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Day trading - Smaller profits on size versus larger profits on smaller size?


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Day trading - Smaller profits on size versus larger profits on smaller size?

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  #1 (permalink)
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Hey guys,

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

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  #2 (permalink)
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The most important question will be how much are you willing to risk to go for 3 points?

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  #3 (permalink)
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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.

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  #4 (permalink)
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Ok, but with this inverse R:R you need a really good winning-rate

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Howard Roark View Post
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.


tr8er View Post
Ok, but with this inverse R:R you need a really good winning-rate

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.

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  #6 (permalink)
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bobwest View Post
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.

Yes. I know that I will need a high win %.

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.

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  #7 (permalink)
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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"

Trading is funny little psychological game

Just my 2c

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Howard Roark View Post
Yes. I know that I will need a high win %.

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.

Well, it may work for you. I hope it does.

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.

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LastDino View Post
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"

Trading is funny little psychological game

Just my 2c

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.

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LastDino View Post
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"

Trading is funny little psychological game

Just my 2c

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.

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Howard Roark View Post
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.

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?

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bobwest View Post
Well, it may work for you. I hope it does.

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.

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.

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kevinkdog View Post
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?

I'm not asking for advice on stop-placement or targets. I generally know this based on how ES moves intraday.

The way I see it there are generally two ways of trading intraday (directionally).

1) Maximizing profits on smaller size, i.e., intraday swing trading.

2) Scalping for smaller profits with larger size.

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.

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Howard Roark View Post
I'm not asking for advice on stop-placement or targets. I generally know this based on how ES moves intraday.

The way I see it there are generally two ways of trading intraday (directionally).

1) Maximizing profits on smaller size, i.e., intraday swing trading.

2) Scalping for smaller profits with larger size.

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?

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kevinkdog View Post
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.

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Howard Roark View Post
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.

Sounds like you are approaching it right.

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.

Good Luck!

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kevinkdog View Post
Sounds like you are approaching it right.

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.

Good Luck!

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.

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Ready to give this a go starting next week.

I will be using ATM strategies in Ninjatrader:

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.

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Howard Roark View Post
It's possible my trailing stops are a bit too aggressive. We'll see.

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:

Quoting 
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.

Good luck. Tell us how it works out, and if you find you need any changes.

Bob.

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Howard Roark View Post
I'm not asking for advice on stop-placement or targets. I generally know this based on how ES moves intraday.

The way I see it there are generally two ways of trading intraday (directionally).

1) Maximizing profits on smaller size, i.e., intraday swing trading.

2) Scalping for smaller profits with larger size.

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.

@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.

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SBtrader82 View Post
@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.

I don't find you blunt at all. But if I may be blunt in return - is your answer rooted in your own success following approach a.?

I've spoken to several 'size' traders over the year.

The Flash Crash trader (Navinder) was also known for scalping the market for ticks on huge size.


Quoting 
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).

I agree that this is key.

However, if you want to capture a 10 point or 20 point swing - you will often have only a few opportunities per day to transact and your timing must be excellent. If your goal is to capture 1.5/3.0 points per day/trade you have far more opportunities for doing so.

I think it all goes back to consistency. I had a day where I netted 40 + points per contract this year. I've also had a few 10 + points day. Other days I've been in drawdown and had some 20 + trades just to get back to green.

I think I have a better chance of being consistent with a scalp approach. As my account grows - I can start trading these larger swings too, but on a smaller contract size.

I don't claim to hold all the answers, so we'll see how this turns out.

Best regards.

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Howard Roark View Post
I don't find you blunt at all. But if I may be blunt in return - is your answer rooted in your own success following approach a.?

yes, to some extent. I cannot say I am a profitable trader since I haven't recovered for all that I lost when I first went live 3 years ago. However I am nowhere near where I was three years ago. When I began trading I used to have some devastating days and I blew up a couple of accounts in few months.

Since then I enrolled in many combines with TopStep and I saw the evolution. The first time I passed an evaluation with topStep it took me almost 7 months, since I was always breaking rules. Now it takes me 15 to 20 day.
Now I am in their pro Account and I can say I trade reasonably well.... you can see my story and my progress as a trader in my trading journal.

I tried to scalp in the past and the problem is that , this strategy has an "embedded" higher win rate. If you trade with anything that has an inverted RR, the winrate is higher. The problem is that you cannot see the risk of ruin. Imagine that you have a strategy in which you buy any pullback in the Nasdaq and you don't use stops, so that you can leave the trades some room to breath. I think that 98% of the time you will make money, probably for 3 months you'll make a steady amount of money each day, the problem is that there will be a day in which a sudden move of the market will wipe out all of your profits.
This is what happens very often to options traders.

There is one metric that should be taken into account: robustness. If you use a method with 4:1 RR and winrate of 35% this method will be extremely robust, because of the high RR. On the contrarty if you use a method with 1:1 RR and 60% winrate, it won't be robust at all.
With robustness I mean (my own definition) how fast you recover from a streak of losing trades.

