One thing I have learnt over time, is that it is crucial to have more than one contract (or batches of shares) when trading. It changes a trade from a right/wrong type scenario into a multi-faceted scenario. By pyramiding (adding as it goes your way), you can actually keep a constant risk by just adjusting the stops upwards. Of course adjusting stops up means you are more likely to get stopped out, but when one of these trades works, they really work. Being able to scale out grants a huge level of flexibility, i.e. if I take profits on 1 contract, I can no longer lose on the trade, but I can really press to see if it becomes a huge winner.
Regarding using different timeframes, the best trades tend to be those where it is difficult to get a decent price. This morning, I needed to really scramble to get in and I probably paid 20 ticks more for the position than I wanted to, yet the breakeven point was never even threatened and it never even got close to my stop. Thus, even if I dropped down to a lower timeframe it wouldn't have mattered - momentum doesn't care about timeframes, you either hop on board or you missed it.
Wish I knew how to judge the quality of the women the way @Inletcap does... Seems I always need to treat each trade as if it will be a major winner. If I don't do that, I just end up giving up good positions for peanuts, get annoyed at missing the move, enter again at a bad time, get stopped out, and it just goes downhill from there.
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While much of this recent discussion makes sense, there is a danger of it just being a debate about what is better, long or short-term trading. And then there is the question of what is "short" term. @Inletcap's trading would appear to be amazingly frenzied and scalpy to someone trading with a four or five week horizon, which would in turn be very short-term to most investors.... and so on.
One thing is that true scalping is aggressive. You take many small bites out of the market instead of a big chunk. But you need to take many, and your tolerance for loss has to be very low -- kick that losing trade out quickly -- and you accuracy needs to be high.
Scalping can be done well, no question about it. It also is the most demanding, risk-embracing, high-volume trading around.
(Note: whether it is intrinsically higher-risk is not really the point. All trading is high-risk, unless you have a way to tame the riskiness of it. But scalping is not, temperamentally, a risk-averse thing. It is the opposite: grabbing those risky situations with high confidence.)
Sometimes I see it discussed (often by vendors) as easy and safe: you set your target and stop, you just take these high-probability trades, what could possibly go wrong? Well, human psychology and the limitations of methods, to start. But it still can be done well, if it's your thing.
I don't see any intrinsic reason to favor any timeframe, if it suits you personally and if you exploit its opportunities well. But there are pluses and minuses, as there are in every form of trading. The question is, what types of opportunities can you exploit?
Last edited by bobwest; September 5th, 2016 at 08:55 AM.
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I totally get your point and want to trade as you say. The last time I took a trade where I could have made 100 ticks was on August 2. Since then I have taken 57 trades, 50% of them never making it past 10 ticks. I don't want to limit myself to 1R profits as a habit. I want to let trades run for asymmetric returns. I want those out sized returns. The point I have been trying to make is that, based on my analysis, I need to pick better trades, eliminating some of the bad ones and adding some better ones. I don't even care if I give up profits on any specific trade by moving to BE or taking profits too early. I just want to see my trades have more potential and the profits will follow. Your trading Friday was flawless on a day that I thought was choppy and hard to read. Perfectly timed entries, little heat, all worked.
You have given some good advise that I will try to follow. I will focus on trading directionally. You told me to ask if I need help. To the extent you could help me understand why my trades work or don't work, within my risk tolerance, I'd be most appreciative.
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This is a point that many have made, but I have not been able to understand why except for psychological reasons, and that may be enough. From a logical perspective, if one were to trade two contracts and scale them out at different targets, and look at the P&L of each contract on its own over the aggregate of a set of trades, shouldn't each contract yield a positive return on its own? Otherwise, what is the point? And if each contract yielded a positive return, couldn't someone trading one contract just treat that one contract as if it were the first contract exited in a two contract trade? Then, when they get good and profitable on this one contract, they could add the second contract to take advantage of the runners.
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Why do I make such big deal out of 1R? It's not because this is my target. The markets are fluid, targets vary based on S/R, etc, so targets should be determined based on conditions on the ground. The simple answer is that tracking this milestone gives me a way to measure the quality of my trading. Everything follows from how often my trades get to 1R.
