Smaller profits yields better results?

[brownsfan019 17]

So I resisted starting this thread initially, but for whatever reason, felt like sharing today.

 

In my pursuit of a better exit strategy (as evidenced in my time at the WRB thread) I've looked and re-looked at just about everything - Fibs, pivots, trailing, fixed, etc. etc. And for me, I came to this conclusion - simpler is better and taking small bites out of the market is much easier than trying to devour the elephant at once. Yes, we'd all like to take one trade a day and let it run on trending days and stay out during chop or whatever, but you don't know what type of day is ahead of you till after the fact. And since you can't win if you don't play, that's no use to me.

 

So I went back and forth on this topic over and over recently - the topic of how/when to best exit for me and my trading methodology. And while I had been using a +2 point target before and during my WRB analysis, one thing stood out and the light went on - getting +2 on my trades with no risk to my initial stop was pushing the limits some days. Some days +2 is just not there. And then I realized that +1 - +1.5 was very achievable time after time. So then I asked myself if those extra ticks were worth the additional risk and stress to get. I of course thought probably not.

 

And then after realizing that taking +1.25 was achievable over and over, and then realizing that sometimes you just have to jump back onto a trade if another valid signal arises, I was able to become more nimble this week, esp today (Wed 6/6).

 

In a nutshell, I found for me that taking LESS in profits MADE me MORE money (at least this week and some previous backtesting). I realize that this could blow up in my face at a later date, but I'm going on record here with my observations. The WRB thread helped immensely not b/c I realized that WRB's are not going to work for me, but with the comments others made, esp in the last few pages, I realized that I could take less in profits each individual trade and make more money each day. Or it at least has the potential to do so.

 

The downside - some would say that I am 'over-trading' now. And at first glance, I get that. But if I told you that I could show you a way to make some money every day in the markets taking 3-7 trades or you could possibly make substantially more but would require many, many more trades (more on that later), would you be interested? I'm all about maximizing my work time. If I could take one trade and make a ton of money, I would. I have not found that however. What I have found is that for me (and this might not work for you, so please keep that in mind) taking multiple trades during the day and going for realistic targets is much easier. And to be perfectly honest, it's more fun. I'm active all day and really feel like I am doing my job. I don't know about others here, but taking 1 or 2 trades a day when you are a daytrader sucks. I know that if that works for you, then great and all that stuff, so please spare the lectures on why taking 1 or 2 is better. If it works for you, great, start your own thread.

 

I've attached a couple very, very simple scenarios of how I have seen this way of trading work better for me. Please bare with me as these were drawn using SnagIt and I did it quickly for purposes of sharing here.

 

Scenario 1 - Tending Day

 

Scenario 2 - Non-Trending Day

 

Basically, by going for more realistic targets on the ES, my profits are taken out much more often and being flexible provides a way to get back into a trade if need be.

 

The key for me by looking for smaller targets is that on choppy or more range bound days, I can actually take some profits out of those moves. By going for +2 and/or a WRB, it wasn't always there on some of those days.

 

That's probably enough for now. I could go on and on some more, but I'll try to post some updates/stats of how things are going here. I would strongly suggest to those looking for a possible exit plan to consider bringing your targets CLOSER vs. going for more!

[Guest cooter]

Try entering an ES position with 3 targets: 1.25pts, 2pts, and 4 pts +.

 

Use 1/3 position on each target with a reasonable initial stoploss of, say 2 pts ( 8 ticks).

 

When your first target is met, move the stop loss to breakeven (entry).

 

If the second is met, move your stop loss up to entry + 1.25pts, and trail your stop from there.

 

Assuming that your entry criteria and trading plan is valid, you should be able to at least get your first target, right?

[walterw 10]

Ok Brown ¡¡ welcome to the scalpers school ¡¡ thats what scalping its all about... not getting greedy on the exits but making eventualy some more trades... on the same aproach having a decent RRR...

 

Brown, you want to take a look at "flips" exits", you will notice two types of exits being dwelt with... one is the scalper exit, wich would be this 1-2 scenario you present here... and the other is the runner exit that cooter is mentioning if you can scale your position... thus with this runner you can cover better the next potential stops...

