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Has anyone actually done a back test or something similar for different MM strategies for day trading and also broken it down by security?
I.e.
Fixed 20 SL on NQ or After the last swing HL and is there a difference in the opening hour or not . Or for ES etc.? Obviously it might depend on trading style...
Can you help answer these questions from other members on NexusFi?
I'm assuming you are referring to money management strategies. The deal is that most advanced money management techniques are not very useful, in practice, for futures trading because the properties of the returns are not stationary. You might win 100% one day then have all losers the next day. It sounds like you are trying to get into the area of edge, which is a different matter. Yes, you can test those ideas via backtesting platforms. Any such testing is going to be dependent on your variances, which includes your profit target and entry conditions, obviously.
A general heuristic regarding stop loss size would be that larger stops tend to work better for mean reverting markets while smaller stops work better in trending environments.
For money management, I think somewhere between 2% to 5% risk per day can be reasonable for day trading.
I agree. Just looking over my /es day trades last night, trading without stop losses has been the difference for me. Slight edge in 63% range, but tight stops would have turn many of those into losers.
Volatility is good for the market and trading.
Preservation of capital is the most important concept for those who want to stay in the trading game for the long haul. - Van Tharp
I think you need to include in this where are you taking targets, how many contracts or shares are you trading. Of course a wider stop will show better results statistically. I don't believe you should just enter the market and hope the instrument goes 30 points in your favor.
Some other things to think about are, are you scaling in, adding, and are you scaling out?
If you just put a stop a 20 ticks below or above your entry that might not make sense.
For example, you're going short and you take a late entry and put your stop 20 ticks above your entry, well where is the the high(what type of resistance is there)? 5 points from your entry? So in that case a better place to put it might be 40 ticks or just a little bit above the high, depending on your strategy. You might be half way to your target so a smaller position might be a choice in terms of risk.
Where are you taking profit, previous low measured move, channel support, whole number support, some point level you decided was good, or other various support levels.
Also, something to think about. How's momentum, what support and resistance levels are coming up, where are we at in the bigger trend?
In my opinion, all the above should be in your strategy and answered.
I only started trading futures right at 2 years ago, but traded forex for many years before. I have seen traders who trade with no stop loss, but they have a better personal discipline than I possess for bailing when it gets to a pre-determined area in the negative zone. And before even entering, they have a great idea of where they expect price NOT to go and why not, so that if price does go there they can see clearly that they were wrong on this one and close it. Without both the knowledge and the discipline, I have held onto things that just kept going and going and going the wrong way. So while surely some traders can trade successfully without using a hard SL, I for one cannot.
Just my 2 cents, it is neither better nor worse, just a matter of preference. Some people say that you should put in your stop and put in your target, and then sit on your hands. If you did your analysis right, then whatever happens happens. Others feel better if they can take some or all of the risk off a trade as soon as possible.
When I trade for a specific target, sometimes I tighten the stop before reaching the target, other times I leave it alone until a target is reached.
And I've done it both ways on something I hold for days, and I've done it both ways on something I open with an 8 tick stop and an 8-tick target.
I don't believe you can say one way is "better" than the other. I believe you need to do it both ways until you determine which feels "better" for you.
Well of course opening hour sometimes gives wilder price swings, and so that sometimes dictates both a wider stop and a wider target. And of course as you hint, NQ can move a lot more ticks in just a moment than ES usually does.
As with most things trading, on this issue I think there really isn't a "right" or "wrong" answer.
One tool that I will use to tell me almost-up-to-the-moment changes in required SL is the ATR (Average True Range). About 125% - 140% of the ATR is always a sensible place for me to look for a SL; and that works the same no matter what the instrument, or the time frame, or the size bars being used on the chart. And then if that doesn't give me a SL that is a few ticks beyond the last swing H/L, I will often use that to help me decide to stay out of a trade (or sometimes to use a Limit order to see if I can get in at a slightly better price)
And you didn't mention it specifically, but of course the number of ticks of SL is only part of the discussion -- the dollar value per tick of each instrument also matters in any discussion of MM
