Distribution of wins/losses

[k p]

What I found that might interest you is that throughout early batches of backtesting I was really having trouble with profit targets. I eliminated the stress of that by switching over to a fixed 5pt profit target and it made all the difference for me.

Ya... the profit target is tricky, and I fully understand how stops and targets should come from the market and what its telling you, but when you're a new trader dealing with fear and all that jazz, its much easier to just follow a routine of putting on a trade, let it hit profit and stop, and be able to move on right away onto the next trade. I over complicate, over analyze, and then I'm left paralyzed. So in order to stop spinning the wheels, starting out with something very simple that has an edge after 10 or 20 trades is key.

As an aside, how did you live trading stats differ from your 500 sample?

 

[damnpenguins]

As an aside, how did you live trading stats differ from your 500 sample?

Not as good. Yet....

There is a reason I am living and breathing Mark Douglas' work at present!

 

[Visaria]

I'm heavily into fundamental analysis and intuition these days but still use technical analysis greatly.

My advice for OP is to exit winners at target. Actually do it. Then and only then, decide whether you would still be a buyer/seller here. If so, put on a fresh trade with new stop and target.

 

[k p]

My advice for OP is to exit winners at target. Actually do it.

This is what I'm aiming for, and what my little analysis suggests as well.

 

[Xela]

what I presented cannot exactly be looked at from the point of view of stats per one trade type.

I hear ya' (mine can't, either).

I have trouble holding onto winners but take my full stops, which would of course be extra damaging with multiple contracts

You might find that depends on how rare they are?

The problem with this strategy is that you are always taking a full stop on all contracts, but never a full profit on all contracts.

Indeed. This is exactly the Tharp/Chande argument against it. It doesn't necessarily have to be a "problem", though, if you "breakeven plus" on a high enough proportion of trades and catch the occasional runner. That's my experience, anyway.

my thinking is that if I could average a 5 point win each day (maybe 10 on some, and -5 on others... but 5 overall), then the best way to increase profits would be to simply increase contracts and do nothing else.

Well, call me biased (which I'm sure I am, from my own experience, as we all are to some extent), but I suspect this is rarely the right approach, myself.

This is basically why I wanted to look at these past few weeks, to show myself that perhaps I don't need to be doing anything else anymore but just letting the trade hit either -3 or +5 once entered.

This may be true, too, if you can trade them often enough to make it pay. Certainly the figures you have for those are encouraging, but for a tiny number of trades.

Next question: can you do on ES at $12.50 per tick whatever it is you're now doing on NQ at $5 per tick?

 

[k p]

Indeed. This is exactly the Tharp/Chande argument against it. It doesn't necessarily have to be a "problem", though, if you "breakeven plus" on a high enough proportion of trades and catch the occasional runner. That's my experience, anyway.

Yes, I fully agree based on the math, but this requires balls of steel, which I do not yet have.

Well, call me biased (which I'm sure I am, from my own experience, as we all are to some extent), but I suspect this is rarely the right approach, myself.

We will have to disagree here then. There is enough liquidity that trading 1 or 5 contracts shouldn't matter. Yes there might be a tick slippage in that perhaps not all 5 can be had at the exact same price, but this is minor. So if you know you can make 5 points every day, does it really matter if this 5 points is made on 1 contract... or 3... or 5? I think not if the trader doesn't get in his own way. Don't get me wrong, I do like the idea of having a runner that can capture 30 or 40 points, on a day like today, but its not necessary to making a killing.

Next question: can you do on ES at $12.50 per tick whatever it is you're now doing on NQ at $5 per tick?

Although I look at the ES and monitor how its going to see general market sentiment, I notice that the way I draw my levels, these aren't always as well respected in the ES as in the NQ, so I'm not sure if it would work as well. The nice thing of course is that making 1 tick actually leads to a profit of sorts, as opposed to 1 tick in the NQ which leaves me with $1 after commissions.

