I primarily trade 3 targets because it fits my personality pretty well.
Target 1 is a quick winner, let's say 6 ticks on CL. If the trade has trouble reaching target 1, then it's a red flag for me to look to exit the position immediately and try to minimize losses and then look to re-enter again later.
Target 2 is set based on price action so it varies a lot depending on the day and what price is doing, but I think a good average is probably around 18 ticks. I set it by looking "to the left" on my chart. Where is price likely to run into a possible problem? Target this area to get out.
Target 3 is also based on price action. It is beyond target 2. The thinking is, ok, if we didn't encounter a problem at target 2's level then price is actually likely to run further. I again set it based on "looking to the left", where is the next major area of support or resistance? I would say a good average for target 3 is probably around 50 ticks.
My maximum stop is 24 ticks. Usually the stop is a bit less, but again it always depends on price action. Let's use worst case scenario. 3 lots @ 24 ticks = 72 ticks of risk. Using my averages above, if my targets are hit I get 6+18+50 which is 74 ticks. So let's just call it 1:1 risk to reward after commission and a tick of slippage.
Now, my stops are rarely full stops. Usually, like I said above, if price doesn't "pop" up to that first target almost immediately, I look to get out of the trade with a small loss usually less than 6 ticks. I will re-enter the same trade later if it still looks good. Sometimes I do get trapped and take a full stop, usually what happens is my first target is hit, but then price runs back down against me. I set my stop to the point where I would be "wrong" about the trade. If I were to get out in this scenario --- target 1 was hit, so it had some momentum -- but target 2 and 3 were not hit, and price is moved against me --- if I were to exit here before a 'full stop' then I would be doing a disservice to myself, because I would look at the signal and say "this signal is still fine, I should be in this trade". Sometimes I do this well, sometimes I make a mistake and get out when I shouldn't only to watch the trade not hit my stop and then turn around and run to targets. I'm not perfect
Now also target 3 is not often hit. Let's say I trade five days a week. Target 3 is hit 3 out of 5 days probably. It is those days where usually I can be done for the day in that one single trade when target 1, 2 and 3 were all hit. I set myself up for this on purpose. That is the sole reason target 3 exists for me. CL often moves this much in a move, and when it does, I want to be able to have the opportunity to capture that move and then be done for the day. I realize only a handful of these trades come each week, but when they come I am usually in the trade.
Trading is about probabilities, right? But it's so much more. It's also a constant battle with yourself. Deep down. Your desires, your demons. Every trade you put on is a calculated risk. To me, I find that I perform better by reducing the exposure. I carry a pretty good sized risk per-trade, but I do not trade often. Maybe 1-3 times a day. If I have needed to put on five or six trades in a day, usually I am having a bad day.
Hope this helps.
Mike
Need help? 1) Stop changing things. No new indicators. No new charts. No new methods. Be consistent with what is in front of you first. 2) Start a journal and post to it every day with the trades you made. It will show your strengths and weaknesses. 3) Set goals for yourself that you can reach every day. Make them about how you trade, and not about how much money you make. 4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance. You must look within. 5) Have a question? Create a new thread so the community can help.
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Trading with a multiple of 3 is the way to go, as each target is reached one can reduce exposure to the losses and lock profits. Even moving stops to breakeven on the remaining 2 contracts once 1st target is hit.
Where the struggle is - low capital base. This would prevent me from going in with 3 lots. Any thoughts.
Am I correct is saying. If the price does not do what it is set up to do, then the trade is at risk. So reduce risk and move stops up. This way not the full stop is hit.
You are right. The "constant battle with yourself. Deep down. Your desires, your demons."
You make good trades on the market and always wanting more, never happy, and when we lose them "I shouldn't have been greedy."
Trying to reach a balance is more to do with my mind then with the market price. It's my monkey mind that's the killer.
Thanks again Mike.
Alex
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Am I correct is saying. If the price does not do what it is set up to do, then the trade is at risk. So reduce risk and move stops up. This way not the full stop is hit.
Well this is where the all powerful discretion comes in. This is why experience is required, good old fashioned experience coming from a lot of hard work, patience and discipline. There is no such thing as "enter here, exit there". There is no such thing as black and white in trading, not even right or wrong.
While it's true I don't take a lot of full stops, you can also take a bunch of small stops and still be a miserably unsuccessful trader. A lot (and I mean a LOT!) of traders try to minimize the pain by placing these small stops because they can't handle a bigger stop. Then they proceed to take three or four stops in a row, and by the time a winner comes around they are so desperate for a winning trade they take it off way before they should.
There is no substitute. Your stops must simply be in the right place for your method. Only you knows what that is, but I would venture a guess that if you are not setting it based on recent price action, and price action alone, then it is probably not going to be a good stop.
