targets and stops on ER2, YM, NQ

Discussion in 'Index Futures' started by bogey20, Jun 23, 2006.

  1. bogey20


    Somebody enlighten me please, as we all know one should use a 3:1 profit to loss ratio to make it in this busies. I'm trying to achieve at least 2:1 ratio, but even this I find extremely hard to do trading index futures, specifically ER2. I'm daytrading on 1 and 2 min charts in the direction of the trend and ER2 has a very efficient way of upswinging for realistic 1 point profit, maybe little more and then retracing, the retracement provides nice entry for another trade. But using a stoploss less than 1 pt makes it impossible to trade as it will kick out traders most of the time and so this makes it for a ratio of about 1:1 which pretty much sucks, unless you are 70% trader, at my best days that's what I'm but at my worst it's a painful proposition. Scailing in or aout of 3 lot does not help much. Maybe some successful trader here can give me some tips on the stops for ER2 or futures in general since similar scenario would apply to YM and NQ. Below is a chart of some trades today, 2 good ones for a profit of about 1 pt each, and 3 bad trades.
  2. K-Rock


    It looks like you were short when price broke to the long side. Hopefully you reversed when it breached the lower high. Using a oscillator could prove to be helpful. Since prior to the breakout there was divergence; so, there was a warning (momentum on the short side was drying up).
  3. You might consider filtering your trades through 2-3 time frames and also using mathmatical entries, such as 1/2 or trendlines. Just an idea.
  4. I would suggest looking at the YM or ES for something a little less rough and jumpy. The ER2 is the most volatile in my opinion and very easy for stops to be taken out.

    It may just be the market you are trading in. Have you traded in the ES and/or YM?
  5. Don't you think you're getting out of trades a little too fast?
  6. Trading ER2 for 1pt is like scalping. The granularity of the tick combined with the inherent volatility makes using hard stops other than catastrophic stops, for scalping very dangerous. Similar to trading YM for say 20pts with a 3pt hard stop... you'll learn *very quickly* if the trade is gonna work, which btw, has it's place in the toolbox.

    Is there a reason you've have chosen such a small profit target for ER2? Do you ever let the trade run? For that matter, do you ever take less than your target, not including B/E or losses?
  7. Imo, a one point stop for ER2 is too close. It is just too jumpy.

    I would recommend instead the NQ (e-mini Nasdaq).

    This is just my opinion, but a 1:1 ratio does not necessarily have to "suck." I never espoused the belief that one sets stops according to how much money you can afford to lose. If you are trading with the trend, you should set stops at the price representing the end of the trend. If that would involve losing too much money, then cut down the size (trade fewer contracts).

    Good luck!
  8. dchang0


    I feel your pain... I was getting stopped out all the time when using a 5:3 bracket of 2.5pts:1.5pts on ES. It was dropping my win% to 34% from around 54%.

    Finally, I got tired of it and cranked the bracket up to 3.5pts:2pts, which is close to the original 5:3 ratio. It works much better, as a 2pt stop-loss is hit much less often, and my win% is back up. BUT, I have fewer overall trades, because a 3pt profit target requires a much stronger signal to secure a win.
  9. bogey20


    All of you have some valid points, so here are some of the things I don't use right now and perhaps have to add to my tools/strategy:

    oscillator - was using them for a long time, but once I've decided to get rid of them I've become a better trader, now mainly I watch price action to understand trend and don't use any lagging indicators, but perhaps one oscillator could help.

    different time frames, already looking at 1,2, 15 min charts, not sure if more would help

    The ER2 is volatile I agree, however this is the beauty of it, I also have to say the ES or YM shows the same patterns, trends, HH's, LL's that would put me in the same trades in thouse indexes however potential profits would be smaller, since those indexes are less dynamic, so trading ER2 is a conscious decision, I feel my mistakes are not because of the trading vehicle but something else.

    Ripley, osorico, smilingsynic, dcahng0 you all have similar valid points, the mistake could be I'm getting out of the trade too fast, with too small of a stop. The reason I have such a small profit target is because ER2 runs for about 1 to 1.5 pt and pulls back, then I would enter for another leg and over and over like this till the end of the trend. So here are some new strategies:

    Strategy 1: Perhaps I have to enter at the beginning of the trend put the stoploss just below the LL and instead of entering and exiting on every leg of the trend I have to stay in the trade through the trend, which would give me much bigger profit per potential loss. In other words let the profits run. However as dchang pointed it requires precise entry a strong trend and a lot of patience not to trade in and out of every leg but stay in for say 3pt profit with much smaller loss.

    Strategy 2: I could still be trading every leg of the trend for 1 to 1.2 pt profits but put the stoploss at the complete end of the previous trend so I would not get kicked out as much.

    Hmmm, ok guys from your experience which strategy you think would work best?
  10. K-Rock


    Another approach is to simply reverse after a failure to follow-through. IMHO it's common to get caught in a bear or bull trap every now and then, but the important thing is to recognize it and take the appropriate action (reverse or stop out) before it's too late.
    #10     Jun 24, 2006