Do both as in use hard stop loss but learn to understand the price action to recognize when you should exit a trade early to minimize the loss prior to the stop being hit. Mark
Emini intraday traders working with $4,000 per contract margin or (-80 ES index points risk per trade) using -$100 per trade initial stops had nothing to worry about on May 6th. Longs into the drop were stopped out with reasonable slippage at best... no big deal. Just another random trade in a random day. The same ES trade without stops would have tripped the low-margin liquidation and blown out account in the drop before the pop. For the emini trader using stops, just another day. For the emini trader using "mental stops"... -$4,000 per long trade contract auto liquidated and out. Game over.
I have a question that I was trying to figure out all day today. I recently came across a strategy that works for me on the ES. I started working on it today on a simulation account. The strategy is completely based on price action. It is the first time in all of the times that I've taken a shot at trading where I've been able to explain in detail what it is that I do, and have a plan. Before it was very arbitrary and abstract causing my trades to be inconsistent. I picked up the basics from doing some research and reading a ton and then studying the charts to develop it for myself. Trading only 1 ES contract, I have a 2 point profit target, but the stop is 6 points. 6 points just seems like an absurd distance. I did read, though, that you have to give the market a chance to breathe. On the basis of that I reason that "at least I have a stop incase something bad happens, like early may, or my connection craps out." Today my first trade was to go long, but it missed the profit target by 1 tick and then turned lower. I then got a short signal not too long after that so what I did was closed the long and entered the short. The short went to target immediately. My question is, is it really viable to be doing that? As in, once I get a signal the other way, to close the long, and take the short? Basically I took a 3.25 point loss and on reversing had a 2 point gain. I believe from a small sample of paper trading last night that I will have a lot of profitable trades using this strategy. Today was a little rough because the market didn't want to move in either direction so I ended up -2 ticks after closing out a trade with 10 minutes left in the trading day, only to watch it tick up a few before the close where I could have not have taken as large of a loss on that trade. I hope that is clear. Thanks!
You are wise to have a stop in case something bad happens, even if it's a wide stop. There is nothing wrong with a 3:1 risk/reward ratio if you have a very high win % (greater than 75%). I had a conversation with a trader who generates a 7-8 figure annual income. His told me his R:R is 3:1, but he has a very high win rate. When a signal that got you in a trade one direction is invalidated, and there's room for price to run the other way, I say "Flip it! Flip it good!" (Actually, Schizo says that...)
Good advice, thanks! I've been sitting here going back through the charts in June finding my entries and stops. Just mentally trading, I've had about 3 days with about 7-8 profitable trades in a row and no losses. On one day I found a trade where I had a long entry signal, but before getting in on the long, I got a short signal, take the short, goes to target, turns around at a point to get in on the previous long entry and then it went to the long profit target. Was actually a neat setup. On a trade following that I had a "mental" long, trade flipped to short, so stop manually and flip, short goes to target, and then price runs up to longs target so it was a dilemma of, "do I stop out and flip, or let it run?" I know seeing price after the fact makes it easier to question, but I'm still trying to work out the kinks of this system. Last night when I discovered the strategy I went back to Thursday last week (day after trend) and had 7 out of 8 profitable trades (1 went to the 6 point stop) and then Friday I was 3 out of 3 profitable trades eventhough the market was pretty bad. I'd have to say that today was worse than Friday eventhough Friday bounced around worse than today. Today just didn't give any room to run. Using a small sample size and only 1 day of real-time trading, I'd say this strategy has a high win rate.
You are sim trading/backtesting. When you trade live you'll find the biggest kink in the system is you. You may end up getting in your own way. I have a trading method with a 75% win rate and risk/reward ratio of 1:2 or better. I've backtested it manually for months. I know how to make it work. What happens each day in real time trading live? I often end up with 1/4 the profit I get on my back tests and there are two reasons for this: I don't trade every signal and I sometimes micromanage the trades while they're in progress. If these "kinks" reduce my daily profit potential by 50%-75% with the kind of win rate and R:R I have in place, you'll need to be extra vigilant with your method.
Yeah, I am my own worst enemy here. I keep throwing it around of "should I just trade the first couple hours of the day or trade all day," and "should I trade every signal or only the ones in the direction of the trend." I've been trying to get more exposure to the charts with backtesting so I can see what kind of situations I may run into, like the ones I just explained above. Today I had a few entries where it looked like price was stalling, but I took them anyways, and then I'd start playing around with trendlines and looking for resistances like double tops and I'd start to micromanage. Then price would pop up to 1 point and I'd think it was going higher eventhough my subconscious was saying to take the profit (near the end of the day), but to try to not get emotional over the trade I'd minimize the chart and do whatever I was doing, only to have price drop and not come back to being in profit. I got a second chance to get out, but again, I thought we'd get a pop at the end of the day. I need to trust myself. I'm slowly starting to develop the strategy and the psychological part of trading.
Wait a minute, you're conversing with that caliber trader and thats all you give us? :eek: We want the "secret"