Making of a method
- Thread starter game
- Start date
Very well put. Getting right whether you are in a trend or in a range is key.
Hi Game,
Sorry for the late response...it's final exams week here at the university where I teach and that makes life hectic, and then I had to have Time-Warner send someone out to fix the cable internet at home (something had chewed up the wires, apparently).
One of the best things I've done was to find ways to always enter with 2 or 3 contracts at a time in my futures trading.
I used to be "all in - all out", where I would enter a trade and then trail a stop-loss and exit everything at once. I found in backtesting and then in real world trading that I got better results when I put in a limit order to exit half my position at a profit target and trailed the other half until it got stopped out. So I've gotten my best results using an "All in - Scale out" approach.
It looks like you sometimes have 2 blue dots following a green buy entry or a red sell entry. Does that mean that you're also scaling out sometimes?
Do you teach calculus? Yes scaling out appears to work best. I do scale out when in more than one lot.
Some ideas:
1. Since market moves are fat tailed, the idea is to put on size when the time is right. At the same time, the market's mean reverting character must be recognized.
The key is the right management of expectations. Categorize opportunities into two separate product lines.The smaller profits from the medium quality, but more numerous opportunities, will provide the risk capital to put on larger size when the high quality, but less frequent opportunities present themselves.
2. Since the best trades often take off immediately upon entry with little or no retracement, put on extraordinary size during the high quality opportunities and scale out rapidly should the trade not take off immediately.
Game,
I'm only in trades for a relatively short time, typically less than 10 price bars, and I haven't figured out how to tell which ones are likely to work better than others, so I just take every entry signal using the same amount of risk each time.
I really like the idea of putting on more size on the best trades, and I've read quotes from famous traders who say they do this, but I'm not competent enough to identify the best opportunities.
When I enter trades I put on a stop-loss right away that gives me a defined, small risk. I look at outcomes as being only 4 types:
1. Small loss (my initial stop-loss is hit or my trailing stop-loss is hit before it gets to breakeven)
2. Scratch (trailing stop-loss is hit near breakeven)
3. Small win
4. Large win
I never allow a big loss to happen and the trailing stop-loss allows me to capture an occasional big winner. It seems like from your charts that you also rarely let a trade go very far against you. However, most of the trades don't seem to be capturing anywhere near most of the points that might be gained from the strong, short-term moves that are occurring after entry. In other words, risk control is very strong but the exit methods being used are not capturing all or even a strong fraction of the profits that they should.
Btw, I teach chemistry and biochemistry. Life is good right now because I submitted all my grades on Friday and will be able to take a few days off next week.
What you've described reminds me of the "80-20 rule", which seems to have been applied to lots of different things, including the economics of nations and profits earned from business customer purchases as well as profits earned in trading, i.e., 80% come from only 20% of the trades. It doesn't seem to apply to my own trading, possibly because I don't ride the long term trends that can produce occasional truly outstanding winners. Also, as I mentioned in the previous post, I don't "load up" on the very best trades to create outsize winners that way either.
Does your entry-and-exit system have defined, objective rules that are such that you could go back and look at, say, the charts from every day last week or the week before and know precisely where entries should have been made and where exits should have been taken? Or is it more discretionary?
Entries yes. Exit options have a few more degrees of freedom, depending on my take regarding the intensity of the Line of Least Resistance. This assessment gets clouded by the following:
1. Inbuilt bias of taking profits too early
2. Inbuilt bias of getting anchored to past unrealized profits and letting the trade turn back to BE.
3. Using blanket exit strategies across all PA environments instead of gauging whether price is more likely to trend or balance.
I believe that lack of attention to point 3 increases instances of 1 and 2. Lack of clarity leads to off balance behavior. So the focus will be on improving awareness regarding the quality of the PA environment.