Multiple contract traders

P

prox

Just wondering how other multiple contract traders (e-minis specifically) traded.

I'm trying to figure out the logic of being wrong with multiple contracts at a multiplied loss , but when taking partial profits .. being at the smallest when letting the trend ride. Seems like a losing risk/reward ratio.

Moving to BE reduces potential drawdowns, but noise can knock you out of the potentially good trade. Plus, just one stop out (say at -2 pts) can wipe out all these small gains.
 
Joe Ross, among others, advocates taking partial profits. I did some backtesting a few years ago on the big S&P contract and found that approach to be sub-optimal. I think you identify the reason--you take a stop loss on the full load but only get a partial for any big trend runs in your favor. If you are dealing in a market with thin liquidity it might work better.

A poster, sorry i forgot who it was, made the point a while back that when you start using partial exits, you are in effect trading a different system.
 
Taking partials is all psychology and doesn't improve results IMO. For every smaller profit you save before a reversal, you lose on a good pop by not having a full load.
 
If you trade a non-discretionary approach I recommend backtesting to determine which method works best for you. In my experience it is always better to trade all contracts at once, rather than a phased approach where you take partial profits, move stops to break-even, etc.

Simple backtesting will reveal which approach is better. Keep in mind if you take profit targets on half your contracts, and then let the rest ride, you are trading two separate methods! One has a profit target and the other has a trailing stop (or whatever you use to exit the second half).

If you find two methods that have acceptable profit/risk profile for you (say you test a method with profit targets and a second method with trailing stops), then consider trading half your contracts with one method and half with the other. This helps the psychological aspect of trading. You feel good when you take profits and when you trail a nice trend day. In many cases it helps smooth the equity curve as well. Again, backtesting will reveal all (about the past) and give you some insights (into the future).
 
dottom,

Sorry , I couldn't remember it was you who made that observation before. It is a good point. It is unlikely a scalping or very short term system would work best with the same stop as a longer term system. That is what you do however if you have multiple exits.
 
When I do, I do it in reverse. I.e. I enter a position at 1/2 size, and set a stop. If the market immediately goes my way, I'll take it. If the market goes against me so that, let's say, it's half-way to my stop, I'll enter the other half. If I'm stopped out, it only costs me 75% of what it would have otherwise (or even less). If it turns and comes my way, I've got both contracts on. Takes me only half-way back to my original entry point, and I'm already at break even.

Haven't run any empirical tests on this, but it feels good to me. It's sort of a type of doubling down, but within the system.

Anyone else do this? Anyone actually tested such a method?
 
Quote from prox:

Just wondering how other multiple contract traders (e-minis specifically) traded.

I'm trying to figure out the logic of being wrong with multiple contracts at a multiplied loss , but when taking partial profits .. being at the smallest when letting the trend ride. Seems like a losing risk/reward ratio.

Moving to BE reduces potential drawdowns, but noise can knock you out of the potentially good trade. Plus, just one stop out (say at -2 pts) can wipe out all these small gains.
More...

Prox,

I think your going to hear different suggestions by traders because traders have different trading methodology (trading plan).

Thus, no right nor wrong...just what works best for that particular trader.

Me personally, I go in with full burners on (all at once) but I scale out at specific profit targets.

The only time I exit a position "all at once" is because of another trade signal that requires the position to reverse before the profit-targets are reached.

However...what caught my eye in your message post is the word BE (breakeven).

If I enter a position...for example...at 895.75

regardless if I'm scaling out or not...

I prefer to exit at not the entry price but instead at a better price to compensate for the commissions I had to pay to make the trade in its entirety.

I often see a lot of traders...for example...exit a position at their entry price and call it BREAKEVEN when in reality they had a loss because of the cost of the trade.

Trading is a business and breakeven trades need to (at minimum) include the cost of commissions...

exiting at a better price.

I guess that brings to surface that old trade saying...NEVER let a profitable trade turn into a loser...

maybe it should have said...NEVER let a profitable trade turn into breakeven. :cool:

Merry Christmas All at EliteTrader.com!!!

NihabaAshi
 
I have tried to scale out in the past but found I do better putting on the full load and exiting the same way. Scaling out creates to many problems.to name a few: more commissions, more slipage,more chances to miss a move or get a partial fill,and I think most important,I find that while I am messing around with that trade I will miss another trade that could in many times be THE trade for the day. Any way,why take somthing that is allready difficult and make it tougher? Keep it simple and just DO IT. merry xmss everybody
 
Quote from NihabaAshi:



I often see a lot of traders...for example...exit a position at their entry price and call it BREAKEVEN when in reality they had a loss because of the cost of the trade.

Trading is a business and breakeven trades need to (at minimum) include the cost of commissions...

exiting at a better price.

I guess that brings to surface that old trade saying...NEVER let a profitable trade turn into a loser...

maybe it should have said...NEVER let a profitable trade turn into breakeven. :cool:


NihabaAshi
More...


Yep, I really meant BE plus a tick to cover commission and marginal profit for a "lunch money" win. With the extra tick, it makes it even more likely to get stopped out with noise or a simple retest from a range breakout.

I have no back test data at all, but logically I'd think - all in and all out to be most profitable with a toss up between the other two methods. However, the majority of traders I know do the latter two methods.
 
I started to accumulate even more if I'm right and the move I feel will run strongly. It seems we haven't had those days in a long time, but in a strongly moving market, if after a move we have a small move back, and I feel that we have more to go I'll go in with more. I still have the profitable cushion, but now with the average cost below, if I'm right the profitability is greatly increased.
 
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