Trailing stop.
Taking Profits
- Thread starter LetItRide
- Start date
Just imagine that your stop is your profit target.
You are so confident your target (stop) is going to get hit that you don't even bother entering a stop (profit target.)
No matter how much it moves against you, you just hang on until your little profit target (stop) gets hit.
Now how long do you think you can do this before one big move wipes you out?
You are so confident your target (stop) is going to get hit that you don't even bother entering a stop (profit target.)
No matter how much it moves against you, you just hang on until your little profit target (stop) gets hit.
Now how long do you think you can do this before one big move wipes you out?
it also depends on what timeframe you are accustomed to.if it`s lower timeframe,it usually provides low price range and you set up the 'targets' within that lower environment,therefore become 'accustomed',whereas,when the big reversal occures in the higher timeframe,you still set up the targets within your trading environment and stay 'frustrated',''wow,the price went further then i`d initially thought,i shoulda let it ride''
if your trading lower timeframe don`t be surprised if the price goes higher then your target!
The S&P 500 has an ATR of between 15 and 20 points/day. If you can take 3 points/day (including Sundays) with 5 ES contracts, you are making about $250K/year pre-tax, which won't make you part of the "1%", but gets you pretty close to the bottom of it. Do it with 20 contracts and you're making $1 million/year.
So, not only is there good money in missing the tops and bottoms of moves, there's good money in missing 80% of the day's moves.
@LetItRide
Let me add my consideration on this sense it is something I'm currently working on.
First, you have to understand these are different trade concepts. You are dealing with 2 trade ideas:
1. Trend trade or momentum trade. Goal maximize net profits
2. Measured move/target trade. Goal maximize high probability profits, high win ratio
I have a system that I backtest that I built in 2 variations: no target version and a target version. I will switch between them based on market conditions. In some cases, I've ran the trend version and suffered a loss where the target version would have made a profit and in other cases I ran the target version where the trend version would have ran off and made a bundle in profits.
I'm currently experimenting with setting targets and going with the "sure thing" in my trading style. In past, I was very much sure that getting those trend profits was critical, i.e the big winner. It certainly helps but not sure if it is required.
So, in a nut shell these are 2 different goals.. a profit taking system typically is maximizing toward risk/adjusted return whereas a trend system is maximizing toward net return. In general, you want to be clear what you are aiming for and use leverage appropriately -- i.e less leverage with trend.
Also, I will say that trading trend versus targets is much more difficult simply because the profit/loss swings will be greater.. If you've a working system that uses targets then you'll win a lot and then take an occassional loser.. You won't "give back" as much either. In general though, you have to look at conditions that are causing the trade to be a success and see if they remain true.
As to what logic_man says, its very true. If you use leverage you don't need to hit a big win because your size. I mean if you size bigger - just take a small chunk. The difficulty in such trading is that you absolutely have to manage the size of losses.
The "governor" on the equation is really the amount of solid opportunities you have. The more opportunities then the more you can "afford" to just take what you are comfortable with.. If you're trading fewer opportunities then you probably have to catch the move.
The outlook is different in these styles. The "day trader" style is aimed at seeking constant and consistent profits across most types of days. The "trend trader" is aimed at seeking exceptional and rare opportunities on opportune days. It is similar to the market maker vs speculator paradigm.
I am experimenting with both styles. I was very much against the "day trader" style for a long time but am now looking at that style as possibly the primary way I will trade.... My change of outlook was based on a belief that I was better at just consistently making profit then hitting big home runs. Even so.. I am also seeing the 'truth' in that without hitting a few home runs that it is more difficult to win because of "normal losses".
What I'm looking at now is actually trading both paradigms.. I never take a partial profit though because I'm almost always right about my targets. I think that scaling out is a weakness that is based on one obligating responsibility for the trade. So, my principle is never to scale out. But it could make sense if one were sized too big for a trend a trade to scale out as a risk reduction measure. The end result in trading both styles would be more profit then the target version but a smoother ride then the trend only version.
Again.. I look at what I have as an advantage I have as a small trader and the advantages are: I'm more likely to get filled at my limit and I can get into a move easier with less slippage. So, I'm always thinking.. what really is my advantage.
I guess what I want to say is that it can be hard either way.. to shoot for a big trend and have a good profit and then take a loss or to take a profit only to see price move higher. I will typically jump back in if I'm awake and watching the market and knowing the forces acting on it.
