Intraday trading and Percent-Risk Position Sizing
- Thread starter HuggieBear
- Start date
Good to see you are still doing well. Have you tested how your system would fare with more leverage? Your returns appear consistent enough to justify increasing beyond 4:1. You would need a Series 7 and a relationship with a prop firm. Getting access to more BP would also let you see when your system runs into scalability problems sooner.
If I recall you're using the IB API, but I'm sure it could be ported to FIX...perhaps one of the firms has a compatible interface.
Yes, I forgot to add in my other post. You are doing very well using tight stops. I would have had the stop in the same place. You do not want a wider stop at these locations. "Giving it room" there will only hurt you in the long run. Wide stops are used by traders who are not skilled enough to pick tighter entries, or traders who make excuses for entering in the wrong place, too early, etc.
I think that trade is far beyond your skill level and you just happened to get away with it, but if you insist on trading in those places a very tight stop should protect you from any serious damage. Additionally, if it does not drop immediately but hovers around the level you entered get out.
1) Step back and think about it. Stops are there to protect you in case the trade blows up in your face. Put it differently, if your entry is bad to start with, no protection can help you in the long run. Money/risk management is only good when you know how to consistently pull in money. What good is it otherwise?
Yes, you can have a string of losses and still come out ahead with 1 or 2 large winners. But you know what? Those traders that I know who take quick losers are not the ones who have the balls to ride out the entire move.
So my suggestion is concentrate on improving your entry first and then focus on the money management side.
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2) Stops should be technically based IMHO. It should never be based on % or $. These are too damn arbitrary. Market doesn't care how much you lose, be it 2% or $2,000, but it does often adhere to important price levels like support/resistance.
Yes, you can have a string of losses and still come out ahead with 1 or 2 large winners. But you know what? Those traders that I know who take quick losers are not the ones who have the balls to ride out the entire move.
So my suggestion is concentrate on improving your entry first and then focus on the money management side.
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2) Stops should be technically based IMHO. It should never be based on % or $. These are too damn arbitrary. Market doesn't care how much you lose, be it 2% or $2,000, but it does often adhere to important price levels like support/resistance.
I agree with this 100%; my stops are purely technical and learning to time entries well has helped me hold on longer for targets when I'm trading with the trend. Counter-trend, I learned to grab what you can quickly.
If price gets away from me before I put on the trade (and that happens a lot with CL because it gives you about 5 seconds to make a decision, then off it goes), I will pass on the trade rather than chase entry to where I have to place a technical stop farther than 20 ticks away.
I won't argue with you on that, but I had $1230 ES profit cushion from an overnight trade, so the $240 potential loss didn't bother me.
The reality is, that tiny stops produce far more losses, cutting off potential profits. It is not a simple solution, but something that causes its own consequences...
I disagree. Let's say my trade referenced earlier stopped me out for a $240 loss and price broke through (my stop was at a breakout point) and made a new high 40 ticks away (which it had been doing throughout the day). I'd be down $240 and could then play the same setup with another very tight stop, looking to capture 25 ticks or better on the pullback. I'd have a $1000 or better profit on that second trade, minus my $240 loss.
Or let's say I was stopped out and it was a false breakout and a couple ticks from where I was stopped out, priced reversed again. I could jump right back in and likely hit my profit target this time. Failed breakouts are strong reversal signals; in fact my short entry on the trade was based off a 2-tick failed breakout on the smaller time frame chart, which is how I use a 3-min chart for quick entries on counter-trend trades, thereby allowing tight stops in the first place.
But suppose I looked at the previous resistance zone to be tested if price continued to run, and I placed a wide stop there because that resistance was from a week ago and there's no way price could keep running that far with so much of the day already over, and then price suddenly spiked to that level. I'd have an $1800 hole to climb out of.
u r a smart Doji, but let me ask you this. Have you put all your real trade fills into a spreadsheet, noting OHLC of the prices during each trade, added in commission, converted prices into a % basis for direct comparison, and tested stops at a number of different % levels to make sure what you think is statistically valid and correct?
Reasoning by example is more like folksy/unfounded alternative medicine, rather than double-blind-studied, rigorous western medicine.
Every trader, system, instrument, market conditions/structures, etc. has its own unique best stoploss and profit target levels. Many people backtest strategies, but few seem to backtest stops/targets/leverage to see what actually best suits their real-world trading.
Try it, and you may make good strides in tested money management.
