It has been discussed previously that a random entry is as good as any other. Or at least, that it is more important to have an exit strategy than an entry strategy. Thus, given a random entry, the time frame and vehicle of your choosing - how would you manage the trade? For example, you are told you are presently long XYZ at a price. And you are given a typical set of tools to manage the trade ie., DAT, charting software, L2. Historical data is available as with any service. The stop loss is preset and is not your concern. You may keep all profits generated. How would you manage the trade?
Buy @ market 100 contracts, 1000 shares of XYZ. This is your trade. You did not buy for any other reason than you were told do so to participate.
Today I traded the MSFT SSF (blaah) and the stock itself. I traded the SSF twice and the MSFT stock itself once (only 2 more trades left this week). I would have to say that a random entry might suffice if you cut your losses quickly and have some method of setting a trailing stop. The only way such a method could work, IMO, is by allowing your winners to move and cutting your losses while they are small. I made two mistakes today. I shorted MSFT SSF after the spike up from Hussein (I wonder how many shorts got hurt by that one??). I shorted at 55.15 and finally exited at 55.50+. Unfortunately, I found out that there is no stop offered as of yet for the SSF on IB. Moral of this trade is that my stop was too wide and I was trading a product with a poor spread. However, later in the day I shorted the SSF again and was able to get back half of my previous loss. This was technically a good trade because I used a trailing stop and didn't cut my winnings too short. My final trade was MSFT (the stock itself). I shorted around 55.25 and set a stop at 55.30. The stock went my way a little, reversed, touched my stop and proceed to 54.80's. Moral of this story is that my last trade had a stop that was too tight. Exits are critical IMO, but that isn't to say that there aren't some setups that give you a higher probability than merely a random entry (i.e. shorting at a key resistance level, going long after that level is broken, breakouts, etc). I always want to have an MA going in the direction of my trade. If I can squeeze out an extra percent or two instead of 50/50, its going to help my edge in the long run. I am trying to get away from scalping and looking more towards momentum trading by having a lower percentage of wins but with each win being more than my losses. I am slowly fumbling towards profitability.
good idea for a thread, inandlong. there was someone here on the boards that said something like, "manage your trades as if a monkey made your entry."
ok, say we're long XYZ at 50. let's say our stop is 48 and our target is 52. how about if it goes to 49, we exit 1/2 our position. if it goes to 51, we will hold the entire position. exit all remaining shares at 52 or 48.
just for the sake of example, say all trades from the price of 50 have a 50% chance of going to either 48 or 52, and a 100% chance that one or the other will happen. would my above idea make money? i think it would..right?
Gordon, if I recall correctly, you raised a similar question some months ago. It is an area which obviously has you confused. You should be able to answer your own question.