I am curious about how people here view risk and return. Kindly consider the two methods described below and vote for the one that you prefer and that best describes the risk profile of the approach you presently use. Method A This method's primary objective is catching important intraday moves. The downside, all else being equal, is that it catches a proportionately larger amount of whipsaw action due to its primary objective of not being left out of sizeable moves. Further, the initial protective stops need to be somewhat looser than those for Method B. Method B This method's primary objective is risk control. As a consequence, meaningful moves may be missed with some regularity. However, this method generates more reliable signals and requires relatively smaller stops. Therefore, although this method may not participate in a fair amount of decent moves, it potentially enables the trader to better capitalize on those fewer signals that are generated with greater reliability. To be fair, let us assume that neither method is better than the other on a risk adjusted basis. Rather, let us say that they reflect different points along the same risk/reward continuum. Therefore, it largely comes down to a matter of subjective preference. Which method would you prefer to use? Any comments you may have would also be appreciated.
None Use the one that works: Method O Fill in the details below: ......................................... ......................................... ......................................... .........................................
Why did you bother typing so much? nothing new, you could write... A: wide stop B: tight stop which you prefer and why? I say, it depend on present volatility, beta and periods (when certain days like coming out of choppy days or trendy days .....) and many other factors.... You have to play them both
The decision involves more than just stop size. Also, I am making the fairly reasonable assumption that most traders cannot normally predict the level of volatility for the coming day.
I will answer under method A. I assume a predictive trading model of comprehensive features. I assume an index futures market (eg.YM) Ok. Your relevant template knows the days predicted volatility before or at market Open. There is no whipsaw .. you are playing the major predicted move sizes with pencilled in timings right from Market Open. Stoplosses aren't required because of the delineation you have both before and during the market. It is daytrading only so that in itself includes a natural stop: EOD.
First objective is always profits. Second objective is self preservation (STOPS). Simple enough. Intraday STOPS are dependent on the entry spot. The entry point was determined by the setup, so the STOP is determined where that entry setup shows you to be wrong. If the volatility of the entry spot setup calls for a STOP point that will be wider than you like, then you must decide if the entry is taken, if it is taken and you use a closer STOP you are shooting your system in the foot because STOPS that are placed before you will be shown by the mkt action where you are wrong is a mistake. To place a STOP inside from the above is just trading the noise within the technical setup.....NO MANS LAND.
Perhaps. But I question the reliability of such approaches and personally do not hang my hat on them.
Personally, I do not agree. I favor survival first and, therefore, gravitate towards Method B. If we look at the animal kingdom, we will see that "self preservation" normally takes precedence over the daily meal. I think that's a good benchmark. As for stop placement, I think that different types of methods call for differently sized stops, all else being equal.
Let me rephrase the order entry procedure. The first objective is to enter a trade to make money. Thus, the profit motive can only be first. ...Right?..... Is not the daily meal.....self preservation?.....