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Questions for experienced daytraders
- Thread starter CheckM8t
- Start date
Depends on your strategy, but if daytrading I would suggest scaling in is not appropriate.
I do multiples of 2 contracts. Opening a trade with both, and closing 1 at a set profit, the other at a momentum change.
Looking at past profitability it can sometimes be the set target that saves me from losses on the day, but in wide run away days obviously the momentum profit gives very high returns, but happen less often.
I could probably live without the set profit target, but I makes me feel better.
I do multiples of 2 contracts. Opening a trade with both, and closing 1 at a set profit, the other at a momentum change.
Looking at past profitability it can sometimes be the set target that saves me from losses on the day, but in wide run away days obviously the momentum profit gives very high returns, but happen less often.
I could probably live without the set profit target, but I makes me feel better.
Quote from CheckM8t:
Thanks for the replies. A main reason for this thread is because when I enter a trade with a full position, I tend to hesitate because I can't seem to seperate the $$ associated to each trade.
If I start small, then add if price goes in the right direction, I tend to be more confident, less hesitant and don't get butterflies in my belly. However, it does definately complicate the trade. I don't know how each technique will perform, ong term.
Also, I am curious to hear other trader's thoughts on trade management.
it is very simple
before you place any trade you should put the odds in your favor as much as possible
the amount of shares you will trade will depend on how good the odds are at the time you decide to place the trade. reduce share size if odds of winning are low and increase share size if odds of winning are high
of course you must now know how to read and interpret the odds for if you get it wrong you will find yourself doing the opposite to what you should be doing, which is what most do
you must also be adequately funded for if you decide to trade 10K shares of tier 1 stock then you might need in the region of $175K in your daytrading account, depending on stock $price
that is also $100 per tick on the screen and the stock can easily move 10+ ticks in a very short time so you better know what to do if you see thousands of dollars disappearing in front of your eyes
the odds can also change at any time
I think a lot of it depends on what kind of trade you are doing and how volatile the stock is. For example, if you are buying in the direction of the main trend right near a key level on the chart (or key price an identified buyer is holding), then it can often make sense to enter your full position at once. On the other hand, if you are trying to catch a short-term top or bottom reversal play going against the current trend in a volatile stock, it usually makes sense to scale into your position gradually.
In general, if you are entering a full position all at once it can often be good to use a pretty tight stop. If you are gradually scaling into a position, you don't need a tight stop from your initial entry (so scaling in can increase your win rate).
The key to scaling in is to make sure that if you add to losing trades, you must also add just as aggressively (if not more) to winning trades. You don't want to get stuck in a situation where your losing trades are for more size than your winning trades.
In general, if you are entering a full position all at once it can often be good to use a pretty tight stop. If you are gradually scaling into a position, you don't need a tight stop from your initial entry (so scaling in can increase your win rate).
The key to scaling in is to make sure that if you add to losing trades, you must also add just as aggressively (if not more) to winning trades. You don't want to get stuck in a situation where your losing trades are for more size than your winning trades.
Quote from joe4422:
Just remember one thing. There are close to zero successful traders on this forum.
What he said.
Also .. if you have a HUGE edge, that happens to skew the odds 51/49 in your favour .. but then you scale your trades by paying another transaction cost, and another, and another .. you will be diluting your edge.
Commissions hurt your edge.
Paying the spread hurts your edge.
But most strategies discussed here have no edge anyway.
So you're at 50/50 minus costs...
Do you feel lucky?
Quote from NoDoji:
If the setups you trade have an average 50% win rate, the most profitable method of trading, in my opinion, is to place a profit target twice the size of your protective stop. This gives you enough overall profit to cover commissions and slippage and end up with a good overall profit.
Twice the profit target reduces hit rate to zero sum result.Go do some statistical analysis on historic data.
It is all about probabilities.
Ideally, you would have backtested the alternative approaches. Failing, that, i suspect that what nodoji suggested will be true over time, namely that it doesn't matter all that much.
Personally, I think payramiding is hard for daytraders, simply because you are adding after price has gone your way and you probably don't have a lot left in the move. I would do it only if I strongly suspected a big trend day was in the offing. Actually, you will do far better if you limit your trading only to big trend days.
Adding to losing trades is not a bad technique for day trading, providing you have iron discipline. You have to recognize that you are reinforcing a bad habit, but it allows you to turn a lot of losers into b/es. It can also destroy you if you let them get away from you.
Personally, I think payramiding is hard for daytraders, simply because you are adding after price has gone your way and you probably don't have a lot left in the move. I would do it only if I strongly suspected a big trend day was in the offing. Actually, you will do far better if you limit your trading only to big trend days.
Adding to losing trades is not a bad technique for day trading, providing you have iron discipline. You have to recognize that you are reinforcing a bad habit, but it allows you to turn a lot of losers into b/es. It can also destroy you if you let them get away from you.