During a baseball game, how many times do you see a home run hit? Same in trading..its rare. Sure you can risk 45% of your capital on 9 trades, then go all in on the 10th hoping you make everything back and then some, but you wont last long. IE a few weeks IF that long.
Swing for the fences or go for Singles
- Thread starter Smart Money
- Start date
soooo..... why even set your exit prices before each trade, if you will allow yourself to later change them? (after allowing the market to mess with you psychologicaly
so if the market is moving a lot downward, you will change your stop, in turn causing you to lose more money while hoping that the stock will rebound?
Quote from upandcomer:
soooo..... why even set your exit prices before each trade, if you will allow yourself to later change them? (after allowing the market to mess with you psychologicaly
The reason for selecting stops and likely initial targets in advance is that to preserve your overall edge you need to know if a potential setup meets your minimum risk:reward ratio. I may see an excellent setup and a price bar closes and signals a trade entry, but if the stop is $300 and the initial expected target is $280, I'll leave it alone.
Stops should be left alone or moved to break even if and when your rules indicate. My personal rules indicate leaving stops alone on with-trend trades and moving them to break even quickly on counter-trend trades. (I don't always follow the first part of that rule and it has cost me a lot in lost profits.)
Initial profit targets should be based on the most common price action that follows that particular setup. If you short a lower high, you should expect price to make a lower low and have an initial target somewhere below previous support. If price comes barreling toward your target, you'd be wise to move your target further or swing part of your position in case the market offers more.
Home runs should be the result of staying wisely-positioned as you trade. The way to do this is to trade with the trend, or off a solid trend reversal signal for counter-trend trades. By staying positioned with the trend you have a chance of riding a long trend, or being in a trade when a strong move in the trend transpires. For example, trend followers were well-positioned for May 6th's "flash crash", the home run of the year.
In trend following, it's usually safer to leave stops alone than to move them too quickly. Just yesterday I was positioned nicely with the new trend after a solid reversal signal was put in, moved my stop to break even when price moved $160 in my favor, got stopped out to the exact tick and then failed to re-enter the trade because I made the assumption that the price action was too choppy and range-bound. I stepped away and returned to find price was rapidly on its way to my initial $510 target and then it dropped another $300. That was clearly a home run on an instrument where I initially target $200-$400 profit per trade.
Swing for the fence or go for singles?
The wise systematic trader knows that if he always bunts, sometimes the fence comes to the infield.
The wise systematic trader knows that if he always bunts, sometimes the fence comes to the infield.
I am a man of few words because English is not my native language. But it is true that if you want to catch a ball in the stands you can't be leaving all the time to get hotdogs and beer. Jack was right about a lot of things, the applicable one in this case being that you have to be in the water to catch the wave. I trade nearly every morning whether I need to or not. Most days I am an idiot. Some days I am brilliant. The wife just sees the idiot part.
I always know my stop and target before pulling the trigger...I thought this was what MOST traders did also, no?. Why would anyone take a trade and not have their stop or target known before hand?. If I dont know my stops, I cant take a trade because the distance of my stop from my entry determines my size.
Also about your r/r..I mostly agree with what your saying, because I too prefer to have a small stop compared to profit potential, but what if you came across a system able to make 280 dollars 60%-70% of the time, and losing 300 30-40%?.. you still come out ahead in the end.
Because jobs news just hit the wire and price went up and this hypothetical trader got excited and impulsively found herself long 3 contracts 1 tick below the highest high since the 2010 pivot low of 1003.00 and then realized she had no idea where next resistance was because the ES hadn't been up there since late June and she's looking at a 5-min chart with a 8-hour view? (Not that I would do anything like that but, you know, hypothetically it could happen.)
It's just one of my rules, not to risk more than $250 per trade unless the expected target is at least twice that. I really don't need to take trades with that kind of R:R even if they win a large percentage of the time, because there are so many daily setups where I can place a $50 or $100 stop and have a target of $200 or better.