Would This System Make Sense?

[retinoid 10]

Say I have a 5,000 dollar account balance. I have a system that literally gives me a 90% chance of getting .5 pts (but only .5pts). I am seeking to get the bigger moves but the .5pts is to give me cushion. I use other highs for stops so they are roughly 1 point away. Does it make sense to trade 5 contracts, sell 3 of them when I get .5pts (for the cushion on the other 2 contracts) and keep the other 2 in for larger point moves? I have around a 10% chance of getting stopped out with a 1-1.5pt loss on ALL 5 contracts, a 90% chance of at least getting .5pts per contract.

 

I was thinking of just scalping, but then I would miss larger moves and I would be risking 1-1.5 pts for ever .5 point. That doesn't make a whole lot of sense because god forbid it is only an 80% success rate, that would wipe out like 2-3pts if I did it ten times and I would make a net of like 2 points in the day with 10 trades. It just seems bleh. That is why I am trying to keep contracts in longer (like 2 contracts) but still scalp to cushion the larger potential for loss with keeping contracts in longer.

 

Futures are much more complicated and tricky than stocks.

[jurotraderslab 10]

Did you backtest your system to know that it gives you 90% of 0.5pts winners vs 10% 1pt (or 1.5pt) losers? If yes, how many trades did your backtest (out of sample) include? A few hundred? If yes, then you can just as easily backtest partial exits. But if your current system is REALLY 90% successful it gives you an average 3.5 pts profit on 10 trades (per contract), which coupled with a high(er) frequency of trades would create a beautifully smooth equity curve. One experience I have with testing various exits, partial exits etc. is that unless you ADD a new edge (idea) to your existing system, its results won't improve significantly by just fiddling around with partial exits vs single entry exit etc. In any case, if you do have a system that does what you say, you are good to go and milk it as much as possible.

[crabbydog 10]

If you basic system is profitable stick with it to trade whle at the same time analyse whether leaving the contracts on the table add to or detract from the profit.

 

Myself I woudl stick with what works and makes profits.

[muskoka joe 10]

Juro said most of what I would tell you. All I can add is that with this or any system when you test different exits you are testing different systems. Each must stand on its own. I know you are not saying this, but I see all the time stupid things like trade 5 and exit 1 at $50 to cover costs. Well that $50 Profit Objective better stand on its own as a profitable system or its just a drag on performance. The vast majority of the time ideas like this, or the breakeven stop (perhaps worst of all), sound so intuitively correct but are dead wrong when you actually crunch the numbers.

 

I am glad to see you are not being hampered by thoughts that your RR "must" be something. Even though your RR is inverted to most systems it doesn't mean is will not work.

 

Lastly I would add the more time you are in the market with a position the more tax on mental capital. If it were me I'd keep paying myself and then wait for the next trade.

[mvc23 10]

I may have quite a bit to add to you scenario....been trading for 18 years and have been training traders for about half of that time. Private Message me to about this "system" that you speak of as a consistent 90% winner scenario at any level is almost unheard of. Is this your system or someone trying to sell you on it? Either way, contact me and I will be happy to assist you in any way that I can. We are all working together for the better good.....at least I am!

[bakrob99 11]

Say I have a 5,000 dollar account balance. I have a system that literally gives me a 90% chance of getting .5 pts (but only .5pts). I am seeking to get the bigger moves but the .5pts is to give me cushion. I use other highs for stops so they are roughly 1 point away. Does it make sense to trade 5 contracts, sell 3 of them when I get .5pts (for the cushion on the other 2 contracts) and keep the other 2 in for larger point moves? I have around a 10% chance of getting stopped out with a 1-1.5pt loss on ALL 5 contracts, a 90% chance of at least getting .5pts per contract.

 

I was thinking of just scalping, but then I would miss larger moves and I would be risking 1-1.5 pts for ever .5 point. That doesn't make a whole lot of sense because god forbid it is only an 80% success rate, that would wipe out like 2-3pts if I did it ten times and I would make a net of like 2 points in the day with 10 trades. It just seems bleh. That is why I am trying to keep contracts in longer (like 2 contracts) but still scalp to cushion the larger potential for loss with keeping contracts in longer.

 

Futures are much more complicated and tricky than stocks.

 

As you described the system I do not think it makes sense.

 

1. Even IF (and it's a big IF) you have a 90% win rate, you can still get 2, 3 or more Stops in a row. IF you trade 5 contracts (ES) with a 6 tick stop then you're going to lose (for each losing trade) $375 +$25 commission plus slippage which could be 1 (or more) tick or $62.50. That is a $462 hit for just 1 stop loss or ALMOST 10% of your account.

