?
The optimal solution might be to switch from larger size to smaller size to try to preserve any information from your entries. But, it might work just as well to shut down too. I would really recommend trying to get a broker that will set the limits for you. I am trying to develop something as well. I know Ninjatrader Brokerage and Tradovate allow setting limits.
"An antidote for the experienced trader to having one of these crushing days both financially and emotionally is to set a daily stop loss. ...Empower someone, usually a risk manager at a prop firm, to shut down your trading when you have reached this daily stop loss."
...It could be worth checking with your broker to see if they have this capability. And while meditation, diet, exercise, etc. seem to alleviate the problem, it appears we're ultimately contending with hardwired biological processes--the “ Amygdala hijack”. That's why its best to have a independent safety mechanism, regardless.
This still allows the trader to externalize the fault. He/She needs to own the fault, and either accept that this will lead to destruction, or decide to change and stop engaging in this behavior.
Right, this trader Bella detailed was having another very specific form of problem after I read it I was able to recognize it. Normally, bigger trades require more risk. Big trades = more risk, longer holding, less size. Small trades require less risk equals more contracts, shorter holding, tighter stop. So, normally it is possible to get into smaller traders with bigger size. Sometimes they work out to become bigger trades. That's normally the goal but sometimes a bigger trade is also possible to setup relatively near a small trade stop out. It is during these times that the optimal stop loss changes from a small stop to a large stop. However, if you just pull the stop, you will often blow the loss limit. This is what I call conflicting optimal or trade confusion and is normally when I get hit.
Conflicting or global vs local optimal often come up in system development too. The best stop is normally the largest over the backtest period that didn't get hit. That's the global optimal but often its too large to use. So you try to find a "local" optimal for the account size. Global vs local optimal confusion is often a source of bigger losses.
The other aspect is that it is normally only possible to trade more contracts in very specific real-time situations. A daily loss limit, let me back up, is only useful if your trades are serially correlated. If each trade is independent and no serial correlation on the intraday then it really is more of a psychological technique.
What might help is to have a daily loss limit for a number of contracts. Let's say you are willing to risk $1,000 per day. You might have a daily loss limit for 2 contracts at $500 and then you are dropped to 1 contract for rest of day. The other option is to allow your risk to balloon for the open trade but not to allow opening new trades. If you want to do it perfectly optimal then the solution is probably to drop to a small core and hold it for recovery. Often we hear of traders who were hiding losing trades off book. I have wondered if there might be legitimate technique of allowing or rolling over futures losses into options that could actually work. However, it is not just a matter of changing size but trading technique but must also change. I think the fixed DLL is easier.
In no-limit poker, the most money is lost with the best hands. Why? Because those are the hands that take get bid the most risk. That is why because the optimal way to trade is normally pretty brutal that I try to remind myself to trade the best within my risk constraints and abilities.
But this sort of risk ballooning is also more common with tighter stop trading techniques which are more likely to suffer from serial correlations in wins/losses. That's why if you trade more contracts then you are ironically likely to do better with a smaller daily loss limit. One other technique might be to force you to take an opposite side trade if you had a losing trade on the other side to try to avoid the serial correlations.
What works best for me is lowering capital usage after a good couple days to ensure risk will never outweight the profits, even in the most volatile circumstances
Problem is human psychology. Solutions:
1/ Increase/track/improve your self-discipline in general to do what you decide to do. Will probably take quick a long time to get better at but worth working on (and not just for trading).
2/ Use trading software that will prevent you from trading when some conditions are met [daily/weekly/monthly loss, # trade...]. This will sove your issue but almost no consumer software provide this.
3/ Imagine you are 2 persons: Person 1 is the business owner, and you gave your $$ to someone to trade - here yourself as person 2. Person 2 trades the $$$ of person 1 and is accountable to results.... If not, he is fired.... Done trading.
1) Think about trading differently. I don't use profit targets, stop losses, nor daily limits. Get in and out based on market conditions, not some pre-determined tick amount or pnl ratio taught by gurus. Trade what the market gives you, not imposing some "daily" pnl schedule that you want the market to conform to. That's a weakness we've brought with us from our "8am-5pm job" upbringing.
2) Automation helps alleviate the stress and intra-trade emotional roller coaster.
3) As many have said, trade smaller to alleviate the pressure you are putting on yourself.
4) Increase confidence by trading some sort of positively expectant trading system, based on backtests or experience/performance. That way, when you go into drawdown, you don't need to panic, as long as you are confident the drawdown is normal or ordinary and that, over the long run, you should be profitable.
5) Adapt or die. As many have said, adapt to different volatility regimes by changing your trade size, but also your trading strategy. After the February "volpocalypse," I changed my trading to strategies that work better in high volatility regimes. Do what works best in the market conditions you're in.
); the problem was that I didn't care enough to stop doing what I was doing. 
.