It's funny you mention this phenomena. I have tracked that wining trades usually occur in less time than more. For instance, I use 5 minute candles for index futures and currencies. Most winning trades in index futures occur in 2-3 candles and in currencies 3-4. Some occur in 10 candles, but it makes me think that my original edge wasn't really there on that trade. It was random market noise.
3:1 risk / reward. How do you personally use stops
- Thread starter TRADERCJ
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It's funny you mention this phenomena. I have tracked that wining trades usually occur in less time than more. For instance, I use 5 minute candles for index futures and currencies. Most winning trades in index futures occur in 2-3 candles and in currencies 3-4. Some occur in 10 candles, but it makes me think that my original edge wasn't really there on that trade. It was random market noise.
ROC evaluation...wave analysis....support and resistance...should be where you place your basis for trailing...protective stops...and targets...at the least some sort of range evaluation or MAE and MFE should be a part of the analysis...If you trade currencies perhaps the scheduled news release may even be a catalyst...
Also an honorable mention of timed stops were also demonstrated in trader28 lites thread...
remember the market has no idea as to your condition...
Michael B.
P.S. As far as the title of this thread...the 3:1 is a good way to ask as your last question...does this trade make sense? If all of your ducks are in a row...go for it....
Also an honorable mention of timed stops were also demonstrated in trader28 lites thread...
remember the market has no idea as to your condition...
Michael B.
P.S. As far as the title of this thread...the 3:1 is a good way to ask as your last question...does this trade make sense? If all of your ducks are in a row...go for it....
How can anyone say in advance that a trade they haven't put on yet has a 3:1 (or 4:1, or 15:1, or...) risk to reward ratio?
How can you possibly project your potential reward before the market has unfolded?
I'd venture to say that even projecting your risk is only likely to be slightly (slightly vs no-existantly) more accurate. Stops become market orders when hit, and in a fast market, when you really need them, you may well get filled far away from where you placed that stop. How you going to project that with any accuracy?
Advanced projections or calculations of potential risk/reward in markets that haven't traded yet are like "pro forma" financial data in business plans - here's what we think/hope will happen if all our planning based on predicting the future turns out as we guessed it would.
How can you possibly project your potential reward before the market has unfolded?
I'd venture to say that even projecting your risk is only likely to be slightly (slightly vs no-existantly) more accurate. Stops become market orders when hit, and in a fast market, when you really need them, you may well get filled far away from where you placed that stop. How you going to project that with any accuracy?
Advanced projections or calculations of potential risk/reward in markets that haven't traded yet are like "pro forma" financial data in business plans - here's what we think/hope will happen if all our planning based on predicting the future turns out as we guessed it would.
Go away from the screen for the first 30 minutes after putting on a position. This is just a personal quirk/rule of mine for dealing with the "when to put stop to breakeven question".
After that, if price has closed 25% or more towards target I put stop to B.E. (if I don't know target when I have put on a trade, I still have a rough idea of what I am after in terms or profit, so I approximate my take profit). This is what I have noticed is this case with the instrument that I trade (eurusd) - but each security though may have a different profile with regards to pulling back to breakeven.
If price has not gone away too far, I watch it like a hawk until either I get a reverse signal, it shoots away or the signal is no longer valid. Sometimes price likes to sit close to breakeven for a while (my stop is in it's original place still), and price dances around that area for some time - trying to fake me into putting stop to BE for my "security". These are the more demanding trades that need to be given breathing space.
Some traders wait till 50% to target and others do not even bother with putting stop to breakeven - it depends on experience and/or risk appetite I guess.
Well said Dan, I have noticed the same thing with my trading. Either it pops fairly quickly or then it becomes a 50/50 situation.
56 - that's what risk to reward analysis is - ASSUMING your stop is hit vs. your profit target(s). Then, you see if you are anticipating making more than what you are willing to risk.
As for projecting risk as "slightly" accurate, that may be true in stocks and in swing trading; however, in day-trading of indexes, it is rare that your stop is going to be blown thru during 'normal' market movements (outside econ reports, FOMC, etc.). So, I find that my stops in trading index futures are always hit EXACTLY where I put the stop.
I think it all boils down to knowing your market(s) inside and out. Personally I mainly trade 4-6 futures markets. And that's it. I know that if I trade these outside of econ reports my stops almost 100% of the time will be taken out right where I put them. Knowing this, I can feel more confident in my risk-reward analysis.