 

Obviously if you can get good at reading momentum... you can discretionally close your entire position on the scalper exit when market is slow and you are taking trades that are not pretended to make super moves...

 

Let me tell you Brown... you can perfectly do a daily target there that will make you ...

 

Certainly this aproach its not suited for all traders... but good sincere considerations here... cheers Walter.

[lrushing 10]

Brownsfan019,

 

It's seems that you have discovered your style of trading and a comfort level that meets your goals. One suggestion, if I may, is that you incorporate in your trading techniques, "high odds" trades vs. "low odds" trades.

 

High odds trades have a natural tendency to be associated with low risk (good technical stops based on price action) and good reward potential if successful and low odds trades in a simple form can be viewed as the majority of every thing else.

 

A significant number of traders understand Reward-to-Risk or Risk-to-Reward ratios, but may not apply them to their daily trading routine. So the more trades you experience and take, if the % is more low odds trades then for example, you will need to ensure that you let some of your high odds trades reach their target in order to offset the losses from the high number of low odds trades, breakeven and then try to make some additional profits. Hence it's very crucial to understand whether you are taking a lot of "high odds" trades or a lot of "low odds" trades.

 

Once you reduce the number of "low odds" trades you will see significant improvements in "FREE" trades and your profits.

[walterw 10]

Brownsfan019,

 

It's seems that you have discovered your style of trading and a comfort level that meets your goals. One suggestion, if I may, is that you incorporate in your trading techniques, "high odds" trades vs. "low odds" trades.

 

High odds trades have a natural tendency to be associated with low risk (good technical stops based on price action) and good reward potential if successful and low odds trades in a simple form can be viewed as the majority of every thing else.

 

A significant number of traders understand Reward-to-Risk or Risk-to-Reward ratios, but may not apply them to their daily trading routine. So the more trades you experience and take, if the % is more low odds trades then for example, you will need to ensure that you let some of your high odds trades reach their target in order to offset the losses from the high number of low odds trades, breakeven and then try to make some additional profits. Hence it's very crucial to understand whether you are taking a lot of "high odds" trades or a lot of "low odds" trades.

 

Once you reduce the number of "low odds" trades you will see significant improvements in "FREE" trades and your profits.

 

Hi Irushing ... interesting that last term "FREE" trades... what would that exactly mean ? thanks Walter.

[lrushing 10]

A lot of traders accept that day trading is a game of "odds". So the more trades you can get that go from a risk-based trade with some predetermined stop loss amount to a trade with a breakeven stop,(i.e, FREE trade) the better your chances of making profits consistently.

[walterw 10]

A lot of traders accept that day trading is a game of "odds". So the more trades you can get that go from a risk-based trade with some predetermined stop loss amount to a trade with a breakeven stop,(i.e, FREE trade) the better your chances of making profits consistently.

 

Ok I got it... thanks for that Irushing... by the way do you do scalping or more day trading yourself ?

[lrushing 10]

Both, If the market is demonstrating a sideways consolidation, I use scalping tactics. If the market is clearly demonstrating a trend, then I will day trade and swing trade the markets.

[walterw 10]

Both, If the market is demonstrating a sideways consolidation, I use scalping tactics. If the market is clearly demonstrating a trend, then I will day trade and swing trade the markets.

 

 

Is it possible to ask you a critic of my "flip" trade... I would be delighted to hear your opinion on it... http://www.traderslaboratory.com/forums/f34/flip-trade-support-resistance-changing-roles-1714.html would really apreciate that.... cheers Walter.

[Guest cooter]

A lot of traders accept that day trading is a game of "odds". So the more trades you can get that go from a risk-based trade with some predetermined stop loss amount to a trade with a breakeven stop,(i.e, FREE trade) the better your chances of making profits consistently.

 

Exactly.

 

Hit your first initial target (in this case 1.25 ES pts - 5 ticks).

 

Then move your stop up to breakeven.

 

The rest is gravy, far as I'm concerned.

[brownsfan019 17]

Hey guys,

Great responses already, thanks!!!

 

I will take the ideas into consideration.

 

In response to particular posts:

 

Try entering an ES position with 3 targets: 1.25pts, 2pts, and 4 pts +.

