ES Daytrading: "only 1 trade per day" or "1st trade a loss, rest of day a loss"

increasenow · Aug 22, 2008

Quote from jbob:

Increasenow,

Here's my take on this issue. I understand your reasoning in wanting to stop trading if the first one is a loss. Trying to come back to breakeven from a loss can be psychologically difficult. However, trading is a game of probabilities, so you really need to continue trading based on probabilities. For example, I trade ES with a risk to reward of 1:1. On a monthly basis, I have a 55% win rate. Therefore, as I approach each new day, I know that roughly speaking, there is a 45% chance my first trade will be a loser (just like today when I tried to sell short the ES after Bernanke's speech text came out). I could have stopped trading with this loss, but its really important to get over losses as just being somewhat random events in a game of probabilities. It would be like betting on head in a coin flip, but then stopping just because a tails came up on the first toss. After this first loss this morning, I remind myself that overall my chance of a win on the next trade is 55%, so I continue since I have a higher chance of winning. As it turned out, I bought the ES for that final push to the high of the day for a profit.

Therefore, its important to continue to trade as long as trades are setting up and triggering according to your method. However, with that being said, I do have money management rules to stop trading for the day. Specifically, I will stop trading if I have a net loss of 3 trades for the day While 3 is somewhat arbitrary, I will stop trading at that point for two reasons. (1) I feel psychologically damaged at that point and I think my trading gets WORSE since its very hard to come back from a big loss--better to take the rest of the day off and try again fresh tomorrow. (2) Winning and lossing trades oftentimes come in streaks since methods that depend on trend trading or countertrend are prone to streaks when the market is zigging when you should be zagging. Therefore, if you have a string of lossers, it might just be bad luck (About 9% in my case for 3 lossers in a row--45% x 45% x 45%). However, it might also be because I am relying to heavily on trend method when the market is choppy and viceversa, so after a net 3 losses (not neccessarily in a row though), I hit the saloon for the day.
More...

thanks...great post...thanks for the time...

Log in or Sign up

ES Daytrading: "only 1 trade per day" or "1st trade a loss, rest of day a loss"

increasenow