A large loss may not give you much room to maneuver; to adjust to the environment. A large loss will likely cripple you emotionally. A series of small losses will have given you a chance to participate in a number of potential moves -- and trading is a numbers game. A large loss means you spent a lot of time and money on one opportunity -- a bad one. Your choice. As to your comment about allowing a much "larger margin for error if your entry was not quite right," I'm not sure that's the best way to deal with uncertainty. If your timing is "not quite right," you have no way of knowing just how wrong it is. So why give it room? Consider walking in the dark, and not being certain exactly where the furniture is. Do you take large, bold strides? Or do you take smaller, tentative steps? If you chose smaller, tentative steps, then why treat the market any differently? Once you know your timing is right, you can afford to take a few larger steps.
hey man, you're preaching to the choir. I'm a small loss guy. Let's just say you cut it really close, 1% loss per trade. After ten of those in one day, you could have just put it on with a 10% stop. Same thing. Less commissions. If you are worried about getting "crippled emotionally" take up knitting
If that's your rationale, then why stop at only 10%? Imagine the commission savings at 20% or 30%. As to your knitting comment, if you can take a 10% loss on a single trade and in a single day in stride, then I suggest you give your money one last hug.
I very often take ten 1% losses in a single day. Over time that is a lot of spread and a lot of commish. Other than the cost, I don't see how it would be any different if I just put it on one with a 10% stop. But I am never convinced enough that I am right to risk 10% on one trade. And all my positions are spread in one way or the other, although during climax I can be 100% directional. any idiot can keep their losses small. Takes no brains. Put it on, get stopped out. Repeat. Over and over again until all your money is gone. That's all I do. every now and then one gets away from me and I wake up with a huge profit, and the only reason that profit didn't get taken early was beause I was asleep and there was no one awake to take it. My cardinal rule is, "Never take a profit." And if I do take one, it better be because I have already made more than I dreamed of and not because I fear, "It may turn on me."
and it aint that funny, every now and then one of those losses can also get away and you wake up with a huge loss. I quit using fixed money stops because in forex, almost every day some CB or some number is coming out all over the world at all different time zones. Usually there is a reaction then an over reaction, and it just keeps going until any rational trader's stops get hit, and then it clears out and they come back to a reasonable price. I call them "time stops" but it just means checking my positions every time I wake up and closing out my losers.
and really, when you think about it, the only difference between a trader and an investor (other than margin) is, the trader regularly takes losses
Completely agree. As I mentioned before, there are only two approach for day trading, trade chop/sideway or trade trend. They both end up you either have many small and defined wins with occasional big loss when big trend hits you, or many small defined loss with occasional large win when you catch the trend. It is hard to say which approach is superior, but the tricky parts are both approachs are contradict, there is no way to unify them. It is like water and fire, no way you can combine them together. You only know the market volatility in hindsight. You will be richer than Warren Buffet if you can combine them in your day trading , it is kind like develop the Unified Theory for Quantum mechanic and Relativity. Some ET did claim that they can do this by PA, but honestly I never see any real proof. Institutions can't make it, but who know may be some ET are smarter than institutions? Lol
I prefer to see it as range, chop and trend. They aren't in contradiction but instead there's a relationship or flow between them almost as if they are dependent upon each other. Thus, for example, you can be a trend trader and with an open position in a trend...price continues higher putting you in a profit...it then goes sideways as a range or chop and then it resumes the trend and goes higher. That's a relationship or flow in supply/demand. Therefore, its possible to trade all of them via one open position. There's also a possibility that a trader could be using several different methods...one for trend and one for range. Simply, you can unify them via trade management of an open position or using different strategies in which one strategy is suitable for trend while the other is suitable for range. In contrast, some may argue that the same is true when trend reverses...up to down or down to up...there's a needed relationship or flow for such to occur...there's also range or chop involved before the reversal while there are exceptions involving sudden V thrust price actions. Also, my opinion is that one strategy doesn't fit all price actions...that's an extremely difficult way to trade via trying to apply one trade signal to all price actions or one trade management after entry to all price actions while at the same time market conditions change multiple times each year.
a "relationship" is a nice way of putting it. More like a stormy marriage. Don't forget the trend you are riding that ranges and chops on you and then turns into just another loss. You just can't figure those women out. After a nice trending day, you just want to go home and smoke your pipe and watch tv, and all they want to do is range and chop and bitch at you. And when you first fell in love they were such beautiful trending creatures.
I wake up all unusually times, some times on purpose and some times not, but I use this site for 24 hour news reports that coming out. I have developed trading systems that is exactly like you describe, has three signals and most have slippage but my targets are not greedy. http://www.dailyfx.com/calendar?tz=-5&sort=date&week=2015/0524&eur=true&usd=true&jpy=true&gbp=true&chf=true&aud=true&cad=true&nzd=true&cny=true&high=true&medium=true&low=true