Stop-loss: Trail or not?

[imjohn]

imjohn,

How did you determine that your stop loss and and profit target will always be 1.5 : 1 (reward to risk)? Was this determined via back testing or just strictly personal risk and reward setting you chose for comfort, etc?

Stop is based on size of signal bar. Fluctuates trade-to-trade as sig bars vary in size. However, over 1000s of trades, averages are achieved. Target is simply the stop x 1.5.

Why 1.5x - I recorded thousands of sig occurrences on different time frames, different instruments, in different market conditions. Calculated how far the price traveled beyond my entry to determine potential targets. Tested out 1:1, 1.25:1, 1.5:1, 2:1, 3:1, etc. also tested various breakeven scenarios.. Found several profitable combinations, but 1.5:1 felt easiest to execute and drawdowns are easy to manage.

 

[SimpleMeLike]

Stop is based on size of signal bar. Fluctuates trade-to-trade as sig bars vary in size. However, over 1000s of trades, averages are achieved. Target is simply the stop x 1.5.

Why 1.5x - I recorded thousands of sig occurrences on different time frames, different instruments, in different market conditions. Calculated how far the price traveled beyond my entry to determine potential targets. Tested out 1:1, 1.25:1, 1.5:1, 2:1, 3:1, etc. also tested various breakeven scenarios.. Found several profitable combinations, but 1.5:1 felt easiest to execute and drawdowns are easy to manage.

Thank you imjohn for responding.

Great reponse and logical statical based testing.

For each of my manual trades, I have started calculating Maximum Favorable Excursion (MFE) and the MAE Maximum Adverse Excursion (MAE). This way after XXXX amount of trades, I can have some logical decision on a good profit target to consider taking profit aftr price action evualtion at the moment.

The good thing about your 1.5:1 is that you only need to be right about 50% of the time to be overall profitable and as you stated the drawdown is miminized.

 

[imjohn]

Thank you imjohn for responding.

Great reponse and logical statical based testing.

For each of my manual trades, I have started calculating Maximum Favorable Excursion (MFE) and the MAE Maximum Adverse Excursion (MAE). This way after XXXX amount of trades, I can have some logical decision on a good profit target to consider taking profit aftr price action evualtion at the moment.

The good thing about your 1.5:1 is that you only need to be right about 50% of the time to be overall profitable and as you stated the drawdown is miminized.

I like 1.5x and yes, only right about half the time. I like trailing too, but it requires more attention.

Today (and lately) I was trading ES with fixed method, and NQ with trailing method. Split size between the two.

Good conditions for my plan today (trending/good range/movement), and the results show it:

For ES (fixed), 4 wins (+15 ticks, +15 ticks, +15 ticks, +18 ticks). So a win streak, but losers would have been -10 or -12 ticks (based on sig sizes).

For NQ (trailing) 1 win, 3 losers (+268 ticks, -14 ticks, -18 ticks, -41 ticks). When I do trailing I don't win as much, but the winners are significantly larger than losers.

Point is that either method is ok. Trader just has to develop something that works and they can execute.

 

[SimpleMeLike]

Stop is based on size of signal bar. Fluctuates trade-to-trade as sig bars vary in size. However, over 1000s of trades, averages are achieved. Target is simply the stop x 1.5.

Why 1.5x - I recorded thousands of sig occurrences on different time frames, different instruments, in different market conditions. Calculated how far the price traveled beyond my entry to determine potential targets. Tested out 1:1, 1.25:1, 1.5:1, 2:1, 3:1, etc. also tested various breakeven scenarios.. Found several profitable combinations, but 1.5:1 felt easiest to execute and drawdowns are easy to manage.

Hello imjohn,

I thought about your post and wanted to share some good comments.

You mentioned something that most day traders in learning mode at times forget and also don't consider while seeking method(s) that fit their personality AND their capital. Even more, it is something I am starting to see during my back testing and forward testing and learning.

That is:

1. Tested on different instruments and different market conditions.
2. Tested different profitable exit strategy, but was comfortable and confident with one (even though the one tested is probably NOT the most profitable. I too, am seeing that is not all about the entry.
3. And most important "drawdowns are easy to manage". I can tell you that someone (including myself) would not really understand that (drawdown are easy to manage) until actually and seriously trading. Once that 3 losses in a roll on the +2:1 exit method start to sink in, the emotions and doubt start to raise its ugly head. So i understand this.
4. For longevity and mental sake "felt easiest to execute". As traders, we have to remember we are trading for the long haul, we have to enjoy and be simple with what we are doing.

 

[SimpleMeLike]

I like 1.5x and yes, only right about half the time. I like trailing too, but it requires more attention.

Today (and lately) I was trading ES with fixed method, and NQ with trailing method. Split size between the two.

Good conditions for my plan today (trending/good range/movement), and the results show it:

For ES (fixed), 4 wins (+15 ticks, +15 ticks, +15 ticks, +18 ticks). So a win streak, but losers would have been -10 or -12 ticks (based on sig sizes).

For NQ (trailing) 1 win, 3 losers (+268 ticks, -14 ticks, -18 ticks, -41 ticks). When I do trailing I don't win as much, but the winners are significantly larger than losers.

Point is that either method is ok. Trader just has to develop something that works and they can execute.

imjohn,

Good trading!!