But yes.. for me I've decided for now I will shoot for the sure thing. Just consistent winning..
Important to note that the optimal style will change with market conditions.
Let me add my consideration on this sense it is something I'm currently working on.
First, you have to understand these are different trade concepts. You are dealing with 2 trade ideas:
1. Trend trade or momentum trade. Goal maximize net profits
2. Measured move/target trade. Goal maximize high probability profits, high win ratio
I have a system that I backtest that I built in 2 variations: no target version and a target version. I will switch between them based on market conditions. In some cases, I've ran the trend version and suffered a loss where the target version would have made a profit and in other cases I ran the target version where the trend version would have ran off and made a bundle in profits.
I'm currently experimenting with setting targets and going with the "sure thing" in my trading style. In past, I was very much sure that getting those trend profits was critical, i.e the big winner. It certainly helps but not sure if it is required.
So, in a nut shell these are 2 different goals.. a profit taking system typically is maximizing toward risk/adjusted return whereas a trend system is maximizing toward net return. In general, you want to be clear what you are aiming for and use leverage appropriately -- i.e less leverage with trend.
Also, I will say that trading trend versus targets is much more difficult simply because the profit/loss swings will be greater.. If you've a working system that uses targets then you'll win a lot and then take an occassional loser.. You won't "give back" as much either. In general though, you have to look at conditions that are causing the trade to be a success and see if they remain true.
As to what logic_man says, its very true. If you use leverage you don't need to hit a big win because your size. I mean if you size bigger - just take a small chunk. The difficulty in such trading is that you absolutely have to manage the size of losses.
The "governor" on the equation is really the amount of solid opportunities you have. The more opportunities then the more you can "afford" to just take what you are comfortable with.. If you're trading fewer opportunities then you probably have to catch the move.
The outlook is different in these styles. The "day trader" style is aimed at seeking constant and consistent profits across most types of days. The "trend trader" is aimed at seeking exceptional and rare opportunities on opportune days. It is similar to the market maker vs speculator paradigm.
I am experimenting with both styles. I was very much against the "day trader" style for a long time but am now looking at that style as possibly the primary way I will trade.... My change of outlook was based on a belief that I was better at just consistently making profit then hitting big home runs. Even so.. I am also seeing the 'truth' in that without hitting a few home runs that it is more difficult to win because of "normal losses".
What I'm looking at now is actually trading both paradigms.. I never take a partial profit though because I'm almost always right about my targets. I think that scaling out is a weakness that is based on one obligating responsibility for the trade. So, my principle is never to scale out. But it could make sense if one were sized too big for a trend a trade to scale out as a risk reduction measure. The end result in trading both styles would be more profit then the target version but a smoother ride then the trend only version.
Again.. I look at what I have as an advantage I have as a small trader and the advantages are: I'm more likely to get filled at my limit and I can get into a move easier with less slippage. So, I'm always thinking.. what really is my advantage.
I guess what I want to say is that it can be hard either way.. to shoot for a big trend and have a good profit and then take a loss or to take a profit only to see price move higher. I will typically jump back in if I'm awake and watching the market and knowing the forces acting on it.
But yes.. for me I've decided for now I will shoot for the sure thing. Just consistent winning..
Important to note that the optimal style will change with market conditions.
Why do you have a target, if you do not take profit there ???
In the many different market situations, it is sometimes the best to take all the profit on the target.
In other situations, it is the best to take only a part and let the rest run.
But in my holy opinion, not taking profit (a part or all) on YOUR target is very stupid.
There are always scenarios, were you would have made so much more money, with letting all run...... BUT, thats not REALITY.....
The perfect Master Trader, trades only the average odds.....
If your target is hit, you got what you want, so take profit....
If all looks so strong to continue a good way more into your direction, then let a little bit run....
Mostly on the target, the price comes back a little bit, WHY ?
Yes, correct, not only i am taking profit there !!!
It depends on the market situation and on your trade risk plan.
If you can are on your target and you have in the same time a new trade which you could trade, then you could close all and use the new fresh buying power to jump on the new trade.
But if you are not sure what you are doing, its better to let a part of your position run.
Once again, to do not take profits (part or all) on your target is the STUPIDEST THING a Trader Fool can do.
Greed is bad in the trading process.