Use 1/3 position on each target with a reasonable initial stoploss of, say 2 pts ( 8 ticks).

When your first target is met, move the stop loss to breakeven (entry).

If the second is met, move your stop loss up to entry + 1.25pts, and trail your stop from there.

Assuming that your entry criteria and trading plan is valid, you should be able to at least get your first target, right?

 

Cooter - I've considered a setup like the suggestion many times over. What I have found, for the way that I trade, getting the 1.25 pts over and over is easier and more likely than catching the +2 or +4. I'm not saying that trades don't go there (eventually) but I'm much more interested in grabbing the 1.25 and then looking for a reason to jump back in if one presents itself.

 

Ok Brown ¡¡ welcome to the scalpers school ¡¡ thats what scalping its all about... not getting greedy on the exits but making eventualy some more trades... on the same aproach having a decent RRR...

Brown, you want to take a look at "flips" exits", you will notice two types of exits being dwelt with... one is the scalper exit, wich would be this 1-2 scenario you present here... and the other is the runner exit that cooter is mentioning if you can scale your position... thus with this runner you can cover better the next potential stops...

Obviously if you can get good at reading momentum... you can discretionally close your entire position on the scalper exit when market is slow and you are taking trades that are not pretended to make super moves...

Let me tell you Brown... you can perfectly do a daily target there that will make you ...

Certainly this aproach its not suited for all traders... but good sincere considerations here... cheers Walter.

 

Walter - Yeah, I guess by most definitions this way of trading is more scalping. I always considered scalping going for 1-2 ticks, but anyone could argue that 5 ticks is scalping. It won't be easy at first, but time will tell if I can make it work.

 

Brownsfan019,

 

It's seems that you have discovered your style of trading and a comfort level that meets your goals. One suggestion, if I may, is that you incorporate in your trading techniques, "high odds" trades vs. "low odds" trades.

High odds trades have a natural tendency to be associated with low risk (good technical stops based on price action) and good reward potential if successful and low odds trades in a simple form can be viewed as the majority of every thing else.

A significant number of traders understand Reward-to-Risk or Risk-to-Reward ratios, but may not apply them to their daily trading routine. So the more trades you experience and take, if the % is more low odds trades then for example, you will need to ensure that you let some of your high odds trades reach their target in order to offset the losses from the high number of low odds trades, breakeven and then try to make some additional profits. Hence it's very crucial to understand whether you are taking a lot of "high odds" trades or a lot of "low odds" trades.

Once you reduce the number of "low odds" trades you will see significant improvements in "FREE" trades and your profits.

 

Leroy - in my opinion, I'm not sure that any trades have a real high or low odds scenario when going for 1.25 ES points. What I mean is, just about any trade can realistically hit that profit target. I've often thought of ways to filter trades but in the end, I come back to just take all your setups, esp if just looking for a 5 tick pop in your direction.

 

 

Thanks for the feedback guys and I will do my best to post some statistical updates here as well!

[TinGull 10]

browns, have you changed the timeframe (or...volume frame I guess) you're watching now that you've narrowed down your targets?

[Nick1984 10]

Good question TinGull, exactly what I was thinking.

 

Its a very interesting topic, and I'm glad someone put this up in such a coherent manner.

 

Question: If your jumping in and out that often to chase your 5-8 ticks over a few different trades, doesn't that small number of ticks get eaten up by commissions?

[brownsfan019 17]

browns, have you changed the timeframe (or...volume frame I guess) you're watching now that you've narrowed down your targets?

 

I'm still using a 5000 VBC Chart. Entries are little more 'flexible' now, but so far, well worth it.

 

Question: If your jumping in and out that often to chase your 5-8 ticks over a few different trades, doesn't that small number of ticks get eaten up by commissions?

 

Nick - commissions are important when taking 1.25 on the ES. That's for sure. My current negotiated rate is under $3.00 round trip and that will be changing soon after the broker sees the trading over a longer timeframe.

 

As time progresses however, I will have to look at just getting a CME seat for purposes of lower fees. If anyone has info on this, please start a thread!!

[TinGull 10]

With your 5000V charts, how are you placing your stops differently than before? I assume you're taking on a little less risk for a little less reward than before?

