Risk Free Trade

[wsam29 10]

I've been messing around with moving my stops to BE +1 after the market has moved so much, even if my exit target is not hit.

 

Example.

 

10 tick stop for YM

profit target of +11

YM moves +6/7 for me, I move my stop to BE +1, +1 to cover cost of

commission.

 

I figure, if the market wants to move, it will move and hit my target, if not, scratch trade and some mental energy exerted for the day.

[Soultrader 12]

I have been analyzing my wins over losses lately. It seems like a winning trade takes mimimal heat: maybe 5 ticks at most. In a losing trade, price moves 3-4ticks in my favor, then I take about 7-9pts of heat, price moves towards my entry, and then I get stopped.

 

What I am thinking of is to trail my stop the moment I enter. I use a 10pt stop like you wsam29, so I may start trailing my initial stop until I reach my first target of 10pts. I scale out on all my positions so this trailing stop until my first target might be able to spare me a few ticks off every loser.

[wsam29 10]

I don't know if you're read "Studies in Tape Reading" by Richard Wyckoff, but he used very tight stops in his trades for stocks.

 

I mysely might even consider using a 5 tick stop, because the ratios would be 2:1 for me rather than 1:1

 

Jankovsky's book goes over the ratios of winning percentage and what kinda ratio you'll need to be a net winning trader.

[brownsfan019 17]

I would suggest one thing guys - make sure you test this theory before putting it into play. It's easy to find trades where this would have worked, but I am sure you can find trades where it took you out prematurely.

 

I toyed with the exact same thing you guys are and found for me it did not work. The reason being that it's very realistic for a trade to move in your favor, retrace a tad (and take your stop) and the continue the move in the direction of your trade. That happens a couple times to you and you will rethink this.

 

I've found that I need to give a trade 'wiggle' room. It's too easy for an aggressive stop to be ticked out. One thing you may want to consider - BE MINUS 2. The theory behind this being that if the price comes past your entry point, then you are wrong and want out. The price moving to BE + 1 does not prove that you were wrong, which is the point of a stop.

 

Just an idea.

 

And of course the other consideration here is that if the majority of your trades move to +7 or +8 and then retrace, perhaps it's time to adjust your profit target. Is 2 ticks worth taking heat on a trade and losing or making 1 tick before commissions? I don't know, you need to answer that.

[Soultrader 12]

I have personally found a 5 tick stop to be too tight and not enough room for a trade to work out. I guess it really depends on your entry basis. Because most of my entries are based on tape, I am usually able to use a fairly tight stop. I know immediately that if tape takes out level XXX, I am wrong.

 

Also, I find trading setups that will give me 10pts minimum. Most of them I aim for 20+ pts but I like to take half off at 10pts to eliminate my risk. My personal thoughts on a 11pt profit target for all position is a little to quick. Once again, trader preference depending on trading setups, style, and the number of trades a day.

[wsam29 10]

Just put my trade management idea to test.

 

Besides my first trade mistake to start the day, oh great, it worked out just great.

 

wanted to go short around 1010h, instead, I clicked the buy button because I got too excited. Hindsight says reverse trade and gone short anyways. -10

 

next trade, went long around trade went +7, move my stop to BE +1, stopped out for scratch trade

 

third trade, went long, trade went +7, moved stop to BE+1, closed trade for +8

 

finished the day -1 tick

 

to me that BE+1 is more a pscyhological trade, it's better the market pays for a scratch trade rather it come out of your own account because those commissions can sure add up and chew your profits to bits.

 

I was more willing to make another trade knowing the market paid for my scratch trade.

 

it really is the way that I trade that allows me to do stuff like this because it is not "set-up" based. I just identify volume contraction on a time chart and go from there. That happens all day long.

 

Besides, the mistake trade, I'm very content with this method of trade management, there is nothing else better knowing you have a risk free trade once that stop has been moved to BE+1.

 

either way I'm done for the day.

[brownsfan019 17]

Besides, the mistake trade, I'm very content with this method of trade management, there is nothing else better knowing you have a risk free trade once that stop has been moved to BE+1.

 

Winfred, I used to think that like as well - just get my trade to a positive position in the worse case scenario!! That can do wonders for your psyche.

 

Here's the catch ... Moving that stop is so easy and tempting that many of my trades were being taken out at +1 tick and these were later 'winners'. In other words, I turned a +10 pt trade into a +1. That will also do wonders for your psyche.

 

So, as I've tried to say over and over here, each trader must do what's best for their pysche and trading account. I can't do the BE+1 trade, it doesn't work for me. If you can get it to work and make money, that's great!!!

[wsam29 10]

"One man's meat is another man's poison."

 

To each their own the saying goes.

 

I'm just letting new trader's know because they try to mimick what everone else does, just giving them more ideas to play around with and make it their own. Been there, done that.

 

Like I said before, I don't have levels ahead of time to buy or sell at, I just look for periods of quiet and volume contraction. It's bound to move sometime when the price cools down. (its just another way of saying I enter on pullbacks, but sometimes prices do not pullback, they just chop around in a tight range with little volume and then expand, so hence quiet period)

 

Because that is what I look for, it happens all day long, getting a scratch trade to me is no big deal, and its no big deal if it takes me out and then ripes through the levels for a 20 tick move. Expect and accept that will happen. That is something no one can make you accept, it comes internally from the person themselves.

 

But because the BE+1 was paid for by the market, and if it and when prices do move, getting in is just another commission away. The only thing that was wrong was the timing of the trade.

 

There is no point if you cannot even trade a 1 lot to make money, trading more lots just gets you into more trouble if you have no clue how to monitor yourself. I had one week I went through that, its no big deal. The key thing is I'm still around with "chips" in front of me to come back.

