3 to 1 win/loss ? Don't think so.

I have several patterns that exist and generally offer 3:1 RtR. But the biggest problem, and especially lately, is that if you trail stops you will likely not get the target exit.

For example if you go long NQ at 987 with a stop at 983 and have a target of 1000 on a specific setup. Once the price gets above say 991, if you move your stop you are very likely to get stopped prior to target.

The only way I can consistently actually exit at a 3:1 target is to institute a "target or stop" mentaility from entry. Problem with this is in a choppy market you may have some decent gains of 5-10 points turn into b/e even trades.

Bottom line is it is tough to actually attain a 3:1 trade even though the setups are there for them. Best thing you can do is have general rules for when and how to exit a trade and consistently take setups where the initial target and stop give you best case scenario.

Meaning enter the setups that offer a 3:1 opportunity but feel free to exit with good profits if it is not living up to expectations of trade ( not moving fast enough, acting toppy at resistance, ect.). Often after some experience you can almost tell the ones that will run and the ones that wont.

Good thread

Allen Z

 

HUH!? Do the math...think about it.

t

 

i've done the math, i've done the trading, i can tell you that a high expected return vs. the risk is a good thing in the real world as well as mathematically.

 

what you are trying to tell me is that risking $1 to make $1.50 is smarter than risking a $1 to make $3 and that isn't rational. That is in fact a rationalization for overtrading because you can't find enough setups that are 3:1 which is why this thread was started in the first place.

 

This is true, at least for my setups. Trying to "protect profit" has cost me some huge winners recently - pullbacks often come back to within a point or two of entry these days. Darn this low volume and mushy momentum!

I have found it necessary to amend my trading plan: to never touch my stop prior to taking profit unless I'm only risking a couple points profit at the end of a very proftable trade to see if there is any more room for it to run.

The chances of getting stopped out for a 2 or 3 point profit for what should have been a 10 + point gain are pretty high - more than 50% anyway. For my style, it was THE edge killer.

Funny part was, I was under the delusion that I was doing a good job managing exits - it wasn't until really tracking it/backtesting that the truth came out.

And yes, the winners turning B/E have been prominent lately. But there has been a bunch of "reversal reversal" as well so trades that looked like they had turned against the position often turn right back again going the right way - but BOY have they been coming close to the B/E stop...

Best,

Paul

 

A few suggestions:

One, avoid setting a target that is beyond the average range of the NQ, which runs around 28-30. If you do, the price is likely to reverse before you reach whatever target you came up with.

Two, be specific about your exit strategy. Perhaps you'd like exiting on a trendline break, with the option of re-entering if the retracement turns out to be shallow. Or you might use an end-of-bar stop off whatever bar interval you're using. Or you might plan for a reversal and determine those conditions under which you would take a trade on the opposite side, then exit your position if and when those conditions manifest themselves.

All of this is assuming that you're looking to trade the trend and not just scalp. It also assumes that you're trading only one contract. If you're trading more than one, you have more options. If not, and you don't want to scalp, resist the temptation to cut your profits short, even if you end up back at breakeven. If you're sure that you haven't ignored any signals that suggested a return to your breakeven point, it's better to stick with your plan than make it up as you go along based on what you "feel". If you get into a scalping mode, you're unlikely to be able to take advantage of the trend days when they occur.

--Db

 

Yes, it is better to have three trades go back to B/E, then get the 10 to 15 pointer than to take only a couple points profit on all three trades prior to the big one. If trend trading not scalping, that is. The math is better.

Allowing trades to run big by risking a small winner turning into B/E is a whole different type of emotional dilemma for a lot of traders. It was killing my RtR Ratio not doing it, though.

Best,

Paul

 

The movie Star Wars? Where Han Solo says to the C3PO as they are in the heat of battle and getting chased by superior forces....

C3PO states "But the chances of surviving this are 8,531 to one!!"
Han's repy: "Never tell me the odds!!!!!" As they of course escape.

The message my feeble childhood brain picked up was that there is no point in focusing on what "can't" happen - rather energy is better spent focusing on what "could" happen. I guess it stuck. LOL

One interesting thing in human achievement comes from Track & Field events - at one time early in the century, "experts" claimed that no one could ever run a 4 minute mile - they said it was impossible based on how humans are constructed. They cited muscular geometry and physics.

At last check, the 3.5 minute mile is possible for the top atheletes.

(DISCLAIMER: I MAY BE WRONG ABOUT THESE EXACT TIMES FOR THE MILE - POINT IS THAT "THE IMPOSSIBLE" TIME WAS ACHIEVED, AND THEN BESTED AGAIN AND AGAIN)

Thanks for the encouragement and valuable feedback.

Paul

 

You're preaching to the choir here. And, yes, it seems to be extraordinarily difficult for all but a few traders to just leave it the hell alone. But I can tell you that your goals are not unrealistic. The key (yes, I said "key") is to determine which are the highest-probability, lowest-risk setups and wait for them. Apparently, the reason why so many traders can't achieve relatively high P:L and W:L ratios is that (a) they don't know how to identify these setups other than through applying multiple indicators (and I have yet to see any evidence that doing so yields anything more than nominal results) and (b) if they can identify them, they can't wait for them. Overtrading alone will drive the P:L and the W:L right into the cellar.

I recognize that, for many traders, the idea of going an entire day without making a trade would turn them purple, but that's what it takes to achieve the kinds of P:L/W:L you're looking for.

--Db