Your right on the sentence in blue and I can tell you from experience what ever method is chosen it must be doable in the environment the trader is located. I trade CL only and I am currently testing fixed exit methods 1.) profit target at local support or resistance 2.) profit target at +10 ticks while recording MFE 3.) 4 different trailing stop methods with the mindset of reduce risk while waiting for bigger profits.

My stop loss is not static, but based on price action/structure at the time of trade entry and ranges between 20-30 ticks. Currently working on reducing that risk

Each method is profitable so far, but what I am realizing is at this stage in my trading and trading capital and mindset is , I can only pick one (for now) that fits my style of trading that will bring some confidence and consistency and without doubt after a few losses.

 

[SimpleMeLike]

I like 1.5x and yes, only right about half the time. I like trailing too, but it requires more attention.

Today (and lately) I was trading ES with fixed method, and NQ with trailing method. Split size between the two.

Good conditions for my plan today (trending/good range/movement), and the results show it:

For ES (fixed), 4 wins (+15 ticks, +15 ticks, +15 ticks, +18 ticks). So a win streak, but losers would have been -10 or -12 ticks (based on sig sizes).

For NQ (trailing) 1 win, 3 losers (+268 ticks, -14 ticks, -18 ticks, -41 ticks). When I do trailing I don't win as much, but the winners are significantly larger than losers.

Point is that either method is ok. Trader just has to develop something that works and they can execute.

imjohn,

When do you make the decision to stop trading for the day or do you take all trading signal opportunities?

 

[imjohn]

3. And most important "drawdowns are easy to manage". I can tell you that someone (including myself) would not really understand that (drawdown are easy to manage) until actually and seriously trading. Once that 3 losses in a roll on the +2:1 exit method start to sink in, the emotions and doubt start to raise its ugly head. So i understand this.

Early on, I was shooting for 4:1 or 5:1. It did work, but the losing streaks (in low win rate systems) are just not for me. Plus, after losing 10 or 15 in a row, if I missed a winner for whatever reason, would have a meltdown.

Each method is profitable so far, but what I am realizing is at this stage in my trading and trading capital and mindset is , I can only pick one (for now) that fits my style of trading that will bring some confidence and consistency and without doubt after a few losses.

Same. my current method is not the most profitable, but I can execute the strat with very few mistakes, it fits my personality and attention span, and I'm satisfied with the results. There's so many variables one can play with, but if they can't execute (and especially when volatility picks up like it did this morning), things will quickly fall apart.

When do you make the decision to stop trading for the day or do you take all trading signal opportunities?

I stop at 15:30 ET unless I'm in a trade, then I ride it out til completion. No new entries after 15:30. On Fed days, I close up at 13:30. I take any/all sigs. I don't care if I lose 3,4,5 or any amount in a row, in a single day or over multiple days. There's been days where I lose the first 3 or 4 and win the next 4 or 5. If it's valid, I'm in. 50% win rate and losing streaks are expected. Sometimes they occur in a single day, or over multiple days.

The other days I probably won't trade (or reduce to 1/2 size), is when the prior day RTH range, avg 3 day RTH range, and avg 5 day RTH range (for my instrument), all drop below a certain threshold. If the market isn't moving my win rate drops and I don't enjoy it.

 

[SimpleMeLike]

Hello imjohn,

Early on, I was shooting for 4:1 or 5:1. It did work, but the losing streaks (in low win rate systems) are just not for me. Plus, after losing 10 or 15 in a row, if I missed a winner for whatever reason, would have a meltdown.

YES, that is what I am discovering as well seeking the higher than 1:1. After that "mistake trade" that leads to a loss, sitting an watching ticks go away is not easy. I do not focus on the Risk vs reward per trade, just the trade it self. But I understand your point. Everyone wants the + 2:1 trade, but not everyone can sit for every trade waiting.

my current method is not the most profitable, but I can execute the strat with very few mistakes, it fits my personality and attention span, and I'm satisfied with the results.

Yes, agreed. I am still working on what fits my personality.

I stop at 15:30 ET unless I'm in a trade, then I ride it out til completion. No new entries after 15:30. On Fed days, I close up at 13:30. I take any/all sigs. I don't care if I lose 3,4,5 or any amount in a row, in a single day or over multiple days. There's been days where I lose the first 3 or 4 and win the next 4 or 5. If it's valid, I'm in. 50% win rate and losing streaks are expected. Sometimes they occur in a single day, or over multiple days.

It is better to take all trades, I agree. And you have statical evidence that shows multiple losses is expected.

 

[SimpleMeLike]

Why 1.5x - I recorded thousands of sig occurrences on different time frames, different instruments, in different market conditions. Calculated how far the price traveled beyond my entry to determine potential targets. Tested out 1:1, 1.25:1, 1.5:1, 2:1, 3:1, etc. also tested various breakeven scenarios..

imjohn,

Did you perform manual backtesting or automated programmed back testing?

 

[imjohn]

imjohn,

Did you perform manual backtesting or automated programmed back testing?

Manual, but I incorporated numerous reliability tests.

Process was labor intensive and took several months, but prior to trading I spent a decade in a highly analytical field, searching for needles in haystacks of data, so tons of screen time was nothing new.