Profit taking vs Stop loss Probability

Discussion in 'Professional Trading' started by bob2007, Apr 11, 2014.

  1. bob2007

    bob2007

    Hi! Would like some comments on my recent poor trading results.

    I like to play the reversals. When I think it's reversing I'll go against the trend.
    I generally do well before 12 p.m. And hardly do well after that.

    Summary: I'm not taking 1 or 2 dollar winners and taking 1 dollar losses. Sounds like a problem? Cause not all reversals go back 50 - 100%.

    Problem:

    I'm not taking 1 or 2 dollar winners, instead letting them reverse. I keep thinking I'd get more, like 3-4 dollar wins. All week I've gotten 2 of these.
    I am taking 1 dollar stop losses. I've been taking a beating, always getting the position reversed on me.

    What should my profit vs stop loss be? I've heard people use 3:1 ratios?
     
  2. xandman

    xandman

    If you think your method for picking buys and sells is sound. Then, your getting chopped up by a noisy timeframe. It happens all the time. Perhaps a regime change, perhaps not.

    Move up a time frame, play for bigger moves but still within your pre-defined sizing limits. Good luck.
     
  3. bob2007

    bob2007

    I'm looking at the 5 min and the 1 minute charts atm.

    My entries are sound. But I'm afraid possible problems:

    A. The stocks seldom go to the expected range I am seeking. Unless big momentum.
    So I am choosing a target that won't materialize?

    B. I'm not good enough to differentiate between reversal or retracement.

    Is a 2 to 1: risk to profit ratio good enough?
     
  4. xandman

    xandman


    A. Perhaps, There is a study somewhere that exits are more important than entries.

    B. You get closer to over trading. Here is something, I seldom hear about ...trading efficiency. As the day progresses, I noticed that good days would turn into mediocre or even lousy day if I let commissions exceed 20% percent of profits. Ofc, if I started the day with losses, I would "go fish" for the rest of the day. Your type of trading requires a high amount of concentration at a very fast pace. Not a lot of people can sustain that.

    C: Consider coding your method and backtesting it. This can lead to future automation or discovery of better methods. Scalping is very hypnotic like a pachinko game. I can hear slot machines ringing in my head when I scalp and I don't even frequent casinos.

    Not much help, I hope you find your way.
     
  5. bob2007

    bob2007

    Thanks for the comments. I

    B. Commissions 20% of profits I quite like that as a efficiency stop loss.

    C: Ya , it can look like a slot machine . watching tape All day. And its trading. I should focus more on the efficiency for sure.
     
  6. Redneck

    Redneck


    First.., Stop thinking





    Wonder why is that… hmmmm…. likely something is changing – whatever could that be (rhetorical)




    Problems??

    Not taking profit

    Allowing a winner to turn into a loser - repeatedly

    Allowing a loser to get past small / b/e - repeatedly

    Allowing your opinion to cloud good trading

    Actually trading your opinion… not price

    I agree - you have em



    How long is a piece of string?

    Meaning;

    What you’re trading will tell you - if you allow it

    Otherwise - no one can say


    eta - think about this;

    risk a nickle to make .50c - I'd take that trade all day long... and twice on Sunday

    enter correctly - the above RR scenario is doable

    RN
     
  7. Redneck

    Redneck


    I should have said;

    Entered and MANAGED correctly - the above RR scenario is doable (based on what you posted)

    As well..., several other lucrative combinations exist

    Manage your trades

    Apologies

    RN
     
  8. Visaria

    Visaria

    Hardest part of trading, running profits. Profit targets v trailing stops (or not trailing!). There's a good thread on here somewhere.

    I still don't have a satisfactory answer :mad:
     
  9. And this is where your problem may lie.
     
  10. Hi Bob,

    I believe that this can always be worked out by backtesting.

    For example, you can analyze charts covering every trading day during the past few weeks and identify each entry signal that appears during the hours that you normally trade. Record how far prices move in your favor after each entry would have been taken and how far prices moved against you when there was a loss. Use the statistics you generate to figure out reasonable profit targets and stop loss points.

    There are variables to work out, such as how do you decide the maximum and minimum moves made for each win and loss. As an example, you might let winners run until you get a new entry signal in the other direction and exiting at that point would be the maximum move for that trade. Or you could trail a stop-loss according to preset rules and forward movement for each trade would represent how far it went until the trailing stop was hit.

    In my own trading, I ultimately decided to use the average true range (ATR) that exists at the moment the signal bar prints as my guide. For example, I might place an order to buy using a stop order just above the high of the signal bar and at the same time place a stop-loss sell order and a profit-taking limit sell order as an OCO order set: when one is hit then the other is cancelled. The stop-loss order might be set 1 x the ATR below my entry price and the profit target at 2 x the ATR above the entry price.

    Backtesting allows calculation of good ATR multiples to use for the stop-loss and the profit target. It's not a perfect process because of slippage and gaps, etc., but it does work.
     
    #10     Apr 16, 2014