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Help! Can't stick to loss limits.


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Help! Can't stick to loss limits.

  #1 (permalink)
 
MaxPaine's Avatar
 MaxPaine 
Chicago Illinois
 
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Guys, I can't stick to my daily loss limits. I make money for 4, 5, 6 days in a row and then give it all back and then some. Does anyone have any suggestions on curing this faulty conditioning? I also have problems letting my trades play out. I am getting out of losses before my stop is hit or at breakeven - only to see a significant number become winners. I overtrade as well. Size and trades. Help in any form is appreciated!

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  #3 (permalink)
 
MiniP's Avatar
 MiniP 
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MaxPaine View Post
Guys, I can't stick to my daily loss limits. I make money for 4, 5, 6 days in a row and then give it all back and then some. Does anyone have any suggestions on curing this faulty conditioning? I also have problems letting my trades play out. I am getting out of losses before my stop is hit or at breakeven - only to see a significant number become winners. I overtrade as well. Size and trades. Help in any form is appreciated!

I have similar issues and one thing that worked for me is reducing your size to something that you could care less about.

if you trade 4 contracts trade 1 with the same t/p & s/l, this should take some of the pressure off. Yes your winners will be smaller but it will save you lots of headaches and after awhile increase one contract but only after you've become comfortable with the current size.

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  #4 (permalink)
 tpredictor 
North Carolina
 
Experience: Beginner
Platform: NinjaTrader, Tradestation
Trading: es
Posts: 644 since Nov 2011

@MaxPaine This is a complicated one to solve. However, I can provide suggestions.

1. How much risk do you take over the 4-5 days where you make money? Do you win consistently while taking very little risk? If so, it might suggest that you change trading styles when you are up. What must be understood is that futures losses/profits are compounding/multiplicative. The other factor is to understand the nominal value of each contract. Most futures are already over leveraged. So, you cannot scale up as fast as you might think. You need to book significant profits before scaling up.

2. If you answered no to question #1, you may not have an edge. If you take a lot of heat or run a high risk over the winning period it might suggest you are winning simply due to taking larger tail risk.

3. Are you aware when you go over your loss limit? If not the problem may not be a discipline but awareness problem. Can you set your DOM to show the p&l per tick? Advise also to make a space for your NET P&L. Hide the gross column. I suggest also writing down in advance how much risk you might take with X number of contracts. This is a situation/awareness blindness of the risk. You might want to set the risk before entering the trade. One way to blow a risk limit is to enter heavy size with the idea you will mental stop it and you either hesitate or the market makes a violent counter move that puts you down too much too fast, blowing past your mental stop level. It may be advisable to go ahead and tighten your attached stop before entering the trade.

4. If you have a daily loss limit, you will almost always need to have a shut down amount, as well before the daily loss limit is hit. This limit applies to opening new trades. I suggest setting your requirement to open new trades to be somewhere between 45% to 70% of the daily loss limit. Example, if your DLL is $1,000. You would not open any new trades if you are down more then $500.

5. How are you position sizing? If you are position sizing based on trade confidence. This is a very expert skill because high confidence is not sufficient for sizing up trades. It is only possible to add size to high probability trades in very specific sorts of scenarios. It is not generally possible to size up most good trades. What must be understood to is that if you have a trade that has say 75% probability of making money with an X point stop. If you decrease the stop size by some half, you no longer have a high probability trade. In fact, it might not even be very profitable. You need to write down all the scenarios for when it qualifies to add size and how much you can add. I suggest you pick a constant sizing method as a baseline. As for targets problem, I suggest if you are trading multiple contracts that you take the first off automatically and only manage a smaller core position.

6. For over trading, I have a few suggestions for that. #1 Track your gross p&l to your trading costs and have a shut down point when your trading costs exceed some % of your gross p&l. A suitable shutdown will be 30% to 50% for most traders. #2 Pick a target ratio for number of trades based on what you want your commission to cost ratio will be and state this and #3 Take a moment at set intervals identify say the best 2-3 trades even if you are scalping. This is basically if someone asked you at end of the day for the best 3-4 trades, you are trying to identify in real-time. Also, you should do a pre-market before trading.

7. Trade confusion. You need to be very clear about what you are trading and why you are in a trade. Typically, bigger trades will need more risk. A mistake, for example, might be to try to get into a big trade with a larger size normally reserved for scalps. This is a type of confusion where you see the optimal action (global optimal) but aren't factoring in the externalities properly (account size and number of contracts). This often happens when you enter a trade on a premise or hypothesis but you are looking for a bigger trade to setup. It is often better to just go ahead and sacrifice the bad trade.

8. Auto-pilot risk. Over trading/mistakes can come from trading non standard times or trading too long. Stick to trading a specific time of day and shutting down earlier to reduce this risk. Clarify your thought process before entering, identify at least 2 reasons for entering a trade. Identify a wrong or stop point in advance. Track/record each type of trade you made after the trade is completed.

