Mike, you said you started day trading earlier this year, how many months exactly did you trade for. The reason I am asking is have you noticed any improvement in your trading over that period. Even though you have lost $5K overall did the amount you lost lessen as time progressed or did you continue to loose at the same or even greater rate as the months went by. If when you review your trading results you find that you were progressively loosing less and less each month then maybe after a break of a few months or so you might want to give it another shot.
I posted this in another older thread but it's relevant here too... IMO, disciplined money management is at least half of the equation for profitable trading. You can have a system with a high mathematically positive expectation and lose money with sloppy money and risk management. There are two performance numbers that completely define profitability: your win ratio (or if you prefer, your win/loss ratio), and your gain/loss ratio. IMO, the second is more important. It directly represents your ability to cut losses and let profits run. I believe this number can and should be directly targeted. For example if youâre trading CSCO your parameters may be to risk .05 to make .10. If youâre trading LLTC it may be to risk .25 to make .50. With e-minis it may be to risk 5 ticks to make 10. In each of these cases the gain/loss ratio over time would be 2:1 if youâre right half the time, and you will still do well. If youâre right more than that you can clean up. You can experiment with tweaking these parameters in Excel with a RAND function and assumptions including number of trades/day, trade size, etc. Then plot the P&L series for 250 days. Youâll easily see that if youâre right only half the time and youâre G/L ratio isnât higher than some threshold like 1.75, stop now!
I've been daytrading for c. 3 months. I know exactly what the cause of the drawdown is, position sizing. So that's what I'm going to evaluate. My question though is do you (or any of you) have a break point. A level that you get to and then step aside or even quit? Cheers and thanks for all of the positive support. Mike
Yes Mike, I have a break point written into my trading plan. If my draw down reaches 20% at any time, I will stop trading for at least one month and take that time to analyse my past trades. I have been fortunate that in nearly two years of trading I have not hit the 20% level.
I started out with probably too much money, and I lost a lot of it. For a long time, I couldn't shake a certain skepticism. I wondered if it really WAS possible to make money daytrading from home, whether IT wasn't all a big scam, or, at best, whether you didn't need some secret I didn't have and had no way to get. I tried a number of different approaches, I won't go into all of the details here. I finally found a systematic discretionary method that seemed to have a chance of working for me. I would review all of my trades, every day, and, though I was still losing, I determined that the only thing preventing me from being consistently profitable was a lack of discipline: overtrading (taking marginal or "experimental" set-ups), letting stops slide, getting sloppy when I was ahead, "rolling the dice" on low-odds plays, and so on, and so on. There wasn't a day that if I had traded "perfectly" in this sense - not breaking ANY rules, though not necessarily trading especially "well" (doing any better than I was on profit-taking and tradable selection, for instance) - that I wouldn't have been profitable. Overall, I "should" have been doing quite well. No matter what my losses were (short of truly busting out), I decided that I couldn't let myself quit until I had traded consistently, according to my rules and with the approach overall of a professional, for a solid month - and had then, and only then, evaluated myself and my performance, and had decided that trading just wasn't for me. It took me six months from then until I had mostly eliminated the bad habits that I had learned during my extended and devastating learning curve period. Even now, when I get tired or distracted, I still occasionally get in when I shouldn't, but I'm a lot less patient with my own mistakes, and a lot less likely to let a small "unforced error" turn into a substantial loss. If I had a better idea of what to do with my money and my life, there's probably no way I'd have lasted. Now, the only thing that would make me quit would be if I was forced to do so.
QUIT NOW. You set up some rules, now you must follow them. If you don't quit now, then you're breaking your trading rule... when to get out. If you do it here, then you will (or already do which may explain your losses) while you're trading. Stick to your rules. You can come back later after you figure out why it didn't work. But for this "trade" you're done. You set rules, follow them. Not following the rules you set for yourself is probably the #1 cause of losses. QUIT NOW.
cashonly is right on. you have to quite at least for a while since you promised yourself that you would. Discipline.
Good advice and consider it done. You are 100% right in the last sentence. When I follow my rules I make money, when I don't follow em I lose money. So I'm going to re-group and try and understand why I don't follow my own rules. Pride comes before a fall. Cheers Mike
IMO, daytrading is too demanding to attempt with any less than 110% devotion and attention. You simply can't attend to a job and daytrade profitably in this market. The best opportunities are fleeting and must be seized in an instant, after waiting hours patiently and vigilantly. I have neither the time nor the patience for daytrading. I almost exclusively swing trade. Most decisions are made at the end of day. I set my entries and stops the night before, if I have anything on the plate. Whatever your limit is, stick to your rules as long as they remain sensible, but adjust to the market. I have a friend who made over 1 million in 18 months. Then he lost 800k in 8 months as he could not adjust to the changing conditions - the Bear. When he did adjust, the Oct. 2001 bounce came and he could not adjust quickly enough. He then went to options exclusively and made money with straddles.
I am asking myself this question too since I started focusing on the daytrading of the emini S&P (0-4 trades per day using 1,3 and 5 min. charts). I don't have 25K for equities, my hit rate intraday with stocks was about 40% and 3 to 1 gain/loss ratio with ES my hit rate is also 40-50% counting the breakeven but my losses are 3 times bigger than the gains. I figured I would reevaluate my trading when down more than $500 which was reached about 3 months after I started ( slowly last november) . My hit rate improved a month ago and the losses were kept small (typical loss is 5 ticks, typical gain 1-2 ticks! lots of breakeven) I loosened my stops a bit because most of the time I could exit for a breakeven instead of a loss had I waited a bit (instead of a an actual 2 point stop with exit within 2 minutes if it doesn't move strongly in my direction I would stay in the trade at least 3 minutes, if it didn't work out 1 min after entry I would enter a limit to get out even and wait until my limit was hit or I was proven wrong ) . As soon as I did that I got hit with 2- 3 point losses when selling lows and each time the market went on 10 points plus the other way! I am still afraid of reversing immediately after such losses ... I want to make a living in the eminis. I have nothing decent to fall back on. I put 5K in a futures account, I don't think I can lose more than that. I am down probably 1K and avoid watching my balance... Prop trading is not really an option now I don't want to put all my savings in a prop firm and the desk charges would be too high. I have to keep trying until I can pay the bills or lost my savings.