I think, by far, the most difficult aspect of trading is knowing how to maximize the trade without subjecting oneself to alot of the "reverb" or noise on the pullbacks...I, for one, believe that there are only a few optimum entries in almost all markets during any given duration of time...For example, in the S&P futures, the optimum entries become pretty obvious after awhile...The best trades are great entries that give u enough room to stick with it without having to partial out too early...That being said, I believe the trick is also to have enuf in the market(as far as contracts go) to either partial a bit out and improve the overall cost or be able to offset via some other strategy... But my biggest pet peeve is to have a great entry, to catch a decent piece of the move and to have partialed down to a minimum too quickly...WIthout a doubt that is the most expensive opportunity cost of trading...Without having the size on when the easy money comes in(i.e. when u have the optimum entry) and the market is moving "with trend", trading can be a bundle of frustration... p.s. always reminds me of that chapter in Reminiscences of a Stock Operator where the old man keeps telling the newbies that he does not want to "lose his position", that he is too old "too give up his position"...Took me awhile to see the wisdom of this statement, but the longer you trade the more u see how entry basis cost dictates the ability to increase exposure and to adjust exposure..Without that type of patience and precision trading can be a real bitch at times...
Trade smaller size, so that those pullbacks become annoyances but not causes of stress... sit back with a coke and take whatver Mother Market gives...
Been there on es.After having a few losing days, buying close to the low in es and grabbing 1 1/2 points only to watch it move 10. This really tends to test your discipline for future trades, and trying to not get frustrated is difficult. Have to remember to stick to proper exit rules especially if mrkt has been in a tight range for awhile because when you least expect it the big move comes. monee
I can definately relate to that post Vulture. There are entries and then there are optimal entries. Getting out of an optimal entry early is painful as we play the *woulda coulda shoulda* game in our heads. I guess we need to learn to release the last trade whether loss or profit and approach the next opportunity with an objective outlook and be open to what the market has to offer.
Exits IMO are the hardest part of the trade... You have to find the balance that exists between staying COMMITTED to letting the buying or seling spontaneously fulfill itself but at the same time FLUID enough to quickly respond when it has... PEACE and good trading, Commisso
The way I see it there are two types of high quality entries, significantly different from each other: a) high probability entries. i.e. if i get in here reward to risk is decent and odds are very good that i will cash out with a profit. b) high reward to risk entries. i.e. if i get in here odds of success are 50/50 or maybe even less, BUT if I am right I cash in a big multiple of what I am risk. Both entry types are valid and both can make a trader money, but psychology and method tend to dictate whether a or b is better, and it's a personal choice/preferential thing....and then of course there is the middle ground where you try and get elements of both. Normally you get killed playing the middle just as you would standing in the middle of the freeway, but the way I look at it, it's a happy place to be. My methodology is crafted so that I can take five or six shots a day and don't have to be bored to death like positional traders do, but I also use the advantage of overnights, hedging longs vs shorts, and holding on to cream of the crop trades for longer runs, so that I don't have to get burned out like daytraders do. Take what ya like, mix it together and tweak it until you find that "sweet spot" where you are happy, comfortable and making money on balance. I think a lot of problems come when the method and the personality are in conflict. With so many ways to shake the money tree, why not find the one that fits your personality best...my perfectionism annoys me at times, but without it I wouldn't have gotten to where I am. Maybe whenever I feel like whining I should just smoke a j instead...
Darkhorse, I wanted to ask what vehicles do you trade (equities, futures, indexes, bonds, options etc)? I also wanted to ask regarding your last post and the two entry types. Are you using some high probability entries and daytrading / shorter term trading them AND some high reward entries and trading them longer (the ones that turn profitable that is)? For the profitable trades based off from the high probability entries do you turn them into longer term trades if they are acting well, or do you just trade them shorter term and the higher reward entries longer term? (I hope the question makes sense)
I learned the ropes as a commodities broker, and I'm grateful for that experience because there's nothin' like limit moves and 5% leverage to teach a guy about his stomach lining. I trade equities now because they fit my style better. I like being able to screen hundreds of stocks, a broader universe means I can be highly discriminating in my setup selection and still get enough triggers to take five or six shots each day. My entries are always the same, it's my exits that vary. My basic thesis is this: the best trades are the ones that are strong from the start- a powerful move right out of the gate increases the odds that you have a longer term winner on your hands. So I use a simple volatility based filter in determining what to keep and what to kick out. The majority of my trades are held overnight and kicked out the next day, for an average holding time of 24 hours give or take. But every so often a trade will be strong enough to hit a certain volatility target before the 24 hours are up. When this happens, I put a breakeven stop in and let it ride, giving it a looser set of rules because it's "proven" itself with high quality action. In this way, I get a steady stream of profitable turnover- I make money from my 24 hour trades on balance because the overnight mo carries in my favor more often than not- but I also maintain a separate stable of high quality positions that I hold on to as long as they are looking good. My rules are a little more involved than that, but it covers the basic premise of my methodology. The net result is that I am super flexible. I can go into a trading day net one way, finish the day neutral or net the other way, and go home with cash in the pocket. I'm constantly cutting off exposure and keeping up steady rotation, while letting the proven performers stick around.
Stress and/or emotion isn't an issue for me. I only risk 1/2% of equity on any one trade. I stalk trades (sometimes for hours). The hardest part for me is to keep my head on trading while I'm waiting for the setups to appear. Sometimes I even catnap.
Darkhorse, Thanks for sharing. I like your method. You use the same types of entries for all your stocks but allow the "stars" to separate themselves from the masses of ordinary stocks. You still maintain enough activity in the way of daily rotation to new names to allow for good exposure to "new talent" while maintaining maximum exposure to the best performers. Very smart: this is the epitome of letting your winners run, and cutting losses short.