There's hundreds of ways to skin the proverbial cat, but in my experience it is having a variable stop loss on any trade which is a recipe for disaste. A fixed stop is by all means a viable way to trade; the way I think about it, every trade I enter (at full position) I am attempting to pick a relative top or bottom, no matter what signal or pattern I am looking at -- why should the degree to which I can be wrong change with each trade? If the market moves so far away from the critical "failure" point that I have to set a stop wider than my normal limit, I consider it a missed trade and wait for next setup. A fixed stop is really the only way to limit those extreme drawdowns, otherwise one can always find justifications in staying in a losing trade ("if it looked like a buy at 1240, it surely makes no sense to sell at 1230, no?" etc). I try to be as ironclad as possible on the losers while being extremely lax about taking profits (to the point where some days I raise my stop to even and turn off the computer and just let my luck run -- wish I did that today ). I used to have very wild equity swings (30% + or - days occurred perhaps once every 2 weeks or so) until I finally clamped down on the losses. Of course this means you cap the upside extremes as well, but its definitely worth the sacrifice.
I'm not talking about the stop placement being variable inside the trade, but dictated by the market before the trade is even taken, and so will vary from trade to trade according to what is the failure point for that individual trade since no 2 trades are ever exactly the same. Once they are determined for that trade, then they are set in stone for the duration... Sorry for any confusion here. Best Natalie
Just different ways of looking at it I guess-- for me each trade, no matter what pattern, signal or trendline I look at has the same stop, because I'm always trying to enter as close to the failure point as possible (in other words, the only good setups for me are ones that fall within a certain loss limit). So a fixed stop would make sense for that kind of outlook. Sorry if I misunderstood you.
No problems at all. I try to get in as close as possible too, since it affords the smallest stop and a better ratio between stop and target. It's basically down to trade selection on whatever criteria are right for you. Mine is minimal stop and a P/L above a certain level with good probability from the signal. We're essentially doing very similar things in an only slightly different way. Best Natalie
upside price target, if it doesn't happen, time stop kicks in. price stops don't make sense to me unless they vary with volatility. i get stopped out about 3% of the time.
sounds like you trade only the Es mini. sounds like you vary capital in trade between 1/2 to 2% for an undertaking. do you use the other 98% for anything or is it sidelined? the multiple comment makes me think you might be sequencing intop es mini in blocks of capital serially as the system you use gives signals while you already have a trade on. I get it that you go outon stops for the class of entries that fail. I know you rode one trade today for 10 points as well and I know that 10 consecutive trade failures at the 2% risk level is how you get the occassional 20% drawdown. This goes along way towards helping me "see" your trading approach using the system you use.
i have similar sizes, only with YM and a percentage point higher. the other 97% isn't sidelined, it's awaiting deployment. since i have no way of actually knowing how much might be deployed in any 48 hour period - and i mean Knowing in the writ large sense of the word, not educated guessing - i have to be prepared for the absolute worst case. for the NoiseBox that's about 16 scale-ins over a two day period. average is only 2-3 at one time BUT... high probability of not-happening is just another way of saying oh yeah, sh-t WILL happen. so i size for survival. but the money management can't really be separated from the strategy: the reason i have the freedom to ignore paper losses on a trade and wait for a profit or a time-out is precisely because i have tight restrictions on how much can be bet at any one point. it's not an approach everyone is comfortable with, but it fits my personality very well.
You are right about the fact that I get 20% drawdowns, but you are actually way off for everything else! But I would simply assert that, irrespective of methodology, a trader who is not comfortable with spending hours upon hours grinding away at spreadsheets and doing numerical analysis covering the plethora of the multiple aspects of trading (no need for an advanced statistical background, but the basics are a prerequisite) has probably already slashed his chances of being successful... why? because he is trading with one eye at best, and potentially trading blind, with little understanding of how everything fits together numerically... and you only get to identify what and how to analyze by sitting through numerous market cycles over the course of years... so experience in itself is a definite edge... Indeed, in the context of the paragraph immediately above, this thread would probably have not even got off the ground had people first calculated the phenomenally encouraging implications of averaging 1 to 1.5pt a day, the equivalent % of which many hedge fund managers would kill for...
Brother Candle, Oh I agree. 1 point a day on 100 cars avarage adds up to $1.25m per year. Simple arithmetic. 1 point per day on 200 = $2.5m p.a. 2 points on 100 = $2.5m p.a. And so on it goes. What I had hoped would happen with this thread is indeed happening, i.e. exploring the mechanical aspects vs. the psychological aspects of that. Your posts have helped to put a great deal of perspective on a part of the subject which is turning out to be a much larger question than I had first envisaged. Best Natalie
===================================== Good read especially wildlife read on elephant & fleas. Some reasons most people don't beat the SPY % gain over a great number of years is ; commissions , lazy work habbits , looking for gold on the surface. And the best performing stocks in the SPY for several plus months may not frequently beat the SPY for years. In other words even the top % stock gainers in the SPY do not beat the SPY over a long time. Turtles and surfers make mistakes; ceiings usually are not one of them. ============================= Something good & wise about the LAW of averages; some one has to be above average.