Discussion in 'Trading' started by 0008, Apr 13, 2003.
Experienced system traders:
Is the reward/risk ratio or the win/loss ratio easier to keep contant?
When you say "system".......this to me means non-discretionary. So I guess that the question might be if fixed stops are "used" to answer the risk/reward ratio. If a system is strictly mechanical, stops may be moved in a controlled fashion which would indicate levels.....volatility.....range.
As far as win/loss ratio....well if multiple contracts are scaled in.....exited.......stops moved.......this would effect the win loss ratio... For example lets say you use 3 contracts and scale in at different prices after you get a signal....this by the way is discretionary. Well anyways....lets say you get out your first exit with a 3-5 point profit and you move your stop up to breakeven on contract 2 then exit it and take a loss on contract 3.....was that a winning system trade? What was the win/loss ratio?
Your question indicates you are fishing for the answer...."do I lose more by tightening my stops? The answer to this is what is the character of the market today....what is the instruments volatility and range? Your system that allows you to be non-emotional and mechanical now "brackets you into" this dreaded system traders question of being able to predict and read the character of the market. I notice that mechanical system trading requires this especially if fixed stops are used.
Just look at how many time tested systems have failed this last cycle of low range days in the SP. This war time indecisiveness makes it hard to trade a choppy, flat, low trending environment.
I hope this helps...I know its more questions...but there is really not a clear answer to this question.
All I can say is if one S&P contract is worth $200,000, then it is more than possible to lose $100,000 per contract in a matter of seconds. Whoever neglects this risk is really gambling that the roulette wheel will not stop at zero (or double-zero).
Win Ratio is easier to keep constant.
Say, move to BE + a tick after it moves a point. That way, you have a win on that trade after commissions, even though it's just lunch money.
This will adversely affect your average win, but should greatly improve your number of losses.