No one really should worry about stop losses. Losses are NORMAL cost of doing business, consider small losers as overhead and just be done with it. Sweating about stop loss points and losers means your strats and tactics are not ready for prime time.
Consider this: You see a setup, you pull the trigger and are in the dogfight, if you find yourself ADVANTAGED in the fight, keep fighting, if you find the other guy has the advantage, bug out.
As long as you stick to what works for you, you will not sweat the small shit. YES, losers are a drag, no doubt. Think back to early teen years and all the suspense about your thoughts concerning jumping some chicks bones ..........you all worried about PERFORMANCE. Then after a couple episodes of BOOM, BOOM!!!! in the back seat at the DRIVE IN performance was never as frightening again.............all you worried about was... NEXT. Sure you got the cold shoulder now and then..........but you just moved on.
Trade like a teenager chasing skirts.
PS: there is no such thing as a perfect STOP LOSS point or even a decent all around STOP LOSS. The best STOP LOSS is the intuitive one gleened from dodging live bullets in the thick of the battle.
Nod, learned that lesson and she moved up a level for sure........she is going higher yet.
Money management is NOT trading, money management is just something that is used to control the adverse part of the game...........the game is the entry signals........ Does law school have a year devoted to how to handle losing cases? I think not.
PSS: First objective is to make money.
Second objective, if first one fails, get back to even.
Third objective, revert to FIRST objective.
Consider this: You see a setup, you pull the trigger and are in the dogfight, if you find yourself ADVANTAGED in the fight, keep fighting, if you find the other guy has the advantage, bug out.
As long as you stick to what works for you, you will not sweat the small shit. YES, losers are a drag, no doubt. Think back to early teen years and all the suspense about your thoughts concerning jumping some chicks bones ..........you all worried about PERFORMANCE. Then after a couple episodes of BOOM, BOOM!!!! in the back seat at the DRIVE IN performance was never as frightening again.............all you worried about was... NEXT. Sure you got the cold shoulder now and then..........but you just moved on.
Trade like a teenager chasing skirts.
PS: there is no such thing as a perfect STOP LOSS point or even a decent all around STOP LOSS. The best STOP LOSS is the intuitive one gleened from dodging live bullets in the thick of the battle.
Nod, learned that lesson and she moved up a level for sure........she is going higher yet.
Money management is NOT trading, money management is just something that is used to control the adverse part of the game...........the game is the entry signals........ Does law school have a year devoted to how to handle losing cases? I think not.
PSS: First objective is to make money.
Second objective, if first one fails, get back to even.
Third objective, revert to FIRST objective.
Quote from TraderZones:
u r a smart Doji, but let me ask you this. Have you put all your real trade fills into a spreadsheet, noting OHLC of the prices during each trade, added in commission, converted prices into a % basis for direct comparison, and tested stops at a number of different % levels to make sure what you think is statistically valid and correct?
Reasoning by example is more like folksy/unfounded alternative medicine, rather than double-blind-studied, rigorous western medicine.
Every trader, system, instrument, market conditions/structures, etc. has its own unique best stoploss and profit target levels. Many people backtest strategies, but few seem to backtest stops/targets/leverage to see what actually best suits their real-world trading.
Try it, and you may make good strides in tested money management.
I manually back tested entries stops and targets bar by bar every day for months (still do) and sim traded for months as well strategies based on what I found, looking to pinpoint the most profitable way to enter, place survivable stops and achieve targets. The manual bar-by-bar analysis helped me determine best entry/exit zones and the sim trading helped me put it into practice in real time when the price bars tend to jump around while they're in progress.
A week ago Thursday I had what I believe was one of my best days ever in terms of solid entries, stop placement and targets. I posted the attached chart on the CL thread back then. You can see that because of the way I trade, I can place tight stops comfortably because they're placed at levels that would indicate a violation of the setup that signaled the trade for me.
Only one trade in the attachment was stopped out and I got right back in the trade again at almost the same price and caught the move. Now I could've placed my stop on that second trade at or just above the day's high, but that would've been a 1:1 R:R and I considered this a counter-trend trade despite the appearance of a lower high, so I'm more conservative in trade management on counter-trend trades.
On the initial long trade I targeted a new high near the round number, because the previous breakout was not very strong. On the remaining short trades, the blue lines show the previous support levels I used to target exits. CL usually trades so cleanly that I found this to be a good way to set profit targets.