Some traders say that if price goes against them even two or three ticks, they get out because they were wrong. Hey, if you are long term profitable then who am I to argue. But i would say that in general, especially with an instrument like CL, there is no such thing as a stop that tight (on average).
You asked if the trade was at risk because it didn't do what you expected it to do. Well, it depends. In the end, your stop is really the only price that matters for the "this isn't working out" answer. Otherwise, let's say you thought it was going to pop up and do xyz but instead it did abc, then later xyz. If your stop was never hit, then were you right or wrong? This is why you can't carry a lot of pre-conceived notions into the market, you have to leave your bias behind. You enter a trade based on it making sense to do so, and then you exit a trade based on it making sense to do so. As you gain more experience, you'll find that when you get stopped out and your stop was placed correctly, it can often times be a good time to reverse your original position.
I will try to give another example. You go long. You set your stop 1 tick below the recent lowest low which you identified and labeled on your chart and feel good about. You are in the position. Price is moving against you.
Scenario A:
Price moved against you, but it never hit your stop. Price instead stopped short of your stop, then it turned around and hit your target.
Scenario B:
Price moved against you and took out your stop. Let's say your stop was 1 tick below the recent LL and price moved 3 ticks below it, then turned around, and ran up for a million ticks past your target.
In scenario A, were you right or wrong? There is nothing so perfect an answer as this in these scenarios. Clearly, if you thought price had a good chance of moving lower, you would have waited for it to do so before entering. But, price did not hit your stop, and instead went on to hit your target. In this case, your stop and target seemed to be set correctly. Whether or not you make money in the long run in this scenario will depend on your money management and discipline.
In scenario B, were you right or wrong? This one is easier, right? You got stopped out. Assuming you did not make an error in identifying the LL, and your method calls for setting a stop 1 tick below it, then simply put - you were wrong. Ok no big deal. If you think you will be right all the time, your an idiot right? Just move on to the next trade.
Look, in the end what is trading really about? The way to make money trading is by being able to OUT TRADE EVERYONE AROUND YOU! That's it. I didn't say it was easy, but it is simple. If you don't have your shit together and you make mistakes with entries, exists, stops, targets -- if you hesitate for a second, if you are trading when your mind is elsewhere, if your account is under-capitalized, if if if.... if any of these are true, then it's clear to see that other traders have you beat, and you will lose money.
Mike
Need help? 1) Stop changing things. No new indicators. No new charts. No new methods. Be consistent with what is in front of you first. 2) Start a journal and post to it every day with the trades you made. It will show your strengths and weaknesses. 3) Set goals for yourself that you can reach every day. Make them about how you trade, and not about how much money you make. 4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance. You must look within. 5) Have a question? Create a new thread so the community can help.
If you want to support our community, become an Elite Member.
Great thread! The 3 step profit-taking is exactly what I do for almost the same reasons.
Also I've found that % risk per time period has made a difference for me and as the account grows I add to the contracts traded and the % of equity risked
because...
early on I sat through many losing trades waiting for the % per trade stop (e.g.2 points ES) to get hit as I ostensibly "let the trade work."
It didn't help that in 2002, I didn't have a real methodology and only a vague understanding of supply and demand in the micro time frame, but I bought hook, line, and sinker into Van Tharp's psychology coaching and position sizing concept and ended up bleeding my account 1% at a time - "death by a thousand paper cuts."
Having a mature market view and understanding how to gauge supply and demand allowed me to then determine my risk dynamically per day so I wasn't married to the hard stop on each trade...
I would find that I was often correct in my understanding of turns in the market but needed flexibility in entering the trade, so I started scaling in with a max of three levels with a % per day risk.
"Scaling in" is also known as "working the trade" and it's not a magic bullet for bad trading. It can also be known as losing your a$$ or blowing out an account by adding to a loser.
However this approach reined in by a % per day forced me to watch my criteria as opposed to hyper-focusing on nailing the perfect setup and slapping on a two point stop or % per trade stop and then feeling a false sense of security as though I were following good practices.
As I developed a useful marketview (like worldview), based on data driven supply and demand, that step led me next to tweaking how I should best risk in the market and then those two together greatly reduced my anxiety around trading....thus buoying my psychology.
Psychology and position sizing without a real methodology is akin to hyping yourself up at an Amway rally. All the NLP, hypnosis, law of attraction rah! rah! psychology leads to grief..with no payout for time and money spent.
BTW, It's not a slam of Van Tharp. I own his course and position sizing videos and it's not that position sizing and the right psychology aren't important. It's that they're useful in supporting a solid methodology.
Cheers,
The C.
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Hi Mike
It seems that I’m trying too hard to make it black and white, but it’s not the case. The example that you gave is so real and true.