When it comes to answering the question, "does my trading have the potential to make money?", tracking how often price gets to 1R is as good as anything else I have been able to come up with. If you were to pick any random moment in the market and flip a coin as to whether to go long or short, and do this over let's say 1000 trades, presumably you would see price reach 1R about 50% of the time and -1R about 50% of the time. Taking into account commissions, slippage and the nature of how a limit order is filled, in the end this would be a losing strategy. Someone might be tempted to argue that by taking all losses at -1R and catching a few big winners, you might be able to come out profitable in the end. But what I have found by keeping stats over a long period of time is that this will probably not work in the long run either.
What I have found is that how often price gets to 2R, 3R, 4R and more is in direct proportion, minus a little bit, to how often price gets to 1R. If I am 50% to 1R, I will be about 25% to 2R, 10% to 3R, and 3% to 4R, and on and on. These are not winning numbers either. Holding out for bigger gains when you are struggling just to get to 1R will be a losing strategy as well.
As an example, let's say I take 100 trades and I am 50% to 1R. This means I will take full stop outs on 50 of my trades, or -50R. On the other 50 trades price will reach 1R and I will have to make a decision, do I take profit at 1R or hold for more? I know I have to hold for more in order to be profitable, so I do. Because 90% of trades that come back to entry after reaching 1R end up hitting my stop anyway, I decide it would be prudent to move my stop to BE after price reaches 1R.
Now remember only 25% of all trades reach 2R. If I was holding out for 2R to take profit, half of the remaining 50 trades will come back and stop out at BE. The other half will reach 2R where I might take profit. 25 trades X 2R would give me +50R profit. 50R profit minus the 50R losses leaves me right where I started at zero, minus slippage and commissions.
This thought exercise could be carried out to the nth degree with 3R, 4R and on and on and the results will get worse and worse. Now, it is quite possible that you could catch a 10R trade and make up for a lot of losses, but my experience is that if I am struggling to find 1R trades these 10 baggers will be too few and far between.
What will never happen is a trader getting to 1R 50% of the time AND 2R 50% of the time. For those who think they can devise a strategy of 50/50 winners to losers with 2/1 gain/loss, and not have a high rate to 1R, it's not going to happen. No, the answer to successful trading in my opinion is to figure out a way to pick a higher % of trades that move in the trader's direction, and it has to be way higher than 50% to 1R. This is why trading is hard. You actually have to be good! This is the dirty little secret no one seems to want to talk about. There is a whole bunch of stuff about trade management, scaling, stop movement, etc, but nobody wants to talk about just being good at picking trades.
I spent a fair amount of time trying to be a professional golfer, then a whole bunch of time working around professional golfers. There is one thing they all have in common. It is the prerequisite to making a living as a golfer: you must be a superior ball striker. Not just good, great. Better than 99.99% of all golfers. Everything flows from ball striking. Putting, short game, psychology just augment great ball striking. If you are not a superior ball striker, no amount of the other stuff will keep you around very long. To me, picking trades is akin to ball striking. No amount of trade management, scaling, psychology will help a trader who picks too many bad trades and not enough good trades.
At this point I don't even care if I make money or not on any given trade. I don't care if I exit a good trade at BE or take profits at 10 ticks on a 100 tick move. My focus is on picking better trades that move more often and to a greater extent in my direction than they do now. If I can do this consistently over a period of time, like a golfer who is hitting the ball really well, the profits will take care of themselves.
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Bang on the money. When you've walked with somebody who can borrow a wooden club he's never touched before hit a ball 320yds onto a green and then sink the 14ft putt you know there's a difference in what's under the hood. All the other stuff is really important, but sometimes the stuff that gets you into a pub for the rest of the day does still count more.
Thanks for a great explanation of your metric.
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For me, and I'm certainly not an expert, trading multiple contracts is about having flexibility. For a one contract AIAO trade with a tight stop, you have to get both direction and timing absolutely correct. By entering with one contract initially and having the flexibility to add more if price goes against you (to lower your overall basis on the trade) you still have to be correct on direction, but you have more leeway on timing. Hopefully the example below will clarify (I use "you" to refer to any trader, not yourself specifically).
Directional bias on the day is bullish, enter at 45.00, price goes down to 44.80 before turning back up and trades to 45.20.