9. You might see if your broker can set a daily loss limit for you and/or try to use an automated risk management system. Some but not all brokers can do this. This may help if discipline or momentary lapses are your problem. You might also ask for a position size limit but if it factors in working orders, it might not work so well.

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  #5 (permalink)
 iantg 
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Here is a method that I find useful.

For higher volatility days you should set a risk / reward ratio of 1 x 1.5 or >. If the market is moving in giant swings up and down 10 to 15 ticks then the likelyhood of it hitting 5 ticks for example can often times be = to the likelyhood of it hitting 10 ticks. So even if you suck at picking the direction just using a risk / reward of 1x2 you can come out on top. Because if you get 50% / 50% winners and losers, the average value of your winner will be > than the average value of your loser.

By Contrast when the market is in a range bound period and the volatility is low, you need to apply the exact opposite rule. Here you should go with a risk / reward ratio of 1.5 X 1 or >. The market is barely moving up and down in little more than 3,5,7 ticks and then it reverts and changes direction. If you set your PT inside of the range the market is moving and set your SL outside of the range the market is moving you will hit your PT several times before you hit your stop loss. You will typically see your winning percentage in excess of 60% to 75% or even as high as 90% and while your losses may be 2x higher, you will only hit a loser 10% to 25% of the time. You will have to play with these ratios to get a setting you are comfortable with but the concept is straight forward.


Use whatever your favorite tool is to define the volatility level for the day, then apply the right risk reward ratio for this environment and you won't get killed. The most common use case of bad risk reward settings that kill most discretionary traders is when someone is used to having a risk / reward of 1x3 or something that only suits very high volatility days.... Then suddenly the market contracts and they hit 10 to 15 losses for every 1 winner and have no idea why.

I think most traders pick a static risk / reward profile and never change it no matter what the market does, or even worse, they have no real rule and they just get in and out when they get afraid. There is a real science behind the information that I am pointing out that mathematically speaking will give you an edge. So you need to find some way to adopt some variation of this that suits your particular risk profile / trading style.

Generically speaking I think this is the key piece that most traders fail at. Everyone focuses on picking the direction the market might move, but less effort is spent analyzing the science of exit strategies.

And obviously... give yourself a daily limit. If you hit x amount of losers, or lose x amount in a trading session. Turn your live account off, and extract all the data from the day and analyze what went wrong. Your time will be better invested in researching your weakness than continuing to lose money if you are doing something terribly wrong. The hard part about analyzing your trading data is that sometimes you are doing nothing wrong and you are experiencing what I will call "Outlier statistics" which means you may have a day where you bowl a perfect game, or you may bowl 10 gutter balls in a row. This may not be an indication that your system is the holly grail or worthless, but what it means is that if you flip a coin 10,000 times it will usually get to a 50% / 50% split, but if you flip it 10 times it may well be skewed 8 to 2 in some cases. Before you trade with real money, you should have a baseline understanding of what your real expectancy is over hundreds or thousands of paper trades or millions of simulations if you can program.
This will give you faith in your system and help you press through even when you hit a rough patch that is present in every trading system ever designed.

Hope some of this is helpful.

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.
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  #6 (permalink)
 
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 lax99 
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MaxPaine View Post
Guys, I can't stick to my daily loss limits. I make money for 4, 5, 6 days in a row and then give it all back and then some. Does anyone have any suggestions on curing this faulty conditioning? I also have problems letting my trades play out. I am getting out of losses before my stop is hit or at breakeven - only to see a significant number become winners. I overtrade as well. Size and trades. Help in any form is appreciated!

Do you want to keep losing money or do you want to make money? You have to find the desire to fix your trading. Asking a forum isn't going to help. Stare at the mirror and figure out a way to fix it.

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  #7 (permalink)
 
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 Massive l 
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MaxPaine View Post
Guys, I can't stick to my daily loss limits. I make money for 4, 5, 6 days in a row and then give it all back and then some. Does anyone have any suggestions on curing this faulty conditioning? I also have problems letting my trades play out. I am getting out of losses before my stop is hit or at breakeven - only to see a significant number become winners. I overtrade as well. Size and trades. Help in any form is appreciated!

All part of learning how to trade. Everyone goes through this and most lose all of their money before they figure it out. stop trading with real money. Don't even use a simulator. Mark on your chart when you're long and when you're short. When you see a long entry, mark Buy on the chart. If you see another mark buy. Add to your position and take away from your position as information becomes available. Do this for at least a year and continue to refine your entry levels. then move that to a simulator. Do that for for another year. Now after 2 years of this, you should have positive results with real money. Also...you are probably trading too large. Small...all about strategy and not profit right now. Build build build. Good luck.

