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Profitable traders: what's your e-mini time frame and risk/reward structure?
As a newer-ish trader I'm trying to develop a mechanical (fixed) risk to reward structure that's realistic with what the market is able to provide.
If you're a consistently profitable trader in the e-mini's, can you please answer the following questions?
1. Do you trade with a fixed risk to reward structure? i.e. entering trades that always risks 4 ticks for 8 ticks. Or do you calculate position sizing for each trade? (the reason I ask is because on short time frames it's impossible to calculate position size for each trade, there just isn't enough time before the market has already moved)
2. What time frame, volume, range, or tick chart do you use to trade the e-mini's?
3. How many ticks do you risk? how many ticks is your take profit set at?
Am I going down the wrong path by constraining myself to a fixed tick based risk to reward structure?
Can you help answer these questions from other members on NexusFi?
I suppose I’m just about in that group, but you’re going to get other/better/different responses from people with much more experience and success under their belts than I have, and you should read my replies knowing that.
Generally not. Largely because my trading is mostly trend-following, and it goes against the grain (for me, anyway) to trade with fixed targets (at least for the whole position, it does), when you’re following a trend.
So it depends on what kind of trading you do, surely?
Again, generally not. Mostly because I like my stop-losses and targets (if any) to be as closely volatility-related as possible.
That’s my experience, with fast trading, too. I completely agree.
I don’t use timed charts.
I use constant-volume bars and adjust the chart-speed to the volatility, in accordance with my risk management parameters.
I work everything out "backwards" (some people would say) from risk management parameters. I look first at what I can afford to lose and how often, given what I'm doing and my degree of risk-aversion, before thinking about stop-losses, targets and position-sizes.
In my opinion (though I might ruffle some feathers, saying this), almost everyone using tick charts is actually using them (knowingly or unknowingly) as a kind of "approximation" of constant-volume charts, anyway, so why not just use those instead? (Is how I look at it.)
It depends what I’m doing, but I don’t like the initial stop-loss (which in my case is often the “fixed stop-loss” too, for at least part of the position-size) to be less than twice the ATR and I’m more comfortable with 2.5 times the ATR.
I strongly disagree with the advice (widely expressed in trading forums, though a little less widely here than elsewhere) that you shouldn’t trade with a reward-to-risk ratio of less than 2.0.
I even strongly disagree with the advice (even more widely expressed in trading forums, though also a little less widely here than elsewhere) that you shouldn’t trade with a reward-to-risk ratio of less than 1.0.
I think it depends what you’re doing.
I sometimes see people saying (in Journals, or wherever) that their stop-loss is twice the distance of their target, and inevitably there’ll be one or two responses saying things along the lines of “Are you sure that shouldn’t be the other way round?” and even “You’ll be better off reversing that”. I think these responses are very often mistaken.
My point is no more complicated than that a high “R” goes with a low win-rate, and that can be very difficult for inexperienced traders to handle. Sometimes (maybe “often”) so much so that that alone prevents their progress, in practice.
You have to learn all this stuff, in its relevance to your own trading, by testing it on your own trading.
There’s no “one size fits all”.
There are too many variables.
I don’t know.
It depends on exactly what you’re doing, and it’s really difficult to advise people without knowing that, and in detail.
>So it depends on what kind of trading you do, surely?
>It depends what I’m doing
>I think it depends what you’re doing
>You have to learn all this stuff, in its relevance to your own trading, by testing it on your own trading.
>There’s no “one size fits all”.
>There are too many variables.
In this response Tymbeline offers the most appropriate answers for the overwhelming majority of the " looking for assistance " posts. That newer traders seem to believe there must be a "template" comprised of specific indicators, settings and rules they can follow to achieve profitability may point to why so many fail to do so. That questions are vague in their context suggests that one has never considered that groups of traders using the same "template" can have widely different results, or that one " template" a trader uses successfully on a 2000 tick NQ chart is not guaranteed appropriate for your own 2000 tick NQ attempts let alone trading on a 20 Min ES chart.
It's not uncommon to see exchanges of information occur between well intended folks who in reality are not really discussing the same instrument, bar type and time frame because this relevant context was never established.
I strongly agree with both @Tymbeline and @glennts. I would add that how you look at the markets and how you have decided to exploit opportunities you see there are choices you make, and may not be very much like other people's choices, but both could work... or not work, depending on the implementation.
For example, I don't use anything like a "a fixed risk to reward structure." Why? Because I look to be in trends, and a fixed target, as I see it, would be a bad way to trade a trend.... how can you know when it will end? A set reward means I limit what I will take out of the trend. So I don't have a fixed R:R. I don't have a fixed stop either. I'll trail up my stop, if the trade begins to succeed, and when price turns against me it will hit the stop and take me out, below the top but often well above where a percent-of-risk type target would have been. I'll never know in advance where I will be out. And I don't use a target. Not ever.
