Chase Profit or Take Profit?

[parura 10]

Assume I have mm rules similiar to these below

 

Account: $2000 (I know, small, but for simplification)

Max Risk per Trade: 1% (20 pips or $20)

Size: 1 mini (so I can't use scaling in or out)

Risk/Reward (and here comes 2 scenarios):

A) 1:3 (many says - take profit, move on to next trade)

B) or 1:minimum 3 meaning trail SL (many says - let your profit rise)

 

So, I was trying to think logically and ask others before (or instead) test it on real data

 

A scenario will miss some big moves and B scenario will result in more losses or at least break evens

Looking something like this

 

A: -20, -20, 60, -20, -20, 60, 60 (PL = 100)

B: -20, -20, 199, -20, -20, 1, -20 (PL = 100)

 

Which scenario, from your experience, would be more effective? Or maybe I get similiar results as in the example below?

Or maybe I get only more work in second scenario? Any thoughts please...

[Hlm 10]

Sticking EXACTLY to that situation...

 

Situation A because they have the same positive expectency but B has a greater drawdown. One is taking on more risk for the same amount of profit. Now adding on to the situation, unless the strategy is extremely mechanical (very little discretion), ones that try to catch runs are a lot more difficult in the psychology department. A happy medium would be a high probability point where once price crosses a stop is moved up to that point. You lose a little bit because you have to move the target back a little to allow price to cross over and room for it not to come back if it is truly going to run. Don't want to get off topic...so I will leave it at that.

[tlfx 10]

I will choose take profit unless you're a seasoned trader and positive enough where the market is going.

 

 

 

 

 

 

 

 

 

[darthtrader3.0beta 10]

This to me is why though you should probly not start trading 1 contract. You would be far better off saving your pennies until you can trade 2 or 3.

Otherwise your not accepting that there is a random/noise/luck element to trading, some of this is not quantifiable.

To me a good newb betting strategy is to have 3 contracts, with a tight stop, all out if the trade goes totally against you. Then on the first contract you want to take profit quickly as a means of getting the stop to break even or slightly profitable on the other 2 contracts. Then view the "meat" of the winning trade as the second contract, with the 3rd left on with a stop that slightly eats into the profit of the second but stays on just incase you can get lucky with a bigger win on the 3rd and then trail the 3rd stop after a certain amount ahead.

This assumes you have an edge at entry though that doesn't need to take insane amounts of heat to have expectancy. I imagine there is a better strategy still with putting on 1 contract to start but I haven't really figured that out yet.

[NoSquigglyLines 10]

Here's one take on things ...

 

First of all some quick background about me - I'm a relative newbie trader, only live about a week now. Spent 6 months + trying to learn about trading before even entering a paper trade, in fact haven't actually spent a lot of time paper trading.

 

I find I can call the general direction of the market fairly well intraday (I mean generally in terms of higher or lower, not some holy grail) so when I've been entering my trades I've been going for a completely discretionary exit i.e. I've been entering from a fairly short timeframe chart but attempting to hold (trading two contracts) for the larger timeframe move higher or lower rather than scaling out at +1, +2 etc.

 

Let's take Friday (19th) as an example, almost all of my trades were short yet my P&L for the day was just slightly below water after commissions (also bear in mind a fair few usual stupid newbie mistakes).

 

After reading parura's post it struck me I was always going for Scenario B e.g 10 points or nothing ... and much more often than not getting nothing, or BE/scratch. I've just done a replay of Friday with fixed targets on both contracts (6 ticks and 10 ticks - pretty arbritary choice to be honest ... looked at my MFE in Ninja for Fri and made a stab in the dark at targets) and exactly the same entries as I took on the day (including the stinkers) and ended up about 5pts per contract better ... not incl commissions.

 

Moral of the story ... I still feel the "better" approach is to have discretionary exits based on Price Action / larger timeframe targets, but in reality the better approach for me is to have fixed targets. Certainly on Friday it would have been the difference between a roughly BE day and a positive day. This could well be my relative inexperience and may change in the future, but an interesting finding none the less.

[Dacamic 10]

  darthtrader3.0beta said:

This to me is why though you should probly not start trading 1 contract. You would be far better off saving your pennies until you can trade 2 or 3.

Otherwise your not accepting that there is a random/noise/luck element to trading, some of this is not quantifiable.

To me a good newb betting strategy is to have 3 contracts, with a tight stop, all out if the trade goes totally against you. Then on the first contract you want to take profit quickly as a means of getting the stop to break even or slightly profitable on the other 2 contracts. Then view the "meat" of the winning trade as the second contract, with the 3rd left on with a stop that slightly eats into the profit of the second but stays on just incase you can get lucky with a bigger win on the 3rd and then trail the 3rd stop after a certain amount ahead.

This assumes you have an edge at entry though that doesn't need to take insane amounts of heat to have expectancy. I imagine there is a better strategy still with putting on 1 contract to start but I haven't really figured that out yet.

Scaling out (and scaling in) does have an intuitive appeal, and it is a commonly-used technique. But ...

 

When scaling, expectancy becomes "spread" over multiple contracts. If we assume scaling out using three contracts, it seems reasonable to believe the first contract "scaled out" will have a lower expectancy than the "all-in" trades shown in Scenario A and Scenario B. By itself, the second contract isn't likely to have a sufficiently high expectancy to offset the first contract's shortfall; thus, it seems we would need the third contract to hit home runs (or at least triples) to match or exceed the expectancy of "all-in".

