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I am not sure what kind of comments your looking for here. But your taking a trade for a point, whats your stop, how did you select the target of 1 point.
Also, what is your initial stop loss ? Are you trading 1 contract ? What is your risk reward on this trade ?
Appreciate your comment and questions. At this point, any feedback would be helpful. I know something little, seem to make it work every once in a while, and hope that professional traders can point me in the right direction.
Brooks advises focussing on making 1 point a day. If it's a thousand a day, then it is $250K a year.
I always start my day with one contract. If it's successful, I switch to my high, which is currently 4-8 contracts.
As for R/R, I practice Brooks' advice to hide SL behind the previous bar or use a money stop of 2 points. Pretty high, but Brooks insists that mastering PA helps to decrease it. I use 6 ticks on NinjaTrader's ATM. I am open to suggestions here.
I don't think that Brooks says anywhere to always close your trades after one point profit. If he did, you should wonder why anyone would. I also do not remember that he says to always use a money stop of 2 points. (Or, for that matter, any always-fixed number.)
Think about how that would work out: every loss would be twice the size of every profit. Not a survivable risk/reward strategy -- you would have to have a very high win rate just to stay even. The problem is not from the size of the stop (your 6 ticks could be fine, depending on the trade), but you can't kill your profits so fast and so small, while taking bigger losses, or you won't have anything.
You're just getting your feet wet, so it's fine that you aren't sure what to do. As a suggestion, look at the chart and see at what point your reason for the trade would no longer be valid (this might be a potential support level that is broken, or anything else you can point to on the chart.) Then see how big a loss that would give you. (Don't take any trades if it's too big.) Then look to see what the potential of the trade looks like (this might be some target based on the chart, a resistance level or something.) If the two compare well, then of course you also need to know how likely it is for the trade to succeed, which you probably don't know yet. But juggle these factors and get some kind of answer that you can actually state to yourself. Since you're in SIM, try it if you like how it balances out. Many won't work, but some will. Learn from both. Repeat....
You could, if you like, have a set max number where you'll take your loss and another where you'll take your profit, so you have some more structure. But you need something where the likely outcome is at least favorable.
Whatever you decide, make sure you can state why it's a good trade, and why you have to cut the loss or take the profit where you have decided, and why the risk/reward makes sense.
This is just a sketch of a suggestion, not something to follow rigidly, and not necessarily to follow at all. But you need to do something, and always killing a profitable trade after a tiny gain while setting larger stops is not going to do all that well.
Good luck.
Bob.
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Update: just re-read your post and noticed the 4-8 contracts as your daily high size level. 4 to 8 contracts is going to wipe you out fast, and if it doesn't, that would be worse, because it would teach you things about money management that will not transfer well to a live, real-cash environment.
At 1 contract, 1 ES point = $50, gain or loss.
At 2 contracts, 1 ES point = $100, gain or loss.
At 4 contracts, 1 ES point = $200, gain or loss.
At 8 contracts, 1 ES point = $400, gain or loss.
I just checked the 14 bar Average True Range on a 5-minute ES chart, and right now (11:15 AM) it is about 3.5, which is a bit high. This means that an average 5 minute period is currently seeing maybe a 3+ point swing. At 8 contracts (where 1 point = $400), that is $1,200. Every 5 minutes. That's great if you have a profit, not so good if you have a loss. If you wipe out your SIM account, you won't care, but facing that kind of risk with actual money is another story.
Start out with 1 contract, and don't increase it. Learn trading one contract profitably. Scale up slowly as you get better.
Good suggestions, even if they only keep the conversation going.
Found his quote, "If for some rare reason you did enter on the breakout of an outside bar and the protective stop is too large, consider using a money stop (like two points in the Emini) or trading fewer contracts. Since an outside bar is a one bar trading range and it is better to not buy at the top of a sideways market or sell below it, it is almost always
imprudent to enter on a breakout of the bar." (p. 36).
On E-minis most behind bars are 3-4 points, so a 2 point stop does not sound that bad. I am not sure how to decrease it even further. I have seen the setups like you described but very rarely.
I can tell you for certain that it will be very very difficult to make money live trading if your target is 1 point and your stop is 1.5-2 points. Your initial target should be higher than your stop amount. When I look at the 5 min ES right now...the bars are 2-3 points and larger on avg. A stop over the previous bar after your entry is going to be a 3-4 points stop I am guessing.
If your assuming making 1 point a day on the ES...or a $1000...that means your trading 20 lots and achieving your goal on a single trade. If not, and it takes multiple trades to hit your target of 1 point and and a $1000...then commissions and slippage will eat you alive when you go live.
That's a hole in Brooks' thinking, that I also noticed but do not know what to do about it. What are alternatives? If a stop is 3-4 points, how realistic to have TP 6-8 points and more?
That's more than a hole...its a deal breaker if you want to be profitable. 6-8 point targets may or may not be reasonable and will depend on if your entry has continuation. When I say continuation, I mean does it have room to your target before encountering support/resistance that would decrease the odds of the trade being successful. For example, would you take long entry 2 points before hitting yesterdays daily high for the first time this session expecting your trade to go the full 6-8 points to target ? More than likely it will reject when it tests yesterdays high for the first time and possibly retrace enough to stop you out.
What you need to do is come up with single trade, one that you can write down and repeat when you see it occur on a chart. Go back and study 90 days worth of charts and circle every time that trade occurs, note the ones that make it to target, get stopped out, etc. Keep a spreadsheet. Figure out the trades win loss ratio and make notes. Learn about support/resistance and use those areas as filters to keep you out of trades. This will be a good start on your way to learning what you need to know.
I am trying to run just one contract. A couple of questions have come up already. When to take profit? 6-8 points is ideal, but one has to enter pretty high in a trend movement. Then, how does one determine that the trend is shifting? I do need to look closer at trend reversals in Brooks' book. What else is to consider?
This sounds like a great idea! What would be the easist way to do it technically? I am still learning how to use NT8 software and cannot find a feature to print out data from previous days. Is there is smart shortcut or something to make it doable?
But you need to do something, and always killing a profitable trade after a tiny gain while setting larger stops is not going to do all that well.