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For some reason I was not able to load page 3 (it redirects me to page 1), so I'm not able to quote your post directly, @SBtrader82. Anyway, thanks for sharing your perspective and experience.

Regarding R/R - I think it's generally hard to generate 4:1 RR day trading the ES on average, unless you actually accept a very win low rate as the result of using tight stops. With such an approach you also need to make sure you actually do ride your winners when you get one and here many people simply cut their profits short while taking full stops. So, I'm not so sure it's necessarily easier to do that either.

I've catched some great swings lately. One trade I remember from last week was + 20 points with a stop less than 5 points. So, 4:1 RR. However, doing that consistently isn't easy especially as the market doesn't always provide these 20 point swings on a daily basis.

Your example of not using a stop isn't relevant as I didn't suggest not using a stop. My average stop will be 5 points.

How robust a system is relates to compounding, too. Last summer I had 20 winning days in a row trading 1-2 contracts. Thought I knew something, scaled up to 3-5 contracts and lost most of it on 2 'normal' losing days. By the way - this was done with a scalping approach.

When I now start implementing my new approach it's absolutely essential that I don't compound my size until I have generated substantial profits. We should never put ourselves in a situation where a normal losing day eats away weeks of profits. If that happens - we either compounded too fast or didn't generate sufficient profits prior to that, i.e., our system isn't good enough.

My 2 cents at least.

Best regards and good trading to you.

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  #24 (permalink)
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2 trades x 1,5 points x 3 contracts = $450 gross (real money).

Done for the day in 25 minutes.

It's very unusual for me to exit on limit orders - at least so small profits. So, it may take some time getting used to. I could feel myself wanting to adjust the limit higher. I will probably stay on 3 contracts this week, but the goal is to eventually move up to 5 contracts as my standard contract size.

Note:

- Both entries were good with little heat, but would have ended up B/E scratch trades the way I used to manage trades in the past (trailing stops and trying to capture the big one).

- I know that one day (2 trades) is essentially meaningless, so we'll see how it goes.

What I do like about this is that I can stay very relaxed just looking for that place where I feel pretty certain I can capture a small profit with low risk.


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  #25 (permalink)
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Another profitable day, but shortly below target. Approx. 2.25 points per contract.

1st trade B/E (auto-BE). Hit my target on the second trade with 3 points (on 3 contracts) in one trade. Should have called it a day, but got greedy and did 2 FOMO trades and finished the day with a successful 1 x 3 point scalp on 1 lot.

The FOMO trades were done on 1 contract and the actual trade idea was good. It was just my entry that was way too late. I will probably allow myself 1 x 1 lot trade after hitting my daily profit target on size, but not allowing for more than a 5 point loss.

The key here is to stay really disciplined and just wait for that moment where 1.5 or 3.0 points is ripe. I just need one good trade for the day and I'm done.


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Howard Roark View Post
2 trades x 1,5 points x 3 contracts = $450 gross (real money).

Done for the day in 25 minutes.

It's very unusual for me to exit on limit orders - at least so small profits. So, it may take some time getting used to. I could feel myself wanting to adjust the limit higher. I will probably stay on 3 contracts this week, but the goal is to eventually move up to 5 contracts as my standard contract size.

Note:

- Both entries were good with little heat, but would have ended up B/E scratch trades the way I used to manage trades in the past (trailing stops and trying to capture the big one).

- I know that one day (2 trades) is essentially meaningless, so we'll see how it goes.

What I do like about this is that I can stay very relaxed just looking for that place where I feel pretty certain I can capture a small profit with low risk.


Sounds good, do you have a target for the day or/ and a max stop loss? why did you stop trading after just one winner?

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Sounds good, do you have a target for the day or/ and a max stop loss? why did you stop trading after just one winner?

For now - I've decided to target 3 points per day. I stopped trading because I reached my target. I'm not sure about daily maximum loss, but will probably call it a day after one full stop-out, i.e., 5 points.

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  #28 (permalink)
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3rd profitable day in a row.

One scratch trade + 0,25 pre-market (trying to capture the big one) on one contract.

Hit my daily target on my 2nd trade (3 points on 3 contracts).

Did one scratch trade + 0,25 and one loss - 2,00 - both on 1 contract.

Note: The losing trade would have been a profit if I didn't move my stop, but hindsight is always 20/20. Tight stops can be deadly on ES, though, as there's a lot of back-filling.

This is real money in case there's any confusion. Not that it matters...I don't have the commission structure set up in NT. I like tracking performance without and have a spreadsheet where I track my net results.


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  #29 (permalink)
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For disclosure I gave back most of the gains earlier this week today. I closed down my computer, but lost approximately 8 points. One full stop-out and a few smaller stop outs. It sucks, but it is what it is. I'm painfully aware that this method requires the utmost discipline and patience.

Today's main mistake was to actually trade in the first place. It's a Friday, op-ex and I actually had some other things to attend to later on, so didn't have time to committ for a full session. But I figured I could be done in an hour. Big mistake: do not trade unless you have the time available to commit.

I had one final trade targeting a runner which would have made me whole for the way, but got stopped out B/E on that one. Almost good enough isn't good enough in this game.


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