Greed is good in the trading plan creation process.
The same for fear.
Why do you have a target if you do not use it ??? Huh ???
I will share the theory in not taking profits. Let's image we enter a trade for Reason A. The market will fluctuate between our stop and an equidistant target call it C-D randomly unless Reason A is true, in which case the market will surpass our C by a large amount. Profit thus comes not from hitting target C more then D is hit but by capturing C+"ValueReasonA".
I have came at this from both angles. I've hit predicted the market to go my target and then try to get even a tick more and lost the entire profit many times. I've also did well in not setting targets..
I used to always say, I'd predict Y to be a fair price and then say if I just get the fair price then I won't be able to profit so I must get better then Y. I could have invariable got Y but gave everything back just to get Y1. It wasn't because I was greedy but because I felt I had to get the big winner to win.
But then I started to look at what I did well which was just to consistently predict market. I found I was very right in short term. Now I am thinking about it as a market maker, I'll offer even Y-1 with the belief I've got a near sure thing, i.e I'm willing to offer at a better price then anyone else so that I can move product.
I entertain multiple paradigms and haven't came to any conclusion. One of the I guess reasons for the trend style is the belief the market is mostly priced right most of the time so you know you have a limited opportunity to go in and place a big bet and you want to get everything you can.
That's how I used to view the market. I looked at day trader like fools. You know I basically look at them fools because I'm coming into the market when I have an advantage and yet you're trying to jump into market every day you know..
I've kinda turned a new leaf where I say I just want make my set profit and be done. Its different. Very different. I think the rules of different too. Again the idea of quitting when starts to lose didn't make any sense to me when I was focused on taking every opportunity whereas with the ability to jump in at any and trade size then you need more discipline and the ability to shut down the losing when you're not reading the market well.
So, I guess it boils down too:
1. How much size you can trade
2. How many opportunities you have to trade
With a small account, you're leveraged to the maximum or over leveraged and yet you can't trade any size. With a larger account, you can actually trade size while being leveraged to a lesser degree.
In general, also a target is not the inverse of a stop. A stop is a very expensive form of insurance because it doesn't really work. It doesn't pay if we take a loss but rather we take a loss to avoid taking a larger loss. So, I'll try to manage my risk more with targets then stop losses. A target works much more like one would expect an insurance to work. Stop losses tend to create an ugly stair-stepping equity curve even with a working system.
I have came at this from both angles. I've hit predicted the market to go my target and then try to get even a tick more and lost the entire profit many times. I've also did well in not setting targets..
I used to always say, I'd predict Y to be a fair price and then say if I just get the fair price then I won't be able to profit so I must get better then Y. I could have invariable got Y but gave everything back just to get Y1. It wasn't because I was greedy but because I felt I had to get the big winner to win.
But then I started to look at what I did well which was just to consistently predict market. I found I was very right in short term. Now I am thinking about it as a market maker, I'll offer even Y-1 with the belief I've got a near sure thing, i.e I'm willing to offer at a better price then anyone else so that I can move product.
I entertain multiple paradigms and haven't came to any conclusion. One of the I guess reasons for the trend style is the belief the market is mostly priced right most of the time so you know you have a limited opportunity to go in and place a big bet and you want to get everything you can.
That's how I used to view the market. I looked at day trader like fools. You know I basically look at them fools because I'm coming into the market when I have an advantage and yet you're trying to jump into market every day you know..
I've kinda turned a new leaf where I say I just want make my set profit and be done. Its different. Very different. I think the rules of different too. Again the idea of quitting when starts to lose didn't make any sense to me when I was focused on taking every opportunity whereas with the ability to jump in at any and trade size then you need more discipline and the ability to shut down the losing when you're not reading the market well.
So, I guess it boils down too:
1. How much size you can trade
2. How many opportunities you have to trade
With a small account, you're leveraged to the maximum or over leveraged and yet you can't trade any size. With a larger account, you can actually trade size while being leveraged to a lesser degree.
In general, also a target is not the inverse of a stop. A stop is a very expensive form of insurance because it doesn't really work. It doesn't pay if we take a loss but rather we take a loss to avoid taking a larger loss. So, I'll try to manage my risk more with targets then stop losses. A target works much more like one would expect an insurance to work. Stop losses tend to create an ugly stair-stepping equity curve even with a working system.