Merits of setting profit / loss targets, before entry

Discussion in 'Risk Management' started by applejuice, Jun 26, 2012.

  1. Oh hai?

    Does anyone have a strong opinion on this?
    I have been developing an intense focus on the price ladder, with charts/profile by my side as support tools. I'm scalping FESX, typically taking winners and losers of 1/2/3 ticks, with a few outliers (good and bad) 4/5/6/7.

    A big problem I am having is, I am micromanaging my trades excessively. If you stare at the price ladder long enough, you can find a million reasons to buy or sell.
    And so it is, I can pick out a good entry, only to scratch it, or take 1/2 tick winner, and then watch it move another 5 ticks in my favour. My win rate simply is not good enough to offset the inevitable -1/-2 tick losers that mount up during the session, not to mention transaction costs.

    I am seriously considering telling myself, for the rest of the week, to take either +3 tick winners, -2 tick losers, and scratch only if a +2/3 tick winner comes back to me - so that I give all trades a bit of room to breathe.

    No doubt I'll take some -3/-4 tick losers along the way, but overall this profit/loss ratio target should work, assuming I can hit something a little better than 50/50 win rate.

    +3/-2 ratio Pros: It prevents me from micromanaging trades, and helps me to remain relaxed during the session

    +3/-2 ratio cons: To simply conjur up +3 winner / -2 loser as my target... it seems pretty arbitrary and therefore possibly stupid?

    Help ? :)
     
  2. Froglet

    Froglet

    I don't set targets, because it leads to prejudice and emotional stress.

    I just trade.

    All the targets are set by computers anyhow. Do you really think your 2.05 STOP LOSS will hit first or the 2.049 or 2.051?

    Show hand = giving brokers your target!

    As a result, the liquidity bot will flush your stop loss.
     
  3. tommo

    tommo

    Why not try it for a week or two. There is only one way to tell if it works. I would be interested to hear how you get on. I have predominantly made money scalping the order book and works for me. But want to develop into running trades longer (still intraday) for 5-10 ticks. But can't make the transition. I have tried forcing myself to a ratio of 2:6 or around that and usually find I end up around break even. Probably down after round turns. I think you need to set your entry and exit based on factors in the Market rather than discretionary numbers in order to get an edge big enough to cover costs
     
  4. ========
    I usually dont set targets ;
    good trends tend to trend better both ways- some say ''better than i deserve''

    But when one is trading somehing that doesnt trend that well,[Like ES, other index derivatives...] I like targets.As a practical matter, some net profit is better than nothing.

    I am not saying I specialize in trading things that do not trend well:D Wisdom is profitable to direct.

    Lots of money has been in 1999,, 2008 with ES...some of it made with huge drawdowns- but you will never comvince me any ''turtle'' wanted to have a huge drawdown. Stuff happens:D
     
  5. I set profit targets for the day and stop loss for the day depending on how I see the market action shaping up. Personally, I tend to over trade and I almost always lose money in phase 1 and 3 of the daily market cycle.
    This also translates into price targets and price stop losses based on the "patterns" I trade. So for every trade I have an idea of what my limits will be for the day and it changes each day.
    I need to have some kind of a plan, otherwise I just churn.
     
  6. If I may a few questions:

    (1) How long have you been scalping this instrument in actual trading?
    (2) What commission do you pay?
    (3) How many trades you do per day?
     
  7. oraclewizard77

    oraclewizard77 Moderator

    I think setting profit / loss targets is fine. I don't like the scratch idea, since that means you will be monitoring the trade. I think if you set the target and then the stop, go do something else, then come back to your computer later to see what happened.

    Later on if you begin to notice stops and targets based on the chart itself, you can make some small changes to your strategy.

    For example, you see that price should make 2 ticks easy but may reverse beyond that, you set target for 2 ticks. Or you see that it will make 4 ticks, you set it for that
     
  8. NoBias

    NoBias

    Every trade taken should be part of one's trading plan.

    In addition the exit or target should be known prior to entering a trade.

    When an entry signal is triggered, appropriate stop and "minimum" target is determined.

    Stop is area which defines this entry/trade has failed.
    Target being the opposing S/R level [or however one defines it]

    If the RR complies to the predetermined criteria i.e falls within trading rules/setup parameters, Trade is executed, stop set, and securing exit order entered. When target reached, allowed to run, but not allowed to retrace.

    If trade plan involved adding to a winning position, then performed at the predetermined area, with the predetermined stop adjustment/mgmt.

    But by no means alter the original plan, secure profit prematurely, widen a stop, add to a losing position, etc...

    This enforces discipline, removes stress and allows one to search for additional opportunities and remain objective.

    There is no second guessing, no babysitting, no over managing, no interfering with a profitable trade and expectancy ratio

    Edit: Just read first post, you are referring to scalping, I am more of a intraday/swing trader, I prefer points and handles to ticks, exhaustive scalping all day....

    If you are a scalper you may want to look into button trader, which allows you to preprogram your scalp trades... and eliminate your micro managing...
     
  9. NoBias

    NoBias

    Quote from applejuice:


    I'm scalping FESX, typically taking winners and losers of 1/2/3 ticks, with a few outliers (good and bad) 4/5/6/7.

    A big problem I am having is, I am micromanaging my trades excessively.

    My win rate simply is not good enough to offset the inevitable -1/-2 tick losers that mount up during the session, not to mention transaction costs.

    assuming I can hit something a little better than 50/50 win rate.

    Help ?


    You answered your own question,

    A successful scalper usually has a high % win rate,

    50/50 win rate, with losing trades > winning trades is not a sustainable profitable strategy even if you don't take commission, spread and slippage into consideration.

    Scalping is the most difficult strategy and at the same time the most alluring due to its instant gratification. Only the best of traders are successful scalping.

    Jumping in and out of the DOM without a proven strategy imho isn't trading.

    If you seriously want to improve your trading you may consider slowing down your time frame, and stop trading in the noise... i.e. stop scalping

    60 min / Daily charts and earn the right to trade faster charts