Lesson = Gap up days are my worst performance days and today is another example as I am anxious to jump on board.
However, I am happy about my execution. I waited until 1965 which is already 20 points move and felt the risk reward ratio was decent for a short. I was aware of the counter-trend nature. My expected closure of gap didn't happen. That's not a failure on my part though.
Overall happy with the process and will continue to fine tune and document this is a more logical way soon.
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Thanks for the suggestions. I also would like to reach that stage where you get most of your revenue from fewer trades but I am nowhere close to that yet. It requires TWO HUGE personal attributes which I lack. I actually underestimated their significance until recently.
1. First is - Getting out of LOT of trades that are NOT working. I mean lots. That means being comfortable taking multiple small losses and admitting I am wrong much more often than I am right. That's my CORE problem, even after 2 years of half-hearted trading but I am getting better in the last 2 months.
2. Second is - Holding on to my winners.
This execution model is one way of trying to overcome my first limitation.
Once I am comfortable with losses and 'let go off my trade' by NOT actively managing it, I will focus on letting the winners run i.e The second issue.
After a week or 2 of accepting losses (as it's lot easier with this technique) then will consider other techniques like moving stop to breakeven, trailing stop, entering back on pullbacks etc to let my runners win.
I will implement only 1 change to my execution style a week so that the results are meaningful. I am hoping to let my winners run fairly soon. I just need to learn how to do it
Last edited by Narcissus; October 5th, 2015 at 08:33 PM.
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1. Regarding the small losses - I take them too easily. Quite often I find myself exiting trades that are not working, only to find that once I review my past trades, that these would have worked out. By exiting too early, a trade that would have been a winner turns into a loser. Also, by exiting earlier, I look for the next opportunity. What happens then is that I place another trade and again exit this one early. So rather than having one decent sized winner, it snowballs into numerous small losers. I trade stocks which means it usually takes time for my stops to get hit, but I have found that I need to give trades time to work and can't just exit because it is not working now.
2. Holding on to winners - this in itself can also be quite a source of frustration. Everything seems to line up and then the trade just reverses and stops me out at breakeven. Even worse, after dipping just below my breakeven point, sometimes the stock will just roar back and I will not be in the trade. If I am in the trade and it is showing large profits, there is always a need to sell in order to not "lose" the profits. Going for large winners can require sitting through large drawdowns. I notice you mention using trailing stops to help with this - trailing stops tend to cut profits short worse than profit targets. Do some testing of your own, but I found that they deteriorated performance in my systems.
All of that being said, it is extremely nice when you do play a large winner perfectly. It happens enough to keep me interested in the game.
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In my experience, traders tend to mix multiple time-frames while setting entry , targets and stop. If you are day trading using a particular timeframe, you may not want to derive the stop from a daily or higher timeframe chart, which will make the stop wider and reduce the potential Risk-Reward ratio.
I trade 2 min candles and set my stops based on days volatility (ATR from a 5 min chart ). My entries are at strategic zones where a 2 to 6 point stop is more than sufficient to determine whether the trade is going to work or not. My minimum profit target is 2R and if there is no sufficient reward potential, I will discard the trade.
Booking profit greatly depends on the context of the market and potential day type. IF there is a possibility of Trend, I will push it until the context is lost. On a trend day, I usually add as additional trades form once the price start moving in my direction. If it is range type of day, I will book profits at predetermined targets.
Today is a good example, we got an initial balance breakout in ES and NQ but YM and NYSE spreads where having +ve divergence. Add mediocre volume, chances for big move was less. I booked profits on my shorts once selling exhaustion , divergence in TICK etc start forming at the lows.
My EOD analysis include all the possible scenarios for the next day, so when price start moving in a particular direction, you are not taken by surprise. Preparation plays a huge part in understanding market context.
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LOL today sucked! My target was 61 and it floated just freaking above it. Strange considering the previous day's ranges.
Anyways, I have another strategy that uses specifically no target nor stop. It trades 1 contract per $50k. It opens at RTH open, goes flat at RTH close. It has been blowing away my other strategies by far, with yesterday being a 15% day. Today? 1.2%, and the day before was -3.8%. So it's bouncy lol.
Trading 1c per $50k means the market can fall through the floor and my account will think it's just a mosquito bite.
The way I tested it was I took my daily point/tick PL returns, dumped them into excel, and ran them through my position sizing calculator. Then I would randomize the returns over and over until it broke. I want it to be violent, but not stupid either. shooting for 0% ROR.
I love the advice your thread has generated from yourself and others, thanks all!
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As you said, today started to show the qualities of becoming a range day rather than a trend day after the 1st hr. We need different strategies depending on the market context.
My targets of 4, 8 and 12 points scaling out looks great on a range day like today. I will look stupid on a 50 points trend day even if all my targets are hit. It's all about asymmetrical returns as @FABRICATORX quoted yesterday. BM and TT also have similar themes where you get big winners every now and then which compensates for multiple small losses.
Another my comment about Risk Reward ratio. I wrongly assumed that it's 2:1 with this method. Actually it's 1:1. If it sounds bad, it is
My stop is at 8 points for 3 lot. Max expense = 24 points
My targets are 4, 8 & 12. Max revenue = 24 points
If 1 of my targets is hit, then reward is 4 vs risk 16.
If 2 of my targets are hit, then reward is 12 vs risk 8.
The above is based on the assumption that stops stay bolted, no matter what.
Even though, this technique greatly improves my discipline, I know it's NOT sustainable in the long term (Unless I become some sort of Super trader and get 80% Win/Loss ration).
I clearly need to optimise my method further but feel very encouraged by the comments and feedback here. Sincere thanks for everyone.
I am also working on a spreadsheet which looks something like this. It's just the beginning and I will continue to improve that. If you use any other templates, you are welcome to share it here. Thanks
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Last edited by Narcissus; October 6th, 2015 at 08:47 PM.
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