 

I only ask because this is something I was grappling with for a while...time frames. I used to trade an 89 tick chart looking for 50 point moves, and then realized the minutia I was seeing wasn't conducive to my targets. I would love to have a couple 20 point trades a day on average, and getting even 20 points off an 89t chart wasn't something that was easy. When I moved to even a 5 minute chart I was able to take out noise and get bigger profits, but had to take on more risk...but got stopped out less.

 

So...maybe its the opposite for you now. Taking smaller profits, smaller risk...but still the same timeframe? Im but only a teeny fish in the pool, and you're tons more experienced than I, but just thought I'd pose the Q since that was an issue I recently worked out with my coach.

[Guest cooter]

commissions are important when taking 1.25 on the ES. That's for sure. My current negotiated rate is under $3.00 round trip and that will be changing soon after the broker sees the trading over a longer timeframe.

 

As time progresses however, I will have to look at just getting a CME seat for purposes of lower fees. If anyone has info on this, please start a thread!!

 

1.25pt on the ES is 5 ticks, right? At $12.50/tick, that's $62.50 gross profit per contract before commissions.

 

Let's say, for the sake of argument, that your rate is $3 r/t all-in per car.

 

That's $59.50 net per contract. So then, what is the RRR on your setup that would lead you to seek an even lower commission?

[walterw 10]

1.25pt on the ES is 5 ticks, right? At $12.50/tick, that's $62.50 gross profit per contract before commissions.

 

Let's say, for the sake of argument, that your rate is $3 r/t all-in per car.

 

That's $59.50 net per contract. So then, what is the RRR on your setup that would lead you to seek an even lower commission?

 

He can do ok with 5 tick target and 3 tick stop.... anyway I would add a runner for momentum conditions and let this runners profit absorb future stops...

[brownsfan019 17]

Tin - my initial stop placement has not changed that much to be honest. Here's how it's worked for me:

 

> Initial stop was always good in my opinion, some as little as 1-2 ticks.

 

> When to exit was causing concern b/c of the fact that my stops are 'closer'. So, in order to get that +2 or +3, I might have to be willing to accept some heat on the trade, which was fine; however if you have a 2 tick stop and going for 8 ticks, the Risk/Reward looks incredible, but that 2 tick stop can be EASILY taken out.

 

So, I thought, keep the stops at 4 ticks or lower (about 3 on average) and go for 5 ticks. I understand that the risk/reward may not be textbook or what others would call ideal, but for me, it works so far.

 

In the end, you need to know where your break-even point is. In other words, what % of your trades can you win and still make money. For me right now, it's approx. 40%. Well, hitting 40% is not the problem. Now it's a matter of how much over 40% I want to get!

 

You bring up some good points for consideration though when trading for smaller profits, but more often (I'll start a list here and we can update as needed):

KEYS TO TRADING WITH A SMALLER REWARD, HIGHER FREQUENCY TRADING PLAN:

 

1) Commissions are important here, negotiate the lowest rate possible. At some point, need to consider a seat on the exchange.

 

2) Initial stop placement is critical. While risk/reward is always a consideration, in this setup your risk/reward is going to be closer to 1 to 1. If you can't accept that, do not attempt this.

 

3) Higher frequency can mean A LOT of trades for some people. I'll update my stats from this morning shortly.

 

4) Smaller profit targets SHOULD AND MUST increase your win %. If you are still not hitting profit targets after bringing them, something needs adjusted.

[brownsfan019 17]

Here's today's actual stats to help with the questions:

NUMBER OF TRADES: 29

 

GROSS ES PTS: 15.00

 

NET ES PTS: 13.6 (2.32 COMMISSION RATE)

 

WIN %: 67.8%

 

-------------------------

 

That's my numbers from the AM session.

 

Some might like that, some might not.

 

I am personally cool with that.

 

The key here is that I was extracting profits when there wasn't huge moves taking place. For example - I shorted 3 times near the open. Two of these produced profits. Take a look at your ES chart at the open - there's not much movement there for shorts, right? Well, taking 1.25 twice and one loss of .75 yielded profits. Going for a larger profit and that would have been a full loss. I prefer to make money.

