The OldTrader.... like the Farmer's Almanac, only better. You probably wear Old Spice. The after shave, not the cologne. I do! It's clean and fresh, not provocative. Smells good, not like you were out at the club all nite...stale. Among many others, you make a great point about letting the trade run to form. For the most part they do seem to act the same way, especially in the longer term. Either they drop like a rock and bounce, drop like a rock and congest, or roll over like a rainbow. Thanks OT.
Here's the thing: the fact that you're not a daytrader doesn't mean you shouldn't manage your trades, develop a strategy, and yes, remember your daytrader lessons. By the way, I'm addressing primarily the stock index futures in my discussion. These days commissions are low enough to be able to get in and out if you have a reason. And in terms of the stock index futures, your tax consequences are the same whether you hold for a minute or a couple of months. Alot is in the way you start. You know, some trades you're in perfectly! No heat at all. You've got a running start on the next day. Perfect. They may take it away from you...but at least you're starting with a cushion that allows you to evaluate. Too many times when you start poorly, it closes poorly, and then it opens poorly, creating heat, emotion, etc. Most of the time you can get back in at the close anyway sometime near the opening....getting out of a loser just allows you reconsider the trade. It's what I call managing the trade. Just like if it breaks to a new high and fails....I don't like that...even if I'm bullish. Take the other day, the big 300 point up day. We close strong in the 3-3:15 period. Really pumped some premium in. I would have bet on a higher opening. But we gap down. Warning bells. Still OK though, maybe it's just breathing, got a few nervous types out. We should fill that gap up quick enough, take the prior day's high out.....that is, if it's running according to form. Maybe even challenge last weeks highs. Nope!!! It wasn't to be...and at some point if you're managing your trade, you snug up your stops, or you sell. If you're wrong...that's OK too. You can always buy higher when it acts differently, when it is running according to form. Anyway, it's a long winded way of saying that carrying a loser has already started you out wrong...regardless of whether you're a daytrader. All of my trades start as daytrades first....if they prove themselves, maybe they make it to a different category. But they're all subject to being kicked out....just start acting wrong...it'll be gone. OldTrader
What a riot! Old Spice! LOL. My Dad used to wear that when I was a kid...the after shave. And I admit I did too when I first started shaving! These days I don't shave. I trim my beard. LOL. OldTrader
What I don't understand is two wise-old sayings that seem to contradict each other. Now, I'm only going to trade index futures, but here is what I've heard: "Pigs get fed while hogs get slaughtered." "Cut your losses and let your profits run." Now, I've noticed that with my style of trading, my system will trigger an order and the market should do something within a certain time-frame. If it doesn't do something, then I will just exit the trade with a scratch or small loss/gain. Personally, I hate to cut profits short. I feel that if the market has momentum and is moving in your direction, then just let it go. If it goes down 5 points and I'm short and proceeds to move up 2.5 points and then back down, I'll notice that as a lower high and give it time to run down more. At some point I'll pull out when I feel the market isn't going to give me anything else. Personally, I'm getting to the point where I'd rather take 5 or 6 scratch / small loss trades to get 1 good runner. This is in a daytrading timeframe.
Okay, I am just posting here to bring this back up to the home page... and fish for some more thoughts. Good trading today guys!
Nice post aphie... bear in mind the following probability-weighted outcomes... A) (0.8 x small gain) - (0.2 x small loss) = hypothetical expectancy for a good scalping system B) (0.3 x large gain) - (0.7 x small loss) = hypothetical expectancy of a good intraday swing system With the right gain:loss ratios for A) and B) and with appropriate opportunity factors, their long-term aggregate expectancies can be mathematically equivalent... So the decision on which style to trade boils down to individual psychology i.e. if are you the sort of person that cant stomach a larger number of losses than gains (talking merely in terms of frequency), then only precision scalping will suit you.... on the other hand, if you suffer significant psychological angst when you book profits at a given level only to see it run on for much larger gains, then perhaps an intraday swing system would be more suitable for you... there are many ways be a successful player, and how you play this game is contingent on your trading personality... all too often, people search for strategies independently of their personality... most logical strategies will make money, but only if executed well... and the consistent execution of them is dependant, to a large extent, on the degree to which the strategy is aligned with a given trader's psychological make-up... as with most things in life, the answers you seek lie within, not without...
I think this is a common misconception or a conclusion that doesn't take all the available facts into account. I've read this same idea in trading books and articles by "gurus" dozens of times. But expected return isn't the only thing that goes into making a system "good". I would argue that if you have the two systems above that you should choose to trade system A every time because it is simply a superior system. Why do I make such a claim? Take a look at two simulated equity curves with the tool found on http://www.hquotes.com/tradehard/simulator.html and compare the following input values: A) Win/Loss 1.18, Win Prob .8, Lines 100 B) Win/Loss 4, Win Prob .35, Lines 100 Both systems have roughly the same expected return. But you will notice right away that 100 simulated equity curves for system A are in a much tighter formation than the ones for system B. High win % systems tend to have more predictable returns. You will also note that the Kelly Value is calculated as a much higher value for System A (.63) than for System B (.19). Kelly value takes into account risk of ruin when determining % of capital to risk on each trade. In other words System A has a more predictable equity curve than system B and System A has less risk of ruin. System B has larger drawdowns, longer periods of drawdown and more variability of return. Thus I would argue that the reasoning that should help you decide whether to trade System A and System B is not purely psychological and that you can clearly determine that System A is superior and thus should always be chosen over System B.
inandlong, i hear what you're saying I think it's a common problem. I wonder if you ever scale out of positions; from your post it sounds like maybe not? Admittedly I'm a pretty junior trader, less than 2 years experience. But i've managed to get myself into some real big messes, like the rest of us. One thing that sometimes helps when I'm in the money is to take *some* $$ off the table and kinda pause to reevaluate. Sometimes, especially on swing trades, your profit target can be 'outdated' in a couple of days, especially if you're tied into what the general market's doing. so the question is, do you sell Nvidia at 10.50, your original target, and be happy w/the trade even though it's showing you a lot of strength? That was one of my recent gems, only to watch it rocket past 13 in a couple of days. but hey I had my trade, right? I don't know about you, but I have trouble with the idea of doing all that work, holding something overnight, making the exit, just to realize you missed the meat of the whole friggin move! Looking back, I should have taken enough out to feel good about the play and then let the rest breathe (with a tight stop loss) just a suggestion, it seems to promote leaving some dough on the table when it should be there.
Tripack, With respect, my argument used expectancy for purely illustrative purposes. Categorically, the thrust of my argument was not about using expected return to determine optimal strategy... rather, my argument was about the optimal alignment of trading personality with any positive expectancy system, taking into account psychological issues involved in trading any such system. Sub-optimal alignment of personality with any positive expectancy system will be doomed to fail, given the inability of the trader to execute the strategy with any semblance of consistency. In the context of this thread topic, optimal personality alignment has profound implications for scalping for fixed profit objectives versus running profits for more. As I alluded to in my last post, assuming both strategies have positive expectancy, the trader should go for the strategy that is best aligned with personality. Candle