The Merits of Setting Profit and Loss Targets???

[lastninja2 10]

Oh hai?

 

Does anyone have a strong opinion on this?

I have been developing an intense focus on the price ladder, with charts/profile by my side as support tools. I'm scalping FESX, typically taking winners and losers of 1/2/3 ticks, with a few outliers (good and bad) 4/5/6/7.

 

A big problem I am having is, I am micromanaging my trades excessively. If you stare at the price ladder long enough, you can find a million reasons to buy or sell.

And so it is, I can pick out a good entry, only to scratch it, or take 1/2 tick winner, and then watch it move another 5 ticks in my favour. My win rate simply is not good enough to offset the inevitable -1/-2 tick losers that mount up during the session, not to mention transaction costs.

 

I am seriously considering telling myself, for the rest of the week, to take either +3 tick winners, -2 tick losers, and scratch only if a +2/3 tick winner comes back to me - so that I give all trades a bit of room to breathe.

 

No doubt I'll take some -3/-4 tick losers along the way, but overall this profit/loss ratio target should work, assuming I can hit something a little better than 50/50 win rate.

 

+3/-2 ratio Pros: It prevents me from micromanaging trades, and helps me to remain relaxed during the session

 

+3/-2 ratio cons: To simply conjur up +3 winner / -2 loser as my target... it seems pretty arbitrary and therefore possibly stupid?

 

Help ?

[TheNegotiator 13]

If you're trying to run a trade, ideally you'll want to be in at a significant price. Just getting in any old place is dangerous even if it does move a few ticks in your direction first. So do your homework to identify good areas to place those kind of trades.

 

Next, don't beat yourself up when a scalp runs for 5,10 or more ticks. If your trade was a scalp, your objective was to scalp and not to run it. Doesn't matter what the market does afterwards.

 

Re:"If you stare at the price ladder long enough, you can find a million reasons to buy or sell." - true. But you should have definite reasons and know what you are looking for. Too many reasons will just make you freeze or make wrong decisions.

 

The problem is with looking for only a few ticks in the way you describe, that a small fluctation in the opposite direction can stop you out or wipe out theoretical profits. You really need to be very much in the flow of things if you want to trade this way to exit before price reverses. I'd suggest looking at Market Delta or Sierra Chart for their volume footprint charts. Also get a good DOM.

 

I think stops and targets are a good thing, but maybe not so much when you are looking for such a small number of ticks. Obviously you need a max tolerance to exit at though. The other possibility is if you trade multiple contracts, even scalping you might look at scaling out to quickly offset risk.

[SIUYA 11]

A: dont scalp.

 

I dont scalp, but I would imagine that in doing so, you are constantly micromanaging by its very nature....

Alternatively you had better really work out which entries are worth taking, and just cope with the losses, commissions and in taking profits too early...much as the neg says.

[TheNegotiator 13]

A: dont scalp.

 

I dont scalp, but I would imagine that in doing so, you are constantly micromanaging by its very nature....

Alternatively you had better really work out which entries are worth taking, and just cope with the losses, commissions and in taking profits too early...much as the neg says.

 

I know a fair few guys who scalp the Eurostoxx and I think it's doable so long as you know what you're looking for before you get into a trade (and have some decent fast tools). Otherwise it is just like LN said, that there are a million different reasons you could take a trade. Identify what you want to see and where you want to see it in your plan and trade that plan. Just like any other method. You might miss some big possible winners that way and take a few losers you feel could've been avoided, but then you are at least focused on something. Then, if that plan isn't working brilliantly you can look at it again.

[lastninja2 10]

Thanks for the replies

 

Today I think I'll try and ease up on the 1/2 tick winners, and look for 3 or more - if a trade looks to be coming back to me I might take 1 or scratch.

As to the downside, I'll try closing at -2.

 

My style is still under construction, but 90% relies on price ladder. I have market profile and a 15 minute chart at the side, but that's just to keep me out of trouble really i.e. not trading against blatant trend, or just being aware of potential stops etc.

 

I find that keeping a running commentary of what is happening on the price ladder - almost as if it is a battle between team red and team blue, helps immerse me in the flow. I see the bids and offers kind of like fortifications - and the trades between them as "attacks" on the other hehe

 

Many times in the day I will notice, for instance, a bid is being attacked but is reloading - and I'll join that bid, get filled, and it will remain bid. I'll say to myself "that remained bid - good entry" : but it's difficult to know WHAT THAT SIGNAL WAS WORTH. Was it worth 1 tick? 2 ticks? Is it even possible to know? And if that bid goes offer, does that invalidate my reason for being in the trade or does the trade deserve a couple of ticks downside room to breathe?