That’s where I need more work on the discipline, sticking to the rules. As more often (scenario B) price will fade me out only to move in the direction of the trade and I being to question my system; if only did this and if only I did that.
Sticking to a set of rules that were back tested, and not to be bluffed by the market is a hard one to keep. But the greed of I should have stayed in longer is also hard to overcome.
Alex
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Hi Mike
It seems that I’m trying too hard to make it black and white, but it’s not the case. The example that you gave is so real and true.
That’s where I need more work on the discipline, sticking to the rules. As more often (scenario B) price will fade me out only to move in the direction of the trade and I being to question my system; if only did this and if only I did that.
Sticking to a set of rules that were back tested, and not to be bluffed by the market is a hard one to keep. But the greed of I should have stayed in longer is also hard to overcome.
Alex
Alex, if scenario B is happening to you a lot, then it seems your stop is in the wrong place and you need to re-evaluate how you are setting your stop.
Let me also add you cannot make this change in one day and it "work". Too often, traders try to customize their chart or method based on yesterdays or this weeks chart. That is so incredibly wrong. You need to make the change based on months of studying charts and then you need to give that change time. I frequently say "2 for 2", it means you cannot change more than 2 things on your chart every two weeks. I mean colors, indicator setting, size and type of chart, all of it. Two weeks is really required (and trading every day of those two weeks) to get a feel for if the change was beneficial or not.
Mike
Need help? 1) Stop changing things. No new indicators. No new charts. No new methods. Be consistent with what is in front of you first. 2) Start a journal and post to it every day with the trades you made. It will show your strengths and weaknesses. 3) Set goals for yourself that you can reach every day. Make them about how you trade, and not about how much money you make. 4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance. You must look within. 5) Have a question? Create a new thread so the community can help.
If you want to support our community, become an Elite Member.
Mike
Thank you for the 2x2 rule. I'll apply it and see how it goes for the next 2 weeks.
As for targets or letting it run, I'll try not to push the stop too hard behind the price. Give it time to correct before continuing and if it pulls back too hard and takes me out so be it. It is always a hard balancing act between locking profits and giving some back.
Mike
Thank you for the 2x2 rule. I'll apply it and see how it goes for the next 2 weeks.
As for targets or letting it run, I'll try not to push the stop too hard behind the price. Give it time to correct before continuing and if it pulls back too hard and takes me out so be it. It is always a hard balancing act between locking profits and giving some back.
Thank you again for your thoughts
Alex
Alex, the best way to improve your trading will be to start a journal. If you do so on BMT, I will try to keep up with it and offer personalized advice for you, as I do with the others. Hopefully my words will help, whether you agree or disagree with what I have to say
Mike
Need help? 1) Stop changing things. No new indicators. No new charts. No new methods. Be consistent with what is in front of you first. 2) Start a journal and post to it every day with the trades you made. It will show your strengths and weaknesses. 3) Set goals for yourself that you can reach every day. Make them about how you trade, and not about how much money you make. 4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance. You must look within. 5) Have a question? Create a new thread so the community can help.
If you want to support our community, become an Elite Member.
Decide how long I wanted an average trade to last. Basically, I looked in my journal to see how long trades generally lasted before I noted that I was getting anxious; or the trade seemed to be dead; or I exited, or got stopped out because a reversal was too large, based on my trade rules.
Once I decided the average length of a desirable trade for me, I simply assumed perfect entry (i.e, 1 tick above/below the entry bar), and then counted the highest number of ticks reached before a reversal. So for a long entry for example, I would count all the bars until the chart made a lower high AND lower low on a single bar basis (i.e, a true reversal bar), then take the high of that penultimate bar.
This is a laborious process that seems to be only done properly on a manual basis at first. I looked at 200 trades in total on a "what if I had taken every single trade blindly?" basis.
By taking the median value for tick travel after entry, I got a good average of how far I can expect a trade to run, for the period that I am willing to be in a trade. This formed the basis of my targets.
I use a 3 target system. A quick exit first target to cover commissions, and a small profit, just in case the trade stalls and I decide to get out. A second target that is 95% of the expected run, per the median value above, and a 3rd target that is usually set at some support/resistance zone that I have identified and marked earlier in the day. That target is often not hit, because unless there is a strong thrust towards it, I will usually exit if price retreats to the median value of ticks above.
I did eventually code the rules and run a NT optimization. The idealized target that I got was not much different from what I had determined manually. That made me glad, as it meant that I had not wasted my time, and I was even more confident in the result. Nowadays, I just use NT to recalibrate, as I am now confident that the results would be close to me doing it the laborious manual way.
I am not saying that you have to do the same. Just suggesting that you might want to consider it, as that is what worked for me.
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