[walterw 10]

Brown : I dont know if you will ever share your setups, but I would love to learn them... should you consider this thread about sharing.. http://www.traderslaboratory.com/forums/f96/altruistic-traders-why-1871.html as too my experience I had only been capitalized sharing my entire setups... cheers Walter.

[TinGull 10]

Wow, nice work! 29 trades...in the morning alone...phew! Im sweatin just thinking about that hahaha

[brownsfan019 17]

Wow, nice work! 29 trades...in the morning alone...phew! Im sweatin just thinking about that hahaha

 

Tin - understand that this is a learning experience for me as well since I was trading no more than 10 in a typical day. It's an adjustment to say the least.

 

But like I mentioned, it's much more 'fun' doing my job. I know that it's not supposed to be about fun, but if you enjoy your job, it makes life a little easier in my opinion. It was just an adjustment on my end - instead of saying I wish I caught that entire move with one trade, I am saying glad that I caught a good part of that move with many trades.

 

Here's another example: around 12:30pm EST we started a nice downtrend. Since then, I have taken about 14 trades. All shorts, but not all worked. Of the 14, 6 failed and 8 worked. So a 57% win rate. Nothing exciting if you just look at that number, but it's yield nice returns as all wins are 1.25 and stops are .75 on average.

[brownsfan019 17]

Brown : I dont know if you will ever share your setups, but I would love to learn them... should you consider this thread about sharing.. http://www.traderslaboratory.com/forums/f96/altruistic-traders-why-1871.html as too my experience I had only been capitalized sharing my entire setups... cheers Walter.

 

Walter - I guess b/c of how much time, effort and money is in what I do, it's hard to just give it all away on an open forum. I understand that may not be in the spirit of the board, but trust me, my system is for sake of argument here. It's not in one clean thread, but it's here if willing to invest some time piecing it together.

 

Here's what everyone knows on how I trade:

$ Use candlestick analysis heavily

$ Smaller stops

$ Closer profit targets (now)

$ Things are kept simple

 

Take that with a couple of my charts and who knows.

 

I personally place a lot of value on what candlesticks can 'tell' you. I don't necessarily use them in a traditional sense. In a post here, I suggested a poster try to 'see' what the candles are 'telling' him between the ongoing fight between the bulls and bears. EVERY single candle tells you something - who won, who lost and the occasional even fight. Once you know who just won the fight, you might be able to capitalize on that.

[walterw 10]

Walter - I guess b/c of how much time, effort and money is in what I do, it's hard to just give it all away on an open forum. I understand that may not be in the spirit of the board, but trust me, my system is for sake of argument here. It's not in one clean thread, but it's here if willing to invest some time piecing it together.

 

Here's what everyone knows on how I trade:

$ Use candlestick analysis heavily

$ Smaller stops

$ Closer profit targets (now)

$ Things are kept simple

 

Take that with a couple of my charts and who knows.

 

I personally place a lot of value on what candlesticks can 'tell' you. I don't necessarily use them in a traditional sense. In a post here, I suggested a poster try to 'see' what the candles are 'telling' him between the ongoing fight between the bulls and bears. EVERY single candle tells you something - who won, who lost and the occasional even fight. Once you know who just won the fight, you might be able to capitalize on that.

 

Ok... maybe you can post some chart at the premium section of TL with some arrows of where your trades wher without any explanations, so we creative people can have some fun this weekend figuring out aprox. what you are doing... cheers Walter.

[brownsfan019 17]

WOW, WHAT A DAY TO BE TRADING LIKE THIS.

 

Today was a great example of a day where serious money can and was made.

 

NUMBER OF TRADES: 65

 

GROSS ES PTS: 33.75

 

NET ES PTS: 30.734 (2.32 COMMISSION RATE)

 

WIN %: 66%%

 

If every day could be like today, life would be very good.

 

This was a great example of a day where taking small chunks can real add up. Outside of the nice down move in the afternoon, most other trades were taking small pops here and there. It can add up.

 

I suggest you consider this if looking for something to exit on. Just my humble opinion but when my account is reflecting + $1535 NET PER CONTRACT traded, that grabs my attention.

 

Great day today!!

 

Now if the CAVS can pull off a win tonight it would be the great way to end the day!