 

Hopefully will gain useful experience from today.

 

thanks again

Edited June 27, 2012 by lastninja2

[TheNegotiator 13]

I see the bids and offers kind of like fortifications - and the trades between them as "attacks" on the other

 

Just so long as you try to realise what is real and what is not.

 

but it's difficult to know WHAT THAT SIGNAL WAS WORTH.

 

Depends how much was absorbed and at what price. If the action is substantial, it should be worth more than a couple of ticks. Just run it until you think it might be about to reverse if you are scalping. Really though, to see how much has gone through, a volume footprint is a massive benefit. At the very least, you should look at a candlestick chart based on small volume (not sure how much but will take a look for you shortly). That way you can see that when there are a tight set of candles together, there's probably this type of action going on.

[SIUYA 11]

but it's difficult to know WHAT THAT SIGNAL WAS WORTH. Was it worth 1 tick? 2 ticks? Is it even possible to know? And if that bid goes offer, does that invalidate my reason for being in the trade or does the trade deserve a couple of ticks downside room to breathe?

 

Hopefully will gain useful experience from today.

 

thanks again

 

thats why trade journals are important when starting out to work out if your thoughts and actions have any value....and which ones to concentrate on or avoid. If you cant back test a trade journal is your best friend until its ingrained - and even then it still may have value in keeping it.

 

Hint - focus on improving your strengths, and minimising the weaknesses - it is far easier than trying to either improve the weaknesses or eliminating them.

[lastninja2 10]

thanks for the replies :applaud:

 

at the end of the day i will try and present here, for anyones interest, my journal for the day + 1 min chart with markings of where i traded. I do keep a journal of every trade. In fact I am required by my backers to keep a journal. I also try and review it at the weekends, but frankly, in my own experience there is no tangible pattern between the trades that are working and the trades that are not.

e.g. sometimes momentum is down, offers are reloading and bids are getting annihilated... and i go short and i win +3... but sometimes i lose 2. I need more data.

 

Neg: I'll keep in mind the footprint business. It's tricky for me because I am actively encouraged not to give too much attention to the charts. 15 min chart, which i have, is sorta breaking the rules even! P.S. I will shortly have access to Delta or CQG, probably Delta.

 

*****

Hehe... i just cut a short at +1, only to watch it finally break another few ticks. Argh! I said to myself "if my entry price goes bid, I will cut this at 0", but instead using the price action i decided to take +1. If I had stuck to my original rigid plan I would have made +3 or more, because my entry price never actually went bid. But where do i draw the line between rigidly following reasonable rules such as this, and being flexible and playing whatever hand i think the price ladder is dealing me? To put another way, sometimes micromanagement helps, sometimes it hinders. It's a tough job and I guess that's just part of being a trader.

[TheNegotiator 13]

thanks for the replies :applaud:

 

at the end of the day i will try and present here, for anyones interest, my journal for the day + 1 min chart with markings of where i traded. I do keep a journal of every trade. In fact I am required by my backers to keep a journal. I also try and review it at the weekends, but frankly, in my own experience there is no tangible pattern between the trades that are working and the trades that are not.

e.g. sometimes momentum is down, offers are reloading and bids are getting annihilated... and i go short and i win +3... but sometimes i lose 2. I need more data.

 

Neg: I'll keep in mind the footprint business. It's tricky for me because I am actively encouraged not to give too much attention to the charts. 15 min chart, which i have, is sorta breaking the rules even! P.S. I will shortly have access to Delta or CQG, probably Delta.

 

*****

Hehe... i just cut a short at +1, only to watch it finally break another few ticks. Argh! I said to myself "if my entry price goes bid, I will cut this at 0", but instead using the price action i decided to take +1. If I had stuck to my original rigid plan I would have made +3 or more, because my entry price never actually went bid. But where do i draw the line between rigidly following reasonable rules such as this, and being flexible and playing whatever hand i think the price ladder is dealing me? To put another way, sometimes micromanagement helps, sometimes it hinders. It's a tough job and I guess that's just part of being a trader.

 

If you have the choice between Market delta (make sure you get iqfeed for the data) and CQG integrated client, get MD. It's cheaper and better.

 

On the micromanagement. First thought is that a trade isn't a winner or a loss until you close it. So if you believe in your plan before you put it on, there should be no reason to cut a winner short. I know this might feel uncomfortable at times, but you should learn that discomfort and disguish between anxiety of it possibly turning around and moving against you and concern because actual reasons are suggesting it will turn. Second thought is that if you are experiencing micromanagement sometimes helping and sometimes hindering, maybe you need to think about it again. It's conceiveable that it's making no real difference and the varying results are just down to luck. If the way you manage does not improve your results then all it will do is make you exhausted. That's not to say don't do it, but look at how you do it.