 

Either way, there are so few topics under money management, *scratches head*, yet that is the holy grail to trading.

 

Entries are a dime a dozen. my ego could care less that it found a set-up that works X% of the time and it must let the world know about this amazing set-up. Heck, I know I can trade, I now need to learn better trade management methods to protect myself from losing my head and my money, again.

[wsam29 10]

This has gotten me think.

 

The point is not the tightness or loosness of the stop, its getting your trade to BE as soon as possible but also the risk involved to make that last bit.

 

A couple of recent grain trades has gotten me to think about those trades, so thanks for being Devil's Advocate. The direction for both trades were correct The management of the beans trade was horrible.

 

went long july corn around 427 (on 23 Jan 07)with a stop of 5 cents ($250), that got taken out the next day or so, but it was pretty quick. sit on hands and hum and ha about what corn is doing, not much, trading sideways.

 

later beans made a move, jumped on around 748 (on 30 Jan 07), with a 10 cent stop ($500), the management was poor due to thoughts about keeping the small 8 cent profit that I had and thoughts about what beans may do, each down tick confirmed what I had in my head, what else to do but bail out. beans over 800 right now or $2500 from my entry per contract.

 

that's besides the point.

 

I'll use YM as an example of my madness.

 

10 risk

10 reward target

 

1:1 initial risk, reward ratio

 

even if you scale out of a trade with multiple of 2 lots, you can still implement a BE trade by moving your stop, but I'll just use an all in, all out example.

 

market goes +8 on your trade, now if you are hard headed and want those last few ticks, well, you know what you are. if you don't move your stop to BE, your risk has increased! for those last 2 ticks, you're willing to risk 18 ticks! whats that a 9:1 risk:reward, the trade will still cost you from your own account 10 ticks for find out, 8 from the market or $90 per contract.

 

with the BE management, your risk now becomes 4:1, if you're willing to risk the 8 that you've gained for another 2 ticks, but what will it cost you from your own account to find out??? nothing other than commissions and possible "slippage", ok so a trade will never be risk free, but its been reduced big time!!! But the thing is willing to give up a winning trade for your target.

 

Even if you scale out, this can still be implemented.

2 lot multiple.

 

risk 10 or ($100 per 2 lots)

half target +5

move stop BE -5

other half target your call, trade is risk free now.

 

The issue at hand is getting stopped out for scratch trade and the market takes off. How to deal with that is a psychological issue, not a entry, exit technique or method.

 

The size of your stop is a risk tolerance subject or what you feel is suitable for a trade to work out.

 

The desire for the trade to work out will also affect your judgement of whether to move the stop or not and to what point.

 

Hope for huge profits, expect a scratch trade. The worst case is you exerted some mental energy and it did not cost you too much money.

[brownsfan019 17]

Winfred - that's partly why I suggested a BE minus 2 setup.

 

Trading is hard enough as it is and when you turn a 'winner' into a tiny, tiny win it will really mess with your psyche as you saw with your ag trades.

 

Good Trading!

[wsam29 10]

meh, I've come to terms with stuff like that. It does not bother me like it used to.

 

I just look in the mirror and know who to blame.

[Rocky Mtn Trader 10]

Here is what I've been using on stops and targets.

 

Lets say your trading 2 contracts on the ES.

 

My stop loss is -1.5 points on both. Worst case scenario....-3.0 loss

 

My first target is +1. After this, I move my stop to -1.25 or -1.0 or -.75. In other words...I'm still giving the trade some "wiggle" room, and if I get stopped out, the loss is minimal.

 

If you are getting in your trades at the right time, getting covered at +1 on your first contract is a high percentage. It also is good on the phyche.

 

After the trade is moving in the right direction, I move my stop to B/E when it gets to +2, +2.5 or +3.0. I also watch where retracements are to move my stop with the trade. I have found that I'm better to take +3 or +4 on my 2nd contract, than have the trade move back to -1 and stop me out. That drives you nuts.

 

My 2nd contract target is +5. If I don't get much heat on my entry, then I know the trade has a good chance to move +5 points. If I take -1 heat, then I usually take + 4 profit. A lot depends on what action is happening toward the end.

 

I have found that if I move my stop to B/E too early, sure enough it will come back and stop me out. On the ES, once the trade gets past +3 points, the retracement back has a good chance from never reaching your entry.

 

Bottom line...The market does what it wants to do. When I get a lot of heat right from the beginning, chances are this was not the best entry and I'll get stopped out regardless. Part of trading.

 

Like Soul Trader, my problem is getting out too early and not let the winners run.

 

Try this sometime. If your Sim trading....get in a trade, after you cover your +1, move your stop to -1 or -.75. Figure where your profit target "should be", and then get up and walk away. Do this a couple of times...you will be amazed at how often this trade will pay off.

 

If your trading 4 contracts...target first 2 contracts at +1 points, 1 at +2.5 points, then move your stop to B/E, and let the 4th contract hit your final target. This trade actually has better ratios than using 2 contracts. You may get stopped out on the 4th contract at B/E, but you get your 2 at +1 and 1 at +2.5 a lot of the time. That's a +4.5. You will also be surprised how many times you get +9.5.

 

Hopefully this might help someone.

.

[solfest 10]

I trade crude oil and have always used a BE + 1 stop. I am only trading one contract and do not use a target for exiting the trade.

 

So I find that getting to BE helps to give me some "emotional capital" to stay with the trade as it is now theoretically risk free.

 

I have not done the statistical analysis I should have on this but my memory database (which is flawed) keeps the BE move in the plan.

 

I am trading range bars and go to BE + 1 after 13 ticks, the size of the range bar traded.

 

http://tradingcrude.blogspot.com/