Trade all day or stop once a $Target or $Loss is hit?

Discussion in 'Strategy Development' started by DerferMark, Dec 20, 2006.

  1. I've been trading for years and still have this burning question in the back of my head. In general, is it better to trade all day long until the closing bell or is it better to stop once your P&L hits a certain gain or loss for the day?

    To put some numbers to the question, suppose your goal is $500 a day. All systems you may trade will have outlier days with perhaps a few $2000 days (some on win side, some on lose side). We've all had days with great mornings only to give it all back and then some in the afternoon. And it seems these days always outnumber the days that are vice versa.

    Now a few assumptions need to be made. 1) You do not "overtrade" - so you have the ability to sit on your hands. 2) You are not worried about the cost of your time - so there's no "time" benefit to leaving your computer before the closing bell.

    Pure number crunching says if, for example, the systems you trade generate winning trades more than 50% of time, then you should take all signals no matter what time of day or what your P&L looks like. But then again, it may be better (and an easy way to smooth out your equity curve) to stop trading for the day at +$500 or -$500 (whichever you hit first).

    Those with automated systems, have you backtested anything like this?

  2. my best month was the month that i said once i hit 2000 fo rthe day i wuold quit unless the money was just ridiculously easy......which happened on about 4 of the days in the month...the rest of the time though i stopped trading right after i got to 2k for the day.

    since then i have been trying to go balls out and make as much as i can everyday....and have not been as successful because there are time i would get to 3k for the day then take a beating on one stock and end up -2k for the day. the second trading day of this month i was up +5500 and ended the day -4500 because i just got raped doing something stupid because i started to feel invinceable because i was up so much money.

    i think if your target goal is reasonably profitable its a good idea to quit once you get there.

    works better for me anyway!
  3. igor043


    I have weekly and monthly profit goals, not daily goals. When I used to have daily goals I found myself trading all day, forcing trades, losing money, and getting frustrated. Reviewing my results showed that I'm over 50% successful at one time of the day, and below 50% in the other. So I've stopped trading during the part of the trading day that I am unsuccessful. Only variable I set is my trailing stop%. Whenever my system triggers an alert, I'll play it if it meets my conditions, no matter how much I'm over or under my goal for the week (or month).
  4. DerferMark,

    Many years ago....I had the problem of overtrading. I would often be up $500....$1,000 or much more....within the first hour or so of trading....then give it all back....or even worse....end up Negative for the day. It is bad enough to start out Negative at the beginning of the day....and end up Negative at the end of the day. is even worse to have a very Positive day going....then give most or all of the profits back or go Negative at the end of the day. When a trader gets on this type of Emotional Rollercoaster....several things are a few....that happened to me.

    1) you become Mentally drained
    2) you do not sleep well....partly because you keep thinking about how you blew a good day
    3) you get up in the morning....tired....then start trading....and continue on the Emotional Rollercoaster....and because of this....a trader tends to Force trades....tries to make up for the loss of the previous day....etc.

    I was my own worse enemy. The key to my recovery was to establish Discipline in my trading. My Discipline is based on Strict Trading Rules that I follow. I have said this my thread and others....if I do not follow my Rules....I Break my Discipline....and if I Break my Discipline....I WILL lose.

    One of my Rules is....I set a Net Daily Goal....which....when I reach that goal....I stop trading for the day. I would much rather make my Net Daily Goal every day....than make money one day....lose money the next....etc. What does that do for me? keeps me off the Emotional Rollercoaster. When I go to bed at night....I sleep well....wake up reenergized....and look forward to trading. When I was on that ER....I almost hated to start trading the next day.

    For me....I know if I watch charts all day....I get tired....and that is when a trader is likely to Force trades....make the wrong decisions....etc.

    I have a fairly large Net Daily Goal....which I can usually make within the first couple of hours of trading. Often....I will make it in less than a half hour. I am mainly a Scalper....but take Trend trades also. I trade the Futures only. Some days....I may have 30 to 50 trades....just about always 4 contracts....and it make take me a couple of hours....other days....I may have a few Scalps....and a good Trend trade or two....and stop trading. Every day is different.

    I have been Day Trading and Scalping for about 10 years now. I reached the Net Daily Goal that I am at now....several years ago. Could I make more?....I think I could. For me....being consistent....making my NDG every much more important. I could change my NDG....but....I trade because I want Independence....not just for the money.

  5. Thank you, well said. It saves you from getting caught in the chop and giving it all back.

  6. Maximise your potential. If you are on a winning streak, trade as long as you can.
  7. Set some rules and stick to them. You can always exit half and move the stop to breakeven. Or you can establish a rule of only risking 1/2 or 1/4 of the previous profit you have made for the day. Ex. You made $1000 trading 4 cars, on the next trade your max stop is $500. If you lose, you quit for the day or trade sim. If you win then you can make the decision on how much to risk on the next trade but never risk more than you have made for the day. The main thing to remember is to ring the register and never let a winner turn into a loser. Many traders have the idea that they must always be in the market and will often start overtrading just for the endorphin rush.
  8. Thanks all - particularly VSTscalper and aeliodon for the other thread. Good stuff...
  9. Happy New Year!
    #10     Dec 27, 2006