On the other hand, if you envision the market giving more short-range opportunities, as in definable ranges, or if this is what you find your method is best in finding, then setting a target to get out before price reverses is completely rational, and may the best way to trade it. And then of course you will want to determine your R:R in advance, to see if the trade makes sense to you. So different choices of how you are going to approach the market will point you in different directions.
The market can change too, so what was working may need to change.
I'm not saying this or that is "wrong," but I am saying that there is no really good one-size-fits-all answer. It really does depend on how you are trading, and what the market is giving you.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Is there anybody who swing trades ES or MES? I mean 4 ticks is a scalper approach.
What about using a 15min chart for enty and exit? You also could set up reasonable stops and
profit taker levels. Is someone swing trading the minis overnight? The only danger i can see is the
time the market is on hold between 5 and 6 pm eastern where your stops don´t work and you
could be hit by a black swan event.
These are historic trading conditions. 15 yrs ago you might see a 10 pt ES move several times a week. Today it is not surprising to see one or more every 30 mins. It's possible to regularly make in one day what before would have been a good week.
Trading for ticks in this environment is choosing to miss the opportunity of a life time.
It is trading without any context for why price is moving and where it is moving to.
The 5 week avg 30 min bar range during RTH is @ > 40 ticks.
Suggest you shift your attention to figuring how to get the most out of the 30, and 60 Min bars.
"If you don't want random outcomes, don't make random decisions."
I've been day and swing trading futures since 2010, using supply/demand zones. I scan for setups in 17 different equity indices, treasuries, commodities and currencies and trade the ones with the highest quality setups on a given day according to my rules. Of course those setups aren't guaranteed to always be the best trades on a given day, that's the nature of trading. But over the years it has worked out with consistency.
I am a strong believer in having a realistic risk/reward structure, but I DON'T use a fixed number of ticks/points for my stop. Rather, I use a max risk in dollars for each trade, and position size according to the "technical" risk of the setup, which depends on the height of the zone and current volatility.
One of the benefits of supply/demand zones (when correctly identified) is that they provide price levels for entry and stop orders, thus defining the max risk per contract with a realistic chance of avoiding stopout. But in cases of very tight zones I keep a minimum stop of ATR/2, regardless of what the zone tells me. If the risk number on a given setup is too high, I pass and look for other setups.
Since I prefer scaling out with 3 targets, I mostly trade in multiples of 3 contracts. I will switch to micro contracts if needed in order to get 3 contracts within my max dollar risk. While I have a base dollar risk number, I adjust it higher on particularly high quality setups. My greatest weakness as trader is I am too conservative, so I have rules to force myself to increase risk when setups meet certain criteria.
As for the reward, I need minimum 3:1 distance to the "opposing" zone in order to take the trade. I prefer having far more distance to the opposing zone, 3:1 is just my minimum. It also is usually my T1.
The attached chart is an example of an otherwise nice setup in CL this morning, which I passed on because it didn't offer 3:1 distance. As it turns out, it would have worked great, but rules are rules.
All of my trades are planned set & forget limit entry orders with OSO/OCO exit brackets, so calculating position size and number of contracts in time is rarely an issue. It only takes me a few seconds anyway, and I only do a few trades each day (often only one).
My preferred timeframe for entry zones is 10min, although I scan for zones on 5, 10, 15 and 20 min for daytrading. 15, 20, 30 and 60 min for swing trading.
Like others have posted here, I too love volume based charts (share bars in TradeStation). And they work great with supply/demand. But unfortunately I cannot scan for volume based zones as easily using my supply/demand software, since TradeStation's RadarScreen doesn't support volume charts (as it does in charts). But if I were trading only one or a few markets, I would be using volume charts.
Again, with supply/demand zones you let the chart determine the number of ticks/points for your stop. The attached chart is an example of a Demand Zone (cyan lines): You buy on a pullback to the zone, typically with entry at the high line (98.38) and a stop below the low line (97.86). I generally go 3 ticks below that line. Of course vice versa for Supply Zones.
My targets are determined by chart features, particularly the "opposing" zone. On the attached chart, there is an opposing Supply Zone (poor quality, magenta lines, now broken because price traded through it). I want 3:1 for my T1, other targets determined by chart features.
If I am there to watch the trade, I usually manage my stop once I've reached T1, and continue managing it as the trade goes my way. That's a whole lecture in itself (and more art than science) so I'll save it for another post.
I personally think a fixed tick based risk makes little sense since markets change all the time: At the very minimum do you need to adapt your risk to volatility (ATR). But there is an infinite number of ways to trade, everybody has different preferences.
(Sidenote: I am aware that many people have failed to make supply/demand work and believe the technique is flawed. It works well for me, but only when using multiple timeframes to filter out trades in the "wrong" direction. I understand that others may have different opinions.)