 

[MarketAddict]

I wonder if I could get some input from others who are willing to share their trade stats/metrics. I decided to run some numbers of trade outcomes for actual trades taken over the past two weeks after returning from a trip. My exits were different (and these trades aren't even the best thought out trades, but I wanted to just see what would happen if I let each trade hit either a -3 stop, or a +5 target of +10 target. (as a side note, I skip many trades that do even better, so these trades here that are were actually taken aren't even in the best of the best group, but that is a whole different issue)

This is for the NQ. With a -3/+5 risk:reward ratio, I appear to be quite profitable (based of course on a very small sample). If each trade was allowed to go to only +5 or -3, I would be over 50 points ahead after these 27 trades. If going for +10, clearly the win rate is smaller but profits bigger, but I didn't analyze what happens to those trades that hit +5 but never do hit +10.

Anyway, my issues are with holding winners and its a struggle. These stats, if they were representative of most weeks would be fabulous, and more than good enough to scale up by adding contracts, well, at least that is what the math suggests, based once again on this very small sample size. If on these 27 trades I hit either -3 or +5, I would be 50 points ahead on only 9 trading days, which although is quite small given that some days offer even 50 points moves, to average 10 points per day on multiple contracts is more than enough.

What I am asking is if others out there wouldn't mind sharing their stats. I realize that numbers can be all over the place depending on the type of trader (swing vs. day traders, etc.), and of course if you're gunning for a few points or home runs, but it would still be interesting and beneficial to me none the less.

What is interesting is that with a 67% win rate (for hitting +5), I would have 6 wins in a row. This could just as easily be 6 losses perhaps, which would no doubt affect my psychological state, but what is certain is how important it is to focus on a series of trades in this business.

I'm sure some traders have perhaps an 80% win rate or more on at least 5 ES or 10 NQ points with a small stop, and perhaps others have only a 30% win rate on a bigger spread between target and stop, but all in all, I think a discussion about this would be nice. I would love to see some data about the distribution of wins and losses and the associated parameters of targets and stops. Even the non-TA crowd can participate since I'm not talking trading technique. (and lord knows we don't need another TA/PA fight here)

Are you looking at the context when you are back testing? If not, then your trades don't mean anything at all..

What time frame are you trading? Last time it was the 5 second chart...

 

[Redneck]

I eliminated the stress of that by switching over to a fixed 5pt profit target and it made all the difference for me.

As Mark Douglas says - pay yourself as the market makes it available.

- Also -

Fundamental truth #3: "There is a random distribution between Wins and Losses for any given set of variables that define an edge."

MEANING: If you have a proven edge, and you accept that the distribution is indeed random, then over the course of a series of trades you'll be profitable. You get to be the casino. You don't know which trade will win or lose, nor do you need to. Take each instance of your edge and let the probabilities play out.

Omitted one DP..., although appears you're using it

For each trade:

Define the risk (know how much this one could cost)
Accept the risk (take the SL)
Methodically / Systematically take profit




btw.., reading his new book now..., I'll let you know how it turns out



RN

 

[k p]

Are you looking at the context when you are back testing? If not, then your trades don't mean anything at all..

What time frame are you trading? Last time it was the 5 second chart...

LOL... you remember me well, and this is still correct. I do follow a 5 sec chart, 1 min is right beside it, and 5 min is on a second monitor and where I get my key levels from. Context is absolutely key, and all I'm really looking to do is to buy at support, sell at resistance, or sometimes get into a trend if it looks as if swing lows on the way up will hold as price comes down again and vise versa for down trends. Essentially I'm mostly looking for reversal trades. (but this could still be a reversal in the direction of the trend, just catching it on the pull back)

I should point out though that this sample didn't have anything to do with backtesting. I wasn't looking to take just one type of setup as I find this very difficult to do. Each instance looks different, each has different parameters, different context and all that jazz, so I find this difficult. All I wanted to see was that, regardless of whatever made me put on a trade, if it had a consistent stop and target, would this have given me better results than my micro managing, and this was clearly the case. Then working backwards in some ways, if others had a 67% win rate on a -3/+5 risk:reward ratio, was this in line with what could be considered a good edge.

 

[damnpenguins]

Omitted one DP..., although appears you're using it

For each trade:

Define the risk (know how much this one could cost)
Accept the risk (take the SL)
Methodically / Systematically take profit




btw.., reading his new book now..., I'll let you know how it turns out



RN

Yup - as always - what he said

"Take the SL"

Sorry RN, my Aussie<-->Redneck translator is acting up....

Do you mind me asking.... Are you saying that the way to accept the risk is to have your SL set in stone regardless of what happens after the trade is triggered? Is that what you mean by 'Take the SL'?