One 100 point winner or ten 10-point winners?

[trader_david]

I would like have the one 100points winners, not ten 10 point winners.

First: 10 points winner looks easy, maybe just several ticks, or just 1 minutes' move in the opening or in the closing, but it is the hardest thing to catch. for example, like today, you may enter the market in the opening, easily you get your 10 points, but after you booked your 10 points, the market just shoot another 100 points in blink of eyes, put it another way, you lost 100 points (you can think the exit as a short sale)!

Second: 10points move is very random, it is very hard to predict this kind of move, but to predict 100~500 points move is a little easier, like today, you know it is a technical breakup move, 8570 is the recent high, I bought that point in the pre-market, sold it at 8730

third: ten 10 points winners need at least 10 times of execution, statistically if a successs rate of a trade is 70%, then ten times trading becomes a conditional probability probelm, the probability is:0.7*0.7*0.7*0.7*0.7*0.7*0.7*0.7*0.7*0.7= 0.028! so it is the worst strategy, of course, in a continuing upward market, the probability should be higher than 0.028, but will not higher than 0.7!

put another way, if you bought YM at 7000, and hold till now, you got 1700 points gain, that is huge! I normally trade CL(crude), did lots of 0.3($300 move)points move, but late I found I better buy it at 35 and sold it at today's price, or I better try to catch 1.0($1000 move) points trade. yes, I got lots of $300 gainer, but someday crude moved $2~3 points, I made just $300 and did lots of trades!

 

[bmills313]

Quote from trader_david:

I would like have the one 100points winners, not ten 10 point winners...

I should probably make clear that I'm a short-term trader. I don't hold overnight and most trades for me are 15 minutes and under. If that makes me a scalper, then so be it, but pulling 10-points 3 times in a move of say 40-points is more in line with the way I trade now. It's hard for me to watch positions that are up 30-points give back 15 all in the hope that the movement is going to continue on rather than give back even more.

I'm OK trading more often because it teaches me a lot in the process and (usually) I'm rewarded for my efforts by pocketing money before it's taken from me. Some day maybe I can find a strategy that trades 3 times a day or twice a week, but for now I'm glad jumping in and out quite often.

I see your point and understand the probability argument but I guess I'd argue that the risk required to grab the 100-point move and the stops needed to let the trade do it's thing are much greater; if you choose the wrong side of the market or enter late, you're losing a lot more. What if at one point you were up 30 and it pulled back and you only captured 15-points when the stop kicked in? You just gave back 50% of your potential profit while booking 15. I think of this example...

Let's say that a move is 30-points from entry to it's peak before it reverses and stops out the "100" strategy, which we'll say requires a stop that is around 15-points. You enter at 8000, it hits 8030 and you're stopped out at 8015.

The "10" strategy is using a 5-point initial stop. Same entry @ 8000 but it hits 8010 and you bail on the profit limit. You re-enter and capture another 10 points with the profit limit. Enter a 3rd time and it hits 8030, but starts to pull back and let's use worst case scenario and say you capture 0 of that final move as your strategy moves to B/E for a net of 20 points on 3 trades.

The 2nd strategy is up 5-points on the strategy looking for the big moves. Yes, it's going to take more trades to earn the eventual 100-points but the whole way it's banking profits and risking less.

Obviously this is a very simple, not-ultra-accurate example with the stops and such but hopefully it illustrates the point that pocketing small profits can rather easily beat waiting for big moves, especially if you play the re-entries, which I do (which I may not have made perfectly clear in my original post).

The other problem is, how do you know where price is going to go? Yeah, Monday was obviously going to be a big up day but how much? When it was up 100, how certain could we be that it was going to go to 125 vs 75? I could have bought YM @ 7000 and sold it now...but how much are you risking to do so? The ATR over a 5-day period is around 330-points. Let's say I have to risk 1 ATR in this trade, so 330-points. I don't know how comfortable I'd be risking almost 25% of the value of a contract on a single trade, especially in this market. Even 1/2 ATR is still pretty big and probably doesn't give you the room to move. Look at today: down 140 points and a rally in the last 30 minutes of about 90-points. There's too much uncertainty (for me, at least) to justify upping my risk to try and capture larger moves, over banking a bunch of smaller moves.

I wish I had the faith in the markets to buy a contract and know it's going to move up 100 points and have the patience to see a position up 60, then only up 20, then march up to +80, then back to +60 and finally make it to +100...because I've seen a lot of trades that go from being a very nice winner to a loser when trying to hit the HR rather than hitting doubles.

I'll have to work on the patience, and I admit that there still is a lot of fear and uncertainty that drive many of my stops/targets...I'm still working on having some more faith. I'd rather be paid smaller profits for my efforts and potentially be out of the market looking to re-enter if/when that big move keeps on trucking rather than holding out in the hopes the market blazes in the direction of my trade and capture it all in 1 trade.

Thanks for the reply!

bmills

 

[volente_00]

Quote from bmills313:

Thanks, V.

Another issue I have is when/where to move to B/E if at all. I notice a lot of trades end up being scratch trades because I moved the stop up prematurely, mostly out of fear of a trade going against me, and the trade may retreat but it never hits the stop...yet would end up being a nice trade had I not moved to B/E as early as I did. I guess a scratch trade is lot better than a losing trade, but certainly not as good as a winner...

If you set an initial risk of say 15 points with a profit goal of 30-points where you want to get out...at what point would you move the stop up to B/E? I tend to think after 8-points I move to B/E but part of me wonders if I should wait until I make the initial risk back (15-points) and then move to B/E to allow the trade to run its course.

Any thoughts?

Thanks, again!

I have not traded ym in a few years but when I was actively trading it, i used a 20 point stop, and would scale out some at 20 points profit and move the stop to break even at that point. The problem with ym is that due to the low liqiudity you will find yourself getting taken out on whipsaws or stop runs especially if you keep your stop or trail to tight. This was one of the main reasons I switched over to trading ES.

 

[bmills313]

Quote from volente_00:

I have not traded ym in a few years but when I was actively trading it, i used a 20 point stop, and would scale out some at 20 points profit and move the stop to break even at that point. The problem with ym is that due to the low liqiudity you will find yourself getting taken out on whipsaws or stop runs especially if you keep your stop or trail to tight. This was one of the main reasons I switched over to trading ES.

Thanks, again V...

The system I currently use doesn't lend itself that well to wider stops in the 20-point range as the profit target I seem to use most times is 20-points and I'm not a fan of an even risk/reward.

Unfortunately, I'm currently only trading 1 contract. Trading multiple contracts would solve a lot of these problems as I could pull contracts off as profit levels are hit. I hope to be able to trade another contract soon, but for now I'm just learning how this system works with 1 contract.

I do see some of that whippy, stop-run action and sometimes it will shake me out. It doesn't bother me all that much and I've found the liquidity seems to work with my system...though I do get wandering eyes over to the ES with more smoothed out moves from A to B, practically no slippage and tons of volume/movement. I test on the ES but never trade it live...at least not yet.

I love my system right now and maybe I'll look to adapt it to risk more to try and grab more, or hone my ability to ID moves that are going to run longer than others.

Thanks!

bmills