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There is generally a lot of focus on where to jump in (and rightly so) but it seems knowing when the trade is not going to work after it is already open, or is not going to make it all the way to the target is even more important. It might also explain why some guys have hit rates of between 80-100% on their trades with hardly any losing days.
I see there has been one or 2 thread attempts on Trade Management but they didn’t really go anywhere. So this is another go at it.
I know @perryg uses PPMAs to tell him when the trade is going against him, whereas @michaelleemoore talks about getting out if he is not right quickly or where he does not like what he is seeing in the volume, but exactly what that means I am not 100% sure. Both use stops almost 2 times as large as their first target, but does that mean they would allow the trade to go against them and then get out on the retrace to the entry price? Is the stop moved to BE after it is halfway to the first target? @FuturesTrader71 also use a fairly large stop if at all but he scalps off the risk with the first contract coming off as soon as he hits liquidity even if it has only gone 2 or 3 ticks (on the ES) (if I understood him correctly) and that appears to be the prop way. So for him liquidity is important in his decision making at least as far as the scalping part of his trade goes.
So factors include price action, liquidity(DOM), pace of tape, volume, time in trade, the “feel “of the trade”etc.
I would be interested in hearing from the guys (and girls of course) who have figured out the trade management thing and for who their TM system is working
As Background
What their stop strategy is
• Stop placement,
• Stop/target ratio,
• When is the stop moved to BE if at all.
-and anything else I might have missed...
And for the focus of this thread
how they assess (if at all):
• When is a trade working
• When is a trade not working
• When would they get out if a trade has only gone part of the way to the target?
-and anything else I might have missed...
The goal is to brainstorm different ways of skinning this cat in one place and although some approaches might not be compatible with every approach - the idea is to compare notes and see if there are some common denominators that can be incorporated.
So here is my contribution - not that I am making tons of money through trading at the moment, but I am at the level of not losing money to making a little. So at the point where the curve has just started to point up.
What their stop strategy is
• Stop placement,
-8t initial on Cl
• stop/target ratio,
-I trade all in, all out. I wish for a 10 tick target but will get out for less or more depending on when I think the trade has stopped, is going against me, or is going strongly for me- based on the factors discussed below. I have however been experimenting with multiple targets where the one pays for the trade and the rest runs, but that has not been implemented yet so I cannot say too much about it except for it seems to be a lot less stressful and despite of the affect it might have on the risk reward ratios ,with the lower stress comes less mistakes and more profits- but enough about that.
• when is the stop moved to BE if at all.
-No rule of thumb here but I do not like to take a loss after the trade has gone 5 tick in my favour unless it seems very strong, in which case I will give it breathing room. It also depends on how volatile the market is(in which case I would often not trade as I prefer more orderly market conditions).
how they assess (if at all):
• When is a trade working
a. It moves away from my entry point quickly
b. Liquidity appears behind me and the other side does not seem eager to test it
• When is a trade not working
a. I use 100 tick charts on CL. If at my entry price (so a range of around 4 ticks)and the tails of the bars start pointing against my entry I start to get worried
b. I also get worried if the 6E moves against my entry direction as CL is priced in USD so USD has an effect on the price of oil, in the very short term also
c. If too many tick bars form around my entry price there is interest in that price and it is not being rejected.
d. I get out if I see lots of liquidity appear on the DOM against me- especially if it is touched and it increases or the contracts right above it increases
e. If it goes past my entry price immediately and it does not reject the higher prices even faster and strongly (so no pauses), I would get out on a retrace if my stop is still in tact. If it goes past my entry price and a high tick rate is maintained or increases I would get out with a 4 t loss but as little as possible.
• When would they get out if a trade has only gone part of the way to the target?
a. I generally do not have a fixed target- I would wish for around 10 ticks (unless I am trading off an important level in the right context), but will get out if it has moved away and I start to get too worried based on the factors as discussed above
-The feeling part comes in, in weighing up all of the above together
Cheers, Fred
Can you help answer these questions from other members on NexusFi?
Thanks for that - Very interesting , and aside from all the order flow stuff, especially what he says about correlated markets and how the HFTs are actually on your side when those markets are out of sync.
Scalping by definition is taking off your position at very small profit targets. In order to do this successfully, you need a large stop and a high winning percentage. The winning percentages you've mentioned (80%+) are typical of people who have large stops (that don't ever get hit, or rarely) and they use scaling in techniques when trades are going against them. I think a stop in this case serves merely as a way to prevent yourself from a disaster, like power outage or something.
For example, if you are entering at the height of a trading range on a second entry short, and you think the odds are good that any breakout attempt above the range will fail and the prices will go lower, you should scale in at either fixed intervals (1 or 2 points) as the market goes against you, or scale in at another entry at a better price. When the market does eventually move back in the direction of your trade, you can get out break even on your earlier entries, and at a profit on your later entries. In this technique, you have greatly increased your win rate, but you have to be excellent in reading market context. And your stop wasn't ever supposed to be hit. If the market goes against you after your second scale in attempt, you can get out for a full loss on your entire position, which hopefully would happen to only a small percentage of your trades.
Scaling in while the market is moving against you, despite having a solid context going for you, is the most psychologically difficult trading concept for me in particular.