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  #8 (permalink)
 manualtrader 
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MaxPaine,

You may try TST Combine, which probably help you to discipline yourself. I have the similar problem, today is the first day I traded with TST, during trading, I always reminded myself two numbers, $1,000 of max daily loss limit and $3,000 profit target, I did cut loss quicker and avoided average down, at the same time, I cut my profit short too, since fear to see profit disappear. So good and bad, but at least the loss got controlled.

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  #9 (permalink)
 
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 mmaker 
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MaxPaine View Post
Guys, I can't stick to my daily loss limits. I make money for 4, 5, 6 days in a row and then give it all back and then some. Does anyone have any suggestions on curing this faulty conditioning? I also have problems letting my trades play out. I am getting out of losses before my stop is hit or at breakeven - only to see a significant number become winners. I overtrade as well. Size and trades. Help in any form is appreciated!

This usually works....

Blow up your account. Take a year or two off from trading while you save up money to open a new account.

Repeat three times.

Keep blowing up your account(s) and sooner or later you will learn to preserve your precious financial and emotional capital. When it hurts enough you will change your behaviour.

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  #10 (permalink)
 noobforlyfe 
Toronto , Ontario, Canada
 
Experience: Beginner
Platform: Sierra Chart, SC
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iantg View Post
Here is a method that I find useful.

For higher volatility days you should set a risk / reward ratio of 1 x 1.5 or >. If the market is moving in giant swings up and down 10 to 15 ticks then the likelyhood of it hitting 5 ticks for example can often times be = to the likelyhood of it hitting 10 ticks. So even if you suck at picking the direction just using a risk / reward of 1x2 you can come out on top. Because if you get 50% / 50% winners and losers, the average value of your winner will be > than the average value of your loser.

By Contrast when the market is in a range bound period and the volatility is low, you need to apply the exact opposite rule. Here you should go with a risk / reward ratio of 1.5 X 1 or >. The market is barely moving up and down in little more than 3,5,7 ticks and then it reverts and changes direction. If you set your PT inside of the range the market is moving and set your SL outside of the range the market is moving you will hit your PT several times before you hit your stop loss. You will typically see your winning percentage in excess of 60% to 75% or even as high as 90% and while your losses may be 2x higher, you will only hit a loser 10% to 25% of the time. You will have to play with these ratios to get a setting you are comfortable with but the concept is straight forward.


Use whatever your favorite tool is to define the volatility level for the day, then apply the right risk reward ratio for this environment and you won't get killed. The most common use case of bad risk reward settings that kill most discretionary traders is when someone is used to having a risk / reward of 1x3 or something that only suits very high volatility days.... Then suddenly the market contracts and they hit 10 to 15 losses for every 1 winner and have no idea why.

I think most traders pick a static risk / reward profile and never change it no matter what the market does, or even worse, they have no real rule and they just get in and out when they get afraid. There is a real science behind the information that I am pointing out that mathematically speaking will give you an edge. So you need to find some way to adopt some variation of this that suits your particular risk profile / trading style.

Generically speaking I think this is the key piece that most traders fail at. Everyone focuses on picking the direction the market might move, but less effort is spent analyzing the science of exit strategies.

And obviously... give yourself a daily limit. If you hit x amount of losers, or lose x amount in a trading session. Turn your live account off, and extract all the data from the day and analyze what went wrong. Your time will be better invested in researching your weakness than continuing to lose money if you are doing something terribly wrong. The hard part about analyzing your trading data is that sometimes you are doing nothing wrong and you are experiencing what I will call "Outlier statistics" which means you may have a day where you bowl a perfect game, or you may bowl 10 gutter balls in a row. This may not be an indication that your system is the holly grail or worthless, but what it means is that if you flip a coin 10,000 times it will usually get to a 50% / 50% split, but if you flip it 10 times it may well be skewed 8 to 2 in some cases. Before you trade with real money, you should have a baseline understanding of what your real expectancy is over hundreds or thousands of paper trades or millions of simulations if you can program.
This will give you faith in your system and help you press through even when you hit a rough patch that is present in every trading system ever designed.

Hope some of this is helpful.

Happy Trading!

Ian

Sorry to stray from OP's question, but I am not sure how to measure volatility. what would be some ways to measure volatility early into the day. Usually large swings are a visual way to see this, but I notice this after i see a large swing.

One filter I'm thinking of is to count how many ticks either way one hour after market open. Trading RTH that is. I would use that information to then cross check with a databank of past days that I would create to predict how probable it is for the rest of the day to be range bound /trending.

This would be easily measured by subtracting Initial balance high and low of whatever x time i decide. Although without any knowledge of programming, idk how i can measure that, as manually would be very time constraining and arduous. As you've raised a very good and valid point about keeping risk and reward values dynamic to the type of day, and every day is different in the market, so why shouldn't our stops and profit targets . Thank you for this, it has definitely got me thinking about why I am keeping my stop and profit static.

Please let me know if i should move this convo to PM for now and then i can post an update for everyone else to read, so that I don't take up the space on OP's post.

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