 

Get 2 losers in a row and you will be mentally challenged to take the next trade.

 

Your position sizing is WAY off for any kind of reasonable risk.

 

Take your setup and get hit with a LOSING NEWS SPIKE and watch your account go down the drain.

 

I have scalped the ES for years and slowly I am changing my tactics to take fewer trades and let them run much longer. Add to a winner when another setup occurs while it's moving for you. Start SMALL... let them build

 

That's my opinion anyway.

Edited November 2, 2010 by bakrob99

[wow 10]

Say I have a 5,000 dollar account balance. I have a system that literally gives me a 90% chance of getting .5 pts (but only .5pts). I am seeking to get the bigger moves but the .5pts is to give me cushion. I use other highs for stops so they are roughly 1 point away. Does it make sense to trade 5 contracts, sell 3 of them when I get .5pts (for the cushion on the other 2 contracts) and keep the other 2 in for larger point moves? I have around a 10% chance of getting stopped out with a 1-1.5pt loss on ALL 5 contracts, a 90% chance of at least getting .5pts per contract.

 

I was thinking of just scalping, but then I would miss larger moves and I would be risking 1-1.5 pts for ever .5 point. That doesn't make a whole lot of sense because god forbid it is only an 80% success rate, that would wipe out like 2-3pts if I did it ten times and I would make a net of like 2 points in the day with 10 trades. It just seems bleh. That is why I am trying to keep contracts in longer (like 2 contracts) but still scalp to cushion the larger potential for loss with keeping contracts in longer.

 

Futures are much more complicated and tricky than stocks.

 

Honestly, No. Risk versus Reward ratio way off. The correct minimum ratio should be 1:1 or 1:2 or greater. As Per your intention to take 3 for leverage on 2 remaining strategy, you need at least 1:1 RR ratio. I learn this from a retired Trader from my hometown a few years ago that RR ratio is the most common misunderstood trading rule by many.

I think you may find him in one of the mIR's othernet chat room during ES day trading session.

Edited November 4, 2010 by wow

[muskoka joe 10]

RR is dependant on the type of system you are using and what you are trying to maximize. You can certainly have good workable systems that run less then 1:1 RR. These systems as a general rule will not maximize dollar profit, but will often provide best opportunity to keep drawdowns low, and provide high accuracy.

 

I base this on my hands on experience with testing systems. Very often what we feel is intuitively correct or is a market cliche does not hold up the scrutiny of empirical testing. RR paricularly can go either way especially when you are not optimizing for largest P/L.

[bakrob99 11]

... You can certainly have good workable systems that run less then 1:1 RR... .

 

I used to think this too... but no longer do. I have kept statistics on my actual entries for years and reviewing them shows/reveals that the winning trades which I take go for quite a distance and easily provide 12 ticks Best Exit for the ES while having a stop requirement of 6 or even fewer ticks.

 

Do the math and you'll discover that the money is in Staying in the trade when its a winner and getting out when it's not.

 

Forget about RR mumbo jumbo ... it's common sense.

[muskoka joe 10]

I used to think this too... but no longer do. I have kept statistics on my actual entries for years and reviewing them shows/reveals that the winning trades which I take go for quite a distance and easily provide 12 ticks Best Exit for the ES while having a stop requirement of 6 or even fewer ticks.

 

Do the math and you'll discover that the money is in Staying in the trade when its a winner and getting out when it's not.

 

Forget about RR mumbo jumbo ... it's common sense.

 

I think you are right in the sense you are talking about the what the thread was talking about .... scalping and day trading and probably discretionary at that. I was speaking more to systems that involve more then a few ticks. I should have paid more attention to what the thread was.

[bakrob99 11]

No problem. I have done quite a bit of automated strategy development and trading on Tradestation and I have yet to find a system which enters or exits as well as a discretionary trader following a set of proven rules.

 

Of course - automation allows more markets to be traded and risk spread out ... just need to be able to handle the drawdowns. I can't.

[BlowFish 10]

Be aware that systems that only take a couple of ticks often trade worse than they test (depending how you test them). Make sure you are testing by buying at ask and selling at bid or if the system uses limits you really need to make sure price trades through your entry/exit.

 

Work out the risk of ruin, run monte carlo simulations and decide for yourself if the system 'makes sense'.

[rjrow104 11]

Do the math, its called expectancy,

 

 

(90%*.5) per contract= .45/contract

(10%*1.5)*all contracts=.15 Loss per contract

the difference is your expectancy

 

so you will average .3pts per every contract

 

Now, this is obvious and I am sure many on here already know this, but make sure that you check this across at least 1000 trades, and thats pretty low but if your aggressive its a pretty good measure