[TheNegotiator 13]

at the end of the day i will try and present here, for anyones interest, my journal for the day + 1 min chart with markings of where i traded.

 

Btw LN, I think this is a really good idea and I think others would find it really valuable to see how you're doing in the eurostoxx. Get it done

[TheNegotiator 13]

At the very least, you should look at a candlestick chart based on small volume (not sure how much but will take a look for you shortly). That way you can see that when there are a tight set of candles together, there's probably this type of action going on.

 

You'd have to try it out real-time if you're allowed at all, but I would try something in the region of 1000-2500 volume per candle. 2000 looks pretty good to me.

[lastninja2 10]

okay...

I'm spent whew, totally shattered.

 

For the interest of anyone passing through the thread, I'll enclose a good portion of my trading journal for today, plus 3 charts showing the timing of entry and exits (1 minute chart broken up in to 3 parts). Also got a screenshot showing my basic setup (TT DOM, couple of charts, and theres a market profile you can't see off to the side). Also got some other screens with some news related stuff, but what you see is what's important 99% of the time for me.

 

seems on the face of it, my experiment to run for 3 tick winners and take 2 tick losers was a success. I didn't necessarily stick to it every time - things happen, sometimes you cannot get out for -2, sometimes you can't help but take more than +3. Sometimes a trade goes well but comes back and you have to scratch it or settle for +2. But by and large these parameters served me well. Hope I can repeat this for the rest of the week.

 

date //// win///// loss////// avg. Win///// avg. Loss////// prob////// RR////// #trades/////// P/L

27-Jun///// 10////// 8///// 2.50///// 2.25////// 0.56////// 1.11///// 18///// 7.00

 

 

Enjoy -

and to any of you experienced guys - while I have a wealth of experience available to me where i trade - extra thoughts very much more than welcome

journal 27 june 2012 FESX lastninja2.xls

[TheNegotiator 13]

Very nice LN. I'm sure others will be interested too. Finished up for the day, well done.

[timratliff 10]

I think you are really stacking the odds against yourself by having such small targets and stops... Transaction fees and slippage will eat you up at that level. I personally find it difficult to maintain stops less than 8 ticks and normally shoot for 10 -20. Your trade needs a little room to breathe as the vast majority of the time there are price flucuations from bulls and bears trying to take control. By focusing on such small windows I would expect it would be easy to miss the "forest for the trees", It's very hard to make consistent profits trading noise as you can easily get stopped out even though you chose the right dirsction within the predominate trend.

[TheNegotiator 13]

I think you are really stacking the odds against yourself by having such small targets and stops... Transaction fees and slippage will eat you up at that level.

 

I doubt that. Correct me if I'm wrong LN, but I believe you are trading in an arcade. As such, you have the advantage of much lower commissions than the retail trader and a much quicker connection. Not that you'll get much "slippage" on the eurostoxx anyway. People do trade in this way and make money.

[lastninja2 10]

Yeah both true,

Being prop means I don't suffer some of the disadvantages retailers do - and I myself used to face.

I hear you though tim, sometimes I'll cut myself out of a trade at -2 only to see my original trade idea come to fruition. That said, FESX is generally a bit of a grinder, and more often than not I feel satisfied that "I am wrong" when the trade is moving even a couple of ticks against me. If you were talking about FGBL or ES etc then sure, 2 ticks sounds unrealistic.

Lost 4 ticks yesterday (on 2 lots) - seems I really struggle with trendy days. Doing a bit better this morning.

FYI, not sure to what extent this is possible in present day conditions but in the past I am aware of some traders making big money scalping 1 ticks out of FESX! (I personally could never get my hit rate high enough to survive on that.

[TheNegotiator 13]

Yeah both true,

Being prop means I don't suffer some of the disadvantages retailers do - and I myself used to face.

I hear you though tim, sometimes I'll cut myself out of a trade at -2 only to see my original trade idea come to fruition. That said, FESX is generally a bit of a grinder, and more often than not I feel satisfied that "I am wrong" when the trade is moving even a couple of ticks against me. If you were talking about FGBL or ES etc then sure, 2 ticks sounds unrealistic.

Lost 4 ticks yesterday (on 2 lots) - seems I really struggle with trendy days. Doing a bit better this morning.

FYI, not sure to what extent this is possible in present day conditions but in the past I am aware of some traders making big money scalping 1 ticks out of FESX! (I personally could never get my hit rate high enough to survive on that.

