Earlier this week, out of an elusive calmness in my world, I landed on a mainstream network television detective show called "The Irrational". I don't watch much television and this is not a recommendation... I never even heard of the show. The particular episode was centered around an emotional AND cognitive bias called the "Endowment Effect". I was a bit surprised to see an investopedia link as one of the first links on the first page of my internet search. The way I see it, The endowment effect is exact opposite of "dynamic". I absolutely agree with and I trade dynamically, bar-by-bar. There are 5 data inputs, OHLCV. There are also first derivatives like difference, momentum, and others. Additionally (dependent on the type of charting used) there may be shapes/geometry. Shapes however are outcomes... First derivatives like slope at best. volpri has summed up dynamics very well. Unfortunately, most become unknowing victims of the endowment effect.
I'm not sure if it's appropriate to compare returns from a retail day trader and a large quant fund. Anyway, on topic, it's been quoted from multiple sources that Medallion's win rate was around 50 %. Not sure if that's to be trusted as it may have changed and they're most likely employing a ton of different strategies, but interesting nonetheless. As for profit targets, that doesn't really make sense at the highest level of trading. What you want is to limit your downside and keep your upside unlimited. That's why I was never able to turn a profit in the past. I would respect my losses and take them, but as soon as I had a profit I would book it 'to secure a green day' or a breakeven day or whatever. Then I would maybe string along 10-20 green days and lose it all in a few days as my profits were so tiny that they couldn't cushion a small drawdown. At this point, you just lost 20 days of work and you're frustrated. Emotions get the best of you. You take more risk 'to make it back' and you lose even more. In a sense, the best form for risk management is to win. The more, the better. One of the things I really liked when I started trading with Topstep last year was how they had a hard-coded daily loss limit. As soon as that hits, my account was locked and I couldn't trade for the remainder of the day. I think most modern brokers these days have it, too, so I will be implementing it there as well. At the end of the day it's the consistency that's tough in this game. Most people with some abilities can sustain a winning streak and have their day in the sun. Very, very few can sustain it long term for a wide variety of reasons. Even if you know how to trade this game is ultimately rigged against human nature. Maybe, in fact, you'll have to forsake your very humanity to be a successful trader. Current trade on which is a typical one for me. Initial risk was 4 points on 1 contract. Added 1 + 1 as the market proved me right and tightened up the risk as the market started moving. Worst case scenario it would be a very small loss. Best case scenario a windfall profit. I knew it was a good low risk entry on the Globex Open as this is an Up Week in the indices and we were short term oversold, but I was of course uncertain how high it would go. If I'm stopped on this it's still more than 2R on the trade. I could book a profit now and re-enter, but then I'm faced with the same problem as Old Turkey in Reminiscenses:
Time to start considering an exit. No reason to let it go back too much. EDIT: Trailed it to 6000.25. EDIT: 6005.25. Moving limit sell to 30. Greed is good. Peace is good. EDIT: 6013.75. Gambling with the rest.
And flat at 13.75 for a gain of $6329.10. Initial risk around $200. That's a risk/reward of 1:30! I can be wrong a lot on my next few trades now. Took another trade (a scalp, but R/R still positive), but now I'm done for the day and shutting down. Time for beer. And plenty of it, too. Could be a tricky session. Imagine the headlines with Trump and Biden co-operating on a ceasefire in the ME going into a holiday with Trump's inauguration on Monday. Lots of stuff to rally on here, but tricky to be chasing longs up here, too.
Thank you for your thoughtful responses. Yours and @volpri are both great contributors to ET, benefiting us retails. Most people said aim high, high R:R... By choice, I aim low for consistency. As I said, I tried sim two ways, high R:R and modest R:R. Former much higher expectancy but low win rate. I aimed low to get high win rate. So far, 21 trading days, live, including today, 20 winning days, 1 losing day, average win rate was ~65%, profit rate ~0.25%. I am comfortable with this @volpri approach and plan to stay with it for now. I am not related to @volpri or touting his system, just sharing my live, experimental results to date.
I don't understand why aiming for a consistent 65% annualize returns, for a retail is not aiming high enough? I am wondering how many retails on ET achieved this every year on average? Honestly if you have, you should be one of the Market Wizards.