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Day trading - Smaller profits on size versus larger profits on smaller size?
I don't understand, if everything you do is based on back-tested data, why are you wondering about what to do target and stop wise? What does the back-tested data say?
Thanks. I generally don't use fixed stops either, but my trading software submits a hard stop based on my fill price. I've maximized profits on trades many times when momentum picked up by trailing a stop.
What I envision for this approach is to use two ATM strategies:
1) Fixed stop with a fixed limit @ 1,5 or 2,0 points.
2) Auto B/E + 2 ticks after say 3 points of profit.
I will use the latter in situations where I anticipate a stronger move is possible. But most often I should be using 1).
The gist of it is that I leave a lot of profits on the table by always chasing the 'big one'. Just like taking small stops adds up, so does taking small profits.
So, I'm curious if anyone here uses this kind of approach.
I talked to another guy earlier who does something similar on NQ, i.e., one 'size' trade per day at a modest target.
I've been doing 1), but am considering moving to 2) based on what I'm experiencing in my live trading. And I'm curious to hear what other people here do.
But shouldn't your data tell you if scalping (option 2) is right for you? Or would you be changing your trading so much that your back-tested data would not help you decide?
I've always gravitated towards option 1 as I imagine the profit potential there to be the greatest. But at the time being I'm not skilled enough to do this as consistently as I want.
I don't think my trading should change much - except that I expect to be reducing my trading frequency dramatically. Basically, I have a lot of profitable trades which turns into losses or scratches by being too greedy. I'm suggesting to instead start banking these with size.
I'm going to do a statistical analysis on my losses/BEs tonight as that should give me some answers.
For now, I'm just putting it out there to hear what experience other people have and what other people aim to do.
As @LastDino mentioned, this could be a mental thing too. Maybe you'd regret missing out on big moves, or missing out on banking small moves. The regret going with one or the other might be greater than the benefit of choosing the best.
You could just take the middle road - exit half with those quick profits, and go for bigger gains with other half. Psychologically that might be best for you.
Thanks. There definitely is a mental aspect to it and I don't think I'll be able to eradicate or reduce the mental pressure until I have a fat cushion of profits to lean on.
FOMO. I used to be trigger shy and then enter too late near the end of a move. No longer an issue.
The thing is I don't think I'll have regret missing out on a big move if I can take 3 points x 5 contracts. To me that's real money and enough that I'll be satisfied on any given day as things are now.
I have more fear of missing out with my current approach as I feel the need to make excellent trades in order to progress as I'm trading only one contract. If I take 2 x 5 point stop-outs I need a great trade just to have a 'decent' day.
Scaling out of half is also an option. I've considered that, too.
a. 1.5 Point target / 5 Point Stop + Auto B/E + 1 tick after 1 Point MFE.
b. 2.0 Point target / 5 Point Stop + Auto B/E + 1 tick after 1 Point MFE.
1-2 successful trades per day and I'm done.
For those who don't know what ATM strategies in Ninja are this is simply a bracket order OCO (once cancels the other) based on fill price. This means that for strategy a. a 5 point stop / 1,5 point target will be submitted based on fill price and the stop will be automatically moved to B/E + 1 tick after the trade is 1 point in the green.
It's possible my trailing stops are a bit too aggressive. We'll see.
Keys to success:
1) Very selective on trade entries. This means I will usually not trade the initial 15 opening minutes.
2) Not moving limit exit orders and banking those profits.
3) I can take a smaller stop if I see evidence that I did a poor entry.
Possible, but you won't know without trying it out. I think this all looks good, because it is clearly spelled out, and you'll soon know if it works for you or if you need to make a change.
I think the most important thing is always to know how and when you are going to manage your risks, and what to do when you have losses. This looks good to me, because the rules are simple and clear. Now you can see how it works out, but it's well-formulated and well-begun.
These too:
Good luck. Tell us how it works out, and if you find you need any changes.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
@Howard Roark I will give you my perspective based on my experience, sorry if I am blunt: never go for route n. 2. Never ever scalp and increase size on smaller moves.
You are trading the right way: you take 5 point to 30 point, that's ok. I suggest you enter a trade if the potential is for at least 10 points, 5 is too little.
What you need to do is just being more selective in your entry, most of the time you can risk around 3 to 5 points in a trade, if it doesn't go your way immediately you scratch it. If it goes against you, it doubts, it goes in your favor etc... you scratch it with a little profit (ideally).
Risk reward should be "embedded" in the trade you take, so you don't take a trade with less than 3 or 4 :1 RR, but this does not mean holding to losers until you get stopped out. Honestly you should forget metrics and stats and focus on execution, metrics will always look ok if you are profitable.
In real life metrics often do not apply because if you scratch the trade you will have many small winners that do not count much and many small losses that also do not matter. Ideally if you sum up small losses and small winenrs you break even.
But it's the big winner that make all the difference.
Trust me, forget scalping and forget size. You can make tens of thousands of dollars per month trading max 3 lots... this means that you should probably trade 1 most of the time and only occasionally increase to 2 or 3.
Sorry if I sounded too "sure" about the answer. Of course this is my opinion but I think I had the same question in the past and the correct answer seem to be always the same.