 

A question for you LN. When you scalp, are you looking purely at price action at that time, or do you look for price action at key areas?

[SIUYA 11]

lastninja - (if you can/allowed to reveal) - what commissions are you charged to trade?

 

That might put it in perspective....as clearly retail guys wont get the same amounts, but it can show how big a difference commissions make to certain strategies.

[lastninja2 10]

For a 2 lot chump like me comms something like 0.8Eur/rt on FESX. More size, bigger the discount. I reckon my comms are about 35% or 40% of retail rates.

 

 

Neg, it's a question I have in the past asked myself, and spent a lot of time pondering.

My answer is as per the screenshot attached - I made that about a week ago to put on paper my thoughts.

 

got a trade on FESX long 2206, just hanging on by a thread...

[TheNegotiator 13]

For a 2 lot chump like me comms something like 0.8Eur/rt on FESX. More size, bigger the discount. I reckon my comms are about 35% or 40% of retail rates.

 

 

Neg, it's a question I have in the past asked myself, and spent a lot of time pondering.

My answer is as per the screenshot attached - I made that about a week ago to put on paper my thoughts.

 

got a trade on FESX long 2206, just hanging on by a thread...

 

Yeah I think that retail is probably around 2.5/3/rt actually and you're getting 0.8/RT/lot. If it is 0.4/lot that is very competitive at the low levels of volume you will be doing. So my guess is 0.8/lot and 1.6 for the 2. If retail is ~2.5-3 /lot you have 26-32% of retail comms. Anyway, don't scalp and post!:helloooo: lol

Edited June 29, 2012 by TheNegotiator

[SIUYA 11]

For a 2 lot chump like me comms something like 0.8Eur/rt on FESX. More size, bigger the discount. I reckon my comms are about 35% or 40% of retail rates.

 

thanks....

it goes to show for high volume and turnover the massive difference it can make.

As an example Interactive brokers (and they do offer lower rates for volume) quote a fixed rate for Germany (about the cheapest there) 2 EUR each way....4 EUR round turn.

So (if I am reading this correctly) it means that at 4 EUR per contract round turn as opposed to you being 0.8 EUR round turn - you have a 80% discount.

 

massive difference for some strategies.

[lastninja2 10]

Eurex Futures Commissions | Velocity Futures

 

dunno about IB but i used to trade via velocity , you can do a lot better than 2EUR per leg on FGBL, FESX etc.

 

Failed short on FESX... damn thing doesnt want to fill the gap!

[TheNegotiator 13]

Eurex Futures Commissions | Velocity Futures

 

dunno about IB but i used to trade via velocity , you can do a lot better than 2EUR per leg on FGBL, FESX etc.

 

Failed short on FESX... damn thing doesnt want to fill the gap!

 

Fair enough. You still have a much better rate!! Bad luck on the short. If it doesn't want to fill the gap, that is probably a clue.

[Predictor 11]

>>the Merits of Setting Profit and Loss Targets???

 

The question in the body isn't really similar to the question in the title. I run analysis on my systems it depends on the type of system and the constraints as to the particulars of how this will work. But, in general not setting a profit or loss will cause your returns to vary widely and go out control. This will mean blowout for leveraged traders. In general your return will take on the return of the market -- for better or worse. -- Of course the market return is often better then what many traders achieve...

 

Profit targets and stop losses, however, don't work in the same way. Profit targets set too tightly will generally increase the win rate of a system but in general won't radically change a system performance but poor stop losses can ruin a system. I'm not 100% sure why this is but I think that profit targets work more similar to insurance then the stop loss. Trend systems often do perform better without profit targets.

[fast 10]

Trend systems often do perform better without profit targets.

Interesting. Maybe I'm the "less often" exception. Or, maybe I don't fully appreciate what you mean by "trend systems." I'm a short-term trader, and when I'm not looking for high probability trend reversals, I'm trying to get in early in the trend, and I use profit targets. In fact, I use a scale out approach and have more than one profit target; however, I do keep some on the table to run with no profit target. I would say that a swing trading system with a scale out approach that uses only profit targets is inferior to those that use profit targets exclusively.

 

I happen to think it's unwise to trend trade without a profit target, but I'm only an expert at what I do; I'm certainly not an expert otherwise. To me, it's like a numbers game. I expect a good many small losses, and I expect just as many small wins; they should almost cancel. My second profit target helps to make up for fees, slippage, commissions, and a little profit. The big money that comes along less is from what I let run. If it wasn't for my targets, I wouldn't be offsetting my losses, and if I didn't do that, I wouldn't be in the green on my P&L.