 

Just a theory.

[rjkauffman 10]

I know this thread is old but this is how I approach it.

What I do is to start the day with my eye on what I feel I

should make to pay expenses and maintain lifestyle. That said I use

price action to tell me when to exit trades. If it's goin my way I

hold ,,but ,, if it starts to fail ,,I'm gone.. I use 4Eminis and am willing to take

as little as 4 to 8 ticks. The scaling in and out thing is good for some but in a fast market it breaks my consentration. Of course more is better but if it starts to falter i'm gone. After I gain that "Basic Pay" I will start to play for more, meaning that if I have 16 ticks on a trade I must take it.

After doubling the "Basic" I will go for the long ball with a trailer but it is still hard to watch profits disapear. However I must say rarely do they go out of the park . This way I keep my head straight because I'm making money and still get a nice one maybe twice a week.

This also helps me cause I tend to over trade late in the day, R.J

[daedalus 10]

Personally I choose to take high probability profits at targets. I do this for a number of reasons.

 

1) I've done enough backtesting to know that its probable the types of moves i'm getting in to will die around that area (I use Fib targets). It is PROBABLE that the move will stop there. It is LESS PROBABLE it will continue on for another 2x's the profit. It is MUCH LESS PROBABLE it will continue on for another 4x's the profit.

 

2) I rather trade a higher win rate target profit with less "home runs" than a lower win rate with a few more "home runs". I do this because I feel the efficiency of each trade is much higher and because getting more targets more of the time keeps my consistency and confidence in my trade plan high. I find its much less stressing emotionally.

 

3) Markets rarely trend. Honestly (don't markets trend something like 20-30% of the time? I swear i read that somewhere... either way I believe it) Take the ES for example... Very rarely do we get a gap and go day that just runs in a direction the entire day that you could get rich on. That happens like once or twice a month. Therefore, the other 95% of the days is congestive quick spurts and backfill onto itself, reversals, etc. Holding for the "big winner" when statistically the greatest probability is that market conditions don't (and won't) give you that opportunity doesn't seem like the best shot at making consistent money. Yes that one or two days you'll kill it. But you'll give it all back (and more) trying to manage trades like that very other day. Remember, we make money on the rule - NOT THE EXCEPTION TO IT!

 

Basically, I feel that as a trader my goal is not to get every ounce of a swing nailed in profits. I'm not calling tops and i'm not calling bottoms. What i'm doing is trying to take my chunk of predictable profits in the middle and go onto the next setup. The less time I have a position in the market the less market risk I have. The quicker I can get in and out with profit at my target the better because my systemic risk is reduced.

 

Did I get every bit of profit? No - but what I did do was get the amount I bargained for when I took the position and thats all I can ask for.

[Dacamic 10]

Daedalus ... Is it correct to assume you trade more than one security?

[daedalus 10]

  Dacamic said:

Daedalus ... Is it correct to assume you trade more than one security?

 

FX and the e-mini's. Though right now i'm focusing primarily on the ES.

[Dacamic 10]

  daedalus said:

FX and the e-mini's. Though right now i'm focusing primarily on the ES.

You offer very good advice in your earlier post today. I wonder, though, if the approach you suggested is more attractive to people trading multiple securities than those trading only one. You and Hlm have mentioned reasons why "home runs" can be problematic, yet they seem more necessary -- or at least more tempting -- to single-security traders.

[daedalus 10]

I think "home runs" are tempting to all traders. As far as more than one security - i don't know. This year so far i've only trade the ES and I plan to only trade that for a couple more months at least. So i'm only looking at one security right now but it doesn't change my trade plan or need for a "home run".

 

I just don't think they occur often enough to bet on personally. That being said, a "home run" is subjective. Maybe my fib target area that I cover at is a "home run" for a scalper, etc...

 

But in terms of the ES as its trading right now. I'm perfectly happy taking 3-6 points in a swing because I don't see much more than that being offered on a consistent basis.

[parura 10]

  daedalus said:

 

3) Very rarely do we get a gap and go day that just runs in a direction the entire day that you could get rich on. That happens like once or twice a month. Therefore, the other 95% of the days is congestive quick spurts and backfill onto itself, reversals, etc. Holding for the "big winner" when statistically the greatest probability is that market conditions don't (and won't) give you that opportunity doesn't seem like the best shot at making consistent money.

 

You'd be surprised. Better from reading it in a book it is better to test it yourself. I run statistics of all kind to get odds better than 52/48, 46/54 etc. If I find a pattern with 65/35 it happens like 5 times a year. If it gaps up or down there is about 50% probability that it close the gap or not (depends on the market but I think odds would not be much more better). This is why you using MM ratio of 3:1, because odds give you black or white.

 

At the beggining I thought that if market closes higher 3 days in a row there is a much higher probability that it will go down on 4th day. Still about 50/50 (yep). Probability that it will go down on 5th day goes to like 70% but again, it happens 3-5 times a year.

 

One of the trader's EUREKA you need to find out for yourself!

[ALexLutiera 10]

I think take profit is much better than chase profit.

What if you are chasing the profit yet you do not take or get the profit??

As a trader, you should know on what to do, and you should also know the strategies to use on making profit. You should be very determinate enough on what you do, and be wise enough to know what could help on making profits. Many traders would say that, it would be very easy, but honestly speaking, it is NOT. You have to strive hard, and study every methods and ways.