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On the surface, makes sense and reasonable. Update as you go how it affects your trading.
Matt Z
Optimus Futures
There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You may lose more than your initial investment. All posts are opinions and do not claim to be facts. Please conduct your own due diligence. Use only Risk capital when trading Futures.
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Actually, the risk is less important then having a working method. But, yes you are absolutely correct that a daily loss limit from 2% to 7% makes sense for a day trader. One good reason for the total risk limit is to limit the damage caused by serial correlation of losers which is probably the #1 account killer. Because of day structure, serial correlation of both winner and loser is, I suspect, more likely for day trading.
There are several factors actually that are important. The probability of taking a loss and probability of correlated losses are probably the most important factors. Psychology is relevant too which is why with quantitative systems it is possible to risk more. So, if you're trading an options spread with a larger risk but a statistically low probability of taking that loss-- that's a tail risk.
The account size is relevant too. If you're trading a 10k account with a $600 daily loss limit, you are at 6% risk per day. On the other hand, a 100k account with a 3% risk limit would be 3k. Assuming a 30% return on risk objective per day, you are at $180/day on the smaller account and $900 per day on the larger amount. If you have an income objective, for example, of $500 per day there is no reason to risk 3% on the larger account as only ~$1600 should be needed.
There is also the risk of your method to quit working. So, this is why it doesn't make sense to compare trading to investing.
I'd like to know how it works out. Also, I'm curious about something: did you first set your risk limit and then design your trades around that number? I'm not saying its wrong, just that it looks coincidental and the size of your stake is probably random.
The $1 stop came from market observations . I realized that more often than not I would get to my profit target before a trailing stop of $1 was hit. The method is only marginally profitable and that is why increasing the position is necessary to make real $$$.
I have actually done a lot back testing this week and realized that a $0.75 is almost as effective as the $1 trail. So my plan at this point is to increase my position to 2 cl contracts and use a $0.75 trail stop, that would trail closer and closer as the market goes in the right direction. With 2 contracts and a $0.75 trail stop I am barely above a 2% max loss per trade.
As far as I can see, all edges are thin. Then the next step is to cull methods for consistency and ease of execution.
Your idea to modify the trade sounds best. It avoids using the silly QM tick increment (who suggested that?), and its now closer to my pain threshold of $250.
I did not go through all the previous posts. But have you already considered to adjust your method in order to take on less risk? What if you could be more precise with your entries si it would allow you to set your stop at say 5-8 Ticks?
