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Day trading - Smaller profits on size versus larger profits on smaller size?
As I struggle with consistency in my trading I'm considering making changes to my approach.
I would describe my current methodology as intraday swing trading where I aim to capture a decent size of the major swings on any given day. Yesterday, I was long off the LOD and took 20 points off the table. My profitable trades (excluding scratches, B/E) have ranged between 5 - 30 points over the last few weeks. So I do catch some of these for sure.
A general problem is however that I will often rack up losses by being too early and those larger profits often end up paying for my losses.
What I've also noticed is that a large part of my losses actually are profitable initially before either ending up as a full loss or a scratch trade. This is because instead of banking those smaller certain profits I hold trying to capture the larger ones.
TL;DR: Instead of trying to profit by capturing larger swings on the minimum contract size I'm considering making the switch to aim for say 2 point profits x 5 contracts. Do that once or twice and call it a day or trade the rest of the day on minimum size for 'practice'.
3 points as a daily profit target is not a great target in this environment, but the importance is what can be done with consistency, IMO. 3 points x 5 contracts would make me sufficiently satisfied to make this worth my while and still stay in the game and learning.
Just thinking out loud here and curious what others do or think about this. I trade ES by the way and have been following that contract for a while now. I know nothing else.
Best regards,
Howard
Can you help answer these questions from other members on NexusFi?
These days my typical hard stop is 5 points and I have 10 points as my maximum hard stop.
For this strategy I think I would use an automated trade management strategy which submits a 5 point hard stop and a limit order 2 points from my fill price. I will also consider using an auto-breakeven @ 1,5 point MFE.
I agree with @tr8er on this. With your small limit-order target and your larger stop, you are deliberately limiting all your profits but accepting larger losses. For this to work, you have to have a large number of profitable trades and few losing ones. I do understand the idea of letting a trade have a little room with the larger stop loss, but I think that the tactic of always cutting your profits short while letting the losses run is going to be a difficult one in practice.
You would have to be extremely accurate in your trade selection. Does your experience tell you that you can do that? And what would be the impact of a run of losing trades, when the loss you are allowing yourself is so much larger than the profits on your winners?
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
I will go over my records in detail later today. I don't have the accurate number, but I do know that a very high % of my losses are initially in profit. And I know that many of my B/Es or scratch trades are as much as 3-5 points in profit before snapping back.
So, I'm not looking to change my market analysis or method fundamentally. What I'm suggesting is to start banking some smaller profits on size instead of trying to capture larger moves on small size.
It sounds like you need to consider backtesting your strategy, your strategy also doesn't seem to have any rules that you have tested before.
This is a very common problem and I was suffering from this when I was trading with so called oversold and overbought zones of default indicators. They are always carrying this illusion that "I was right, I should've just held it longer" or "I knew where to exit, I should have just closed it"
I did notice you also are considering moving your stop to auto BE based on how the trade is going. This seems like a worthwhile idea, especially when it appears that you often go to a profit smaller that your present target, before falling back to your fixed stop and having a loss.
I for one do not use an immovable, fixed stop, for the very reason that you don't know how far up you will go, but if you go up some and then fall back, you've converted a profit to a loss when you hit that stop. There are also good reasons to keep your stop fixed, of course, but it may be a good idea to consider moving it up (or down), in the direction of the trade. This can be tricky, but it can also deal with the issue you describe, perhaps.
I think it's going to depend on how your trades work out, in general. There's a tradeoff, because if you move the stop up too soon, you will also likely get it hit more often. But it may work for you.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Agreed. OP is throwing out all kinds of possibilities for stops, targets, etc. Testing it on historical data is the only way to know for sure if any of the approaches has merit.
Everything I do is based on back-tested data, patterns and statistics, but at the end of the day it's discretionary and consists of multiple elements. I don't use indicators for my signals.
Live trading a fast moving market while risking $$$ changes things.
