Risk management in today's market

Discussion in 'Risk Management' started by granville x, Jun 27, 2003.

  1. I find it difficult to trade in today's market with proper risk management. I mostly daytrade the Q's, and if I'm lucky, I'll make a trade that gives me a profit of 1%, but that's not often, and there are probably more trades with less gain and some losses, totalling a lousy P/L record.

    In order to follow a reward/risk of 3 multiples (risk is 3 times less than likely reward), I need to set the first stop (stop loss) so tight that I often get whipsawed out of my trade. For instance:

    Example A: I see a long oportunity that is likely to give me 0.30 points reward (on QQQ @ $30, that's 1%). If rewarded, my profit is 0.28 points including fees for the trade (0.02 fee). With 3 risk multiples, my stop would have to be (0.28 / 3 - 0.02) = 0.07 points below my entry price. This may be doable with a nice entry, but if trading a breakout, there is no room for downside movement.

    Example B: I see a long opportunity that is likely to give me 0.15 points reward. The real reward would be 0.13 after fees. Again, with 3 multiples and fees, I would need to place the stop at (0.13 / 3 - 0.02) = 0.02 below entry price. This is not realistic in my opinion.

    So, if the moves I try to catch are less than 1%, I find it difficult to take the trade with proper risk management.

    Any ideas on how to maintain proper risk managment when daytrading a stock (QQQ) that in average moves very little? I wouldn't like to change trading vehicle, nor turn to swing trading.

    How do you manage your risk?
  2. I'm also awaiting some answers from fellow ET'ers.

    Another question I'd like to throw into this mix is, when trading a stock, should one set thier stop to automatically reverse their position when it gets hit. Here's what I mean:

    Suppose you go long 1,000 sh. of QQQ at $30.00

    Should the stop loss be set to Sell 2,000 shares at your stop limit, of lets say $29.90, so you would exit your long and automatically reverse your position to 1,000 sh. short?

    I traded the QQQ's twice today, and got whipsawwed on both trades. Today was pretty much a flat day for me. Made $ in some stocks in the morning, lost most of it in the QQQs.

    -FastTrader :cool:
  3. opw


    Why trade something that moves very little?

    It will be hard if not impossible to trade breakouts with a 1/3 R/RW if it does not move.

    Either change method, change R/RW or change instrument.

    If you are not profitable on balance, something needs to be changed...:D
  4. You are playing for 3:1 dude... only around 40% of your trades (if you select em well) will go according to plan... the other 60% will lose or breakeven... your stated target is 3:1 but the tone of your discourse is that of a scalper... sacrifice your R:R objective or sacrifice the desired tightness of your stops... you can't get home runs with the mentality of a singles hitter...
  5. Candle, any comment on reversing your position at the stop price?

    Thank you.

    -FastTrader :)

  6. It totally depends on the set up... if you are playing a trend, your stop price may be busted (I recently started a poll on stops fwiw http://www.elitetrader.com/vb/showthread.php?s=&threadid=19295 ) but the trend may still be intact... a violation of the conditions of entry does not necessarily activate a reversal...
  7. "Stop losses are for sissies", if the market doesn't move much in the first place, maybe you ought to raise your efficiency per trade and loosen your stop loss.
    What I mean is that you might get bigger losers but you might get more winners and your risk/reward could remain at 3.
    Good luck.
  8. In the context of a pretty static market, perhaps you should rephrase that as "overly ass tight stop losses are for neophytes, since a minor absolute movement away from the static market is a major move proportionately"...
  9. Candle, I did go through your post on stops. I didn't see any mention on how you set your stop-loss? Any comments?

  10. It depends on the strategy and instrument... now that I am mainly doing ES, I can't set stops the way I used to on stocks... with ES, stops are set using charts... if scalping I would tend to use individual candles highs/lows, since I am only after a bite... if trying to extract more, my ability to predict out more than a minute dramatically decreases, so my stops become bigger, and take into account bigger picture support and resistance of the candles or perhaps of a moving average... with reference to the poll that I posted, the former kind of scalp stop is a "small stop" and the latter kind of bigger profit stop is a "big stop"...
    #10     Jun 27, 2003