Scenario 1 - AIAO with a 25 tick stop and a 1R profit target
Enter 2 contracts with a 25 tick SL, price goes against you by 20 ticks, hopefully you hold on and are 5 ticks away from your profit target with a 20 tick unrealized gain on 2 contracts when price is trading at 45.20.
Scenario 2 - Scaling-in and -out with a larger stop
Enter 1 contract with a stop where price proves your directional bias incorrect at 44.50. Price goes down to 44.80 and you add another long when price climbs back up through 44.85. Price continues to climb and you take 1 contract off at 45.10 for a 10 tick gain and have a runner at 45.20 (which was entered at 44.85 so is 35 ticks in the green).
Obviously this is just a hypothetical example to illustrate my point but I hope it shows the flexibility of multiple contract trading. It is helpful psychologically because when price goes against you by 20 ticks you're not fearing a SL but are rather looking for clues that your directional bias is still correct and trying to add more at a better price. Once you're in a profit position you can lighten your position to bank a gain without fearing that you've left profits on the table since you still have a position on. When price is hovering 5 ticks below your profit target you're not fearful that price is going to turn lower because if it does it means that you can add another contract at a better price as long as your bullish bias remains intact.
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I am a struggling part time trader and thus will reserve my observations until later but feel compelled to ask
what is the goal? To practice the same way u will be in sim or to pass a combine and get funded? Reason I ask is certain suggestions here are great like multi contracts if u will the margin to start with...if not may not apply
Also 10-15 ticks can get tricky with CL since the right place to put a stop could be 20 to 25 ticks away
Getting the entry right is always good but some days just may not happen - did u see the multiple 10 ticks jumps this morning?
For me personally CL has always been my nemesis but it's also an addiction for me - not able to let it go
Ng and beans seem easier for me and after much practice I have realized not because my method is bad but since CL is a tricky big beast and I certainly would like to beat it up with multiple contracts and slightly wider stops IF need be but that requires a larger account (live is not the same as sim)
I don't currently do anything but "all in all out," so my grasp of scaling strategies is entirely theoretical.
But if your longer-term read of the market is right, and stays right (), then adding on dips while keeping your initial position will win every time, and win bigger because your average price is better.... that is, you will win every time when you are right, and when you stay right long enough.
If you are wrong, you are just making sure you lose more by adding to a loser. So you had better be right, or be very quick on your feet when you find out you are wrong.
I think that's the whole issue of scaling.
Adding to winners as price advances is more problematic, because you are pyramiding, adding at higher and higher prices, so your average is higher (assuming a long, of course), but again, when you are right and stay right, you will do well.
Scaling out is taking a partial profit but letting something run, after you have been proven to be right, but don't want to keep pushing it. Again, if you are right.... etc.
So, the question is, is there a big move in progress, for which any smaller fluctuations are small pullbacks that you should take advantage of? There has to be, for scaling of any kind to work out. Otherwise the basic requirement of being right, and staying right for long enough, is not met and you will have to scramble.
I don't know how to do this, but that is what @Inletcap and Co. are doing all the time in the spoos thread. Making a consistent bet on being right on a rather long-term direction, and getting more into it on any adverse move, even if they hold for a loss for a while. When wrong, trying to get out with as little damage as possible, selling (again, thinking of longs) on any uptick, and relying on their lower average price to make the move against them hurt less.
So, to my mind, the issue is just, are you in for a bigger move or a smaller one? Because the big, sustained move essentially in one direction is what makes all those gyrations possible. Otherwise, you have to have your stops real tight, take your profits in a hurry, and hold for a minimum time before the trend changes.
If you are into the big move idea, you do well in trending days, less well or poorly in tightly-ranging days, and so-so in days with fairly wide ranges. If you are into the small move idea, you will do better in tight ranges, less well in trends; you will have to scalp, and be very right. In fact, you have to be very right under both scenarios -- it's really mostly or entirely a matter of your timeframe, and whether the market is going to accommodate your preference or not. In other words, in your chosen timeframe, are you right?
I think it all has to do with what you think the market is doing. If you have confidence in the big trend, that inclines you to one strategy. If you have no confidence in the trend, that inclines you to another.
That's my cent and a half on the topic, as someone who watches but doesn't do it. (So far.)
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