do a random test. Pretend you are using 1 pt stops and a three point target. I bet you'll be stopped out 75% of the time. So turn it around a scalp for 1 with a 3pt stop and you'll have a 75% hitrate. But 75% is only breakeven not counting costs. So you need more like 4 out of 5. Now I ask you, If you really tried, do you think you could be stopped out 4 out of 5 times with a 1 pt stop? If you say yes, you may be a scalper trading backwards.
I just wanted to add that I don't use the sys with a 20% * trade, not because the sys statistic says not to do it ( it would have low drowdown even using 50% of capital) but honestly I can't sleep at night with such an amount of $ exposed. What you see above is what happen when someone with the right gut,the right knowledge of statistic ,the right knowledge of the market at the right place and time, plays a system like this. ( Or maybe when a monkey plays a sys like this.....mmm) And sadly that's not me! I'm just scratching the bottom of this golden barrel. So I'm far less rich of what you could think, actually I trade the sys with a fixed $10000 * trade and a max of 7 open position to survive the emotion ,in two years these are my real figures nasdaq stock daily Vol > 1000000 price> 2.5 max shares per trade 2000 fixed position $10000 * trade IB commission calculated Starting Capital $15,000.00 Ending Capital $145,377.50 Net Profit $130,377.49 Net Profit % 869.18% Exposure % 9.64% Risk Adj Return 9,016.21% All Trades 434 Avg Profit/Loss $300.41 Avg Profit/Loss % 3.28% Avg Bars Held 1.15 Winning Trades 382 (88.02%) Gross Profit $194,963.36 Avg Profit $510.38 Avg Profit % 5.56% Avg Bars Held 1.03 Max Consecutive 36 Losing Trades 52 (11.98%) Gross Loss $-64,585.97 Avg Loss $-1,242.04 Avg Loss % -13.51% Avg Bars Held 2.00 Max Consecutive 4 Max DrawDown -11.90% Max DrawDown $ $-7,462.97 Max DrawDown Date 12/20/2000 Recovery Factor 17.47 Profit Factor 3.02 Payoff Ratio 0.41 Standard Error $8,044.07 Risk Reward Ratio 7.00 Sharpe Ratio of Trades 5.68 That's all guys, am I a good trader ? Not really. Have I a good sys ? Hell YES ! Time to show myself I am a man no longer a kid.
Okay guys...I'm going to end my argument with a few quotes from Victor Sperandeo. If you think you know more about this business than he does-so be it. "When I daytrade the SP, the smallest movement I am interested in is one where I can select spots to limit losses to between three and five ticks,while the nearest resistance or support levels on the profitable side are a minimum of 15 to 20 ticks away." "You can make a respectable living being right on only one out of three trades provided you maintain a risk/reward ratio of 3:1. In other words, if you pick opportunities so that the probable reward is at least three times greater than the potential loss, you will make profits over time." "Anyone who expects to be right on most of their trades is in for a rude awakening. It's a lot like hitting a baseball-the best players get hits 30 to 40% of the time" The quotes come from his book: Trader Vic-Methods of a Wall Street Master. If you haven't read it, I'd highly recommend it. Best of Luck!
The problem is in the sentence: if you pick opportunities so that the probable reward is at least three times greater than the potential loss This is only what you THINK. How do you know it before the trade? You can set the stop loss. But no one knows the profit. From my own experience trading ES, many trends were very short and only gave you one or two points before it reversed. Even you used 1 points as S/L, your real risk/reward was only 1:1 or 1:2. You think it is 1:3. It is ONLY your imagination I perfer what Linda Raschke said in the New market wizards. Don't set price targets. Let the market tells you when to take profits.
Its obvious that some people don't want to be confused with the facts, but here is another fact: You will have losing streaks. You can go 70% winners for months, then have months of 35%. If your risk/reward is bad enough you go broke or you quit in frustration. Especially in futures. You aren't gifted with a magical intuition of the markets, the difference is that Trader Vic knows it. there is no trader of any consequence or fame that trades with a risk/reward worse than 1:1. I know its common, but common traders don't last.
No mondo, the facts are at 70% winners with 1 to 3 you will go broke. You don't need to wait for the 35% streak. You are confusing moves with noise. The scalper is hoping noise occurs more than 75% of the time. While you are studying the facts I've already put 5 pts in my pocket. What's the point of taking a small loss when I am just going to jump right back in? If you can scalp with less than a 70% hit rate I'll give you an award, because you must be the unluckiest man alive. Its just too hard to be that wrong. Get your facts straight, 3 to 1 and 1 to 3 are exactly the same. And any 3 to 1 trader who takes his profit before he gets his 3 reward is in worse shape than the 1 to 3 scalper because at least the scalper takes full benifit of the 75% hitrate the market offers him. And we haven't even discussed the cost of three 1 pt losses compared to one 3 pt loss. But since you seem to have all the facts unconfused, I will take your advice and start using a .33 tick stop loss along with my 1 pt profit target. If that doesn't work I will go write a book about why you can't make money trading for 1 pt anymore due to the new risk reward laws.
if you look at larry williams trades in bonds/es youll see that his average loss is larger than his average win - just eyeing it though - bonds - avg loss looks like around $2500 - avg win around $1200