Maximum profit?

tomorton · Jun 21, 2017

Let's look at the experienced traders here. We each have a system that gets us in and out at the right times. Risk control is in place, money management is fine, we've got past emotional trading and we're making some money. And this through consistent planned trades, not lucky windfalls or tips.

But isn't there a higher level? Can we reach it? How can we make the MAXIMUM profit from whatever we're doing? And I mean maximum, not just another decimal on the r:r, not just another ten quid by waiting just one more candle.

How are you doing it?

barjon · Jun 21, 2017

tomorton said:
Let's look at the experienced traders here. We each have a system that gets us in and out at the right times. Risk control is in place, money management is fine, we've got past emotional trading and we're making some money. And this through consistent planned trades, not lucky windfalls or tips.

But isn't there a higher level? Can we reach it? How can we make the MAXIMUM profit from whatever we're doing? And I mean maximum, not just another decimal on the r:r, not just another ten quid by waiting just one more candle.

How are you doing it?

Interesting. Some years ago I used to have a performance measure based on the percentage of the move gained. Subsequently I got into a lot of trouble trying to get more out of each trade.

After a while I realised that individual trades were only important in the context of their contribution to my bottom line and it was that which required the greater attention. Thus, I no longer chase for more out of each trade but take what I need to keep my bottom line healthy. I'm not averse to taking more but I look on that as a bonus.

Since maximising profit by taking more out each trade is not open to me the only way is increased position size. I haven't got the balls for that and always come a cropper when I up the stakes too much.

tomorton · Jun 21, 2017

Cheers jon. I actually came to where I am through the opposite route. I used to let my bottom line manage the trades but I did find so many of them would have gone into the money or more ITM if I had let them. Same risk, but accepting it for a longer period.

Now I'm thinking of both increasing position size but also doubling up on winners. There's a "Double Position" button on my SB platform I'm dying to click.

darktone · Jun 21, 2017

I see it like a journey from a - b. Does it matter much if you're going 30 or 50 mph?
If you increase size for any reason other than an increase in your acc, you're increasing risk. Which isn't necessarily a problem if you are aware of and accept that additional risk.

barjon · Jun 21, 2017

tomorton said:
Cheers jon. I actually came to where I am through the opposite route. I used to let my bottom line manage the trades but I did find so many of them would have gone into the money or more ITM if I had let them. Same risk, but accepting it for a longer period.

Now I'm thinking of both increasing position size but also doubling up on winners. There's a "Double Position" button on my SB platform I'm dying to click.

If the SB has a button for it then it's got to be to their advantage rather than yours

. Also why so many of them default to a 5 minute chart

NVP · Jun 21, 2017

good question

reaching for higher performance and better results is a necessary challenge we must place on ourselves to try to improve..... but always to be tempered with understanding market dynamics

eg its no use saying we must do better when the market has been very adverse to the systems we employ ............no one system will match all market dynamics

personally I find these days its 1 step forwards and 1 step back ........i tend to average out ok most days and go with the flow ..........

sure i try to learn something new every day and currentyl am working with some new private trading groups on systems completely foreign to what i use on a daily basis ...........its very enlightening but wont necessarily lead to better trading systems for me ...........but who knows

so im not going to lose sleep if i dont improve on current stats...........

therein lies the probable area we all need to work on ............managing the Ego/emotions and learning to go with the flow .........its all about playing the long game and getting those sample sizes up to the high numbers needed to prove one has an edge

N

rjs1956 · Jun 21, 2017

My philosophy is "take what the market will give". Less turns out to be more.

Jason101 · Jun 22, 2017

Hi Tom,
Do you know any professional traders socially in the the real world (as in not via the Web)?
I have found associating and socialising with real world proprietary directional traders opens your mind in ways nothing else can. For me personally just one of the benefits I found was not to be scared of size and to be open and flexible as to when real size is put on, instead of your usual risk.
I think it's a little bit of being desentasized to some aspects of size and rules at some particular times.

Another thing I will do is to pyramid hard early on in a new trend trade to the point to which a break even trade is by far the most likely scenario but a win is well over sized for my account size. So I tend to get an even(ish) loss to b/e ratio @ 1-2% risk. And then a minority of longer term trend trades going a lot further in price at a much heavier weight than the 2% loss or b/e.
This style is not easy and not for everyone because most people require a higher win ratio.

tomorton · Jun 22, 2017

Jason101 said:
Hi Tom,
Do you know any professional traders socially in the the real world (as in not via the Web)?
I have found associating and socialising with real world proprietary directional traders opens your mind in ways nothing else can. For me personally just one of the benefits I found was not to be scared of size and to be open and flexible as to when real size is put on, instead of your usual risk.
I think it's a little bit of being desentasized to some aspects of size and rules at some particular times.

Another thing I will do is to pyramid hard early on in a new trend trade to the point to which a break even trade is by far the most likely scenario but a win is well over sized for my account size. So I tend to get an even(ish) loss to b/e ratio @ 1-2% risk. And then a minority of longer term trend trades going a lot further in price at a much heavier weight than the 2% loss or b/e.
This style is not easy and not for everyone because most people require a higher win ratio.

I don't associate with any real life traders these days Jason, used to meet some on a monthly basis but years back now.

But your comments on early pyramiding are really good food for thought, thank you very much.

Dr. Toad · Jun 23, 2017

Jason101 said:
Another thing I will do is to pyramid hard early on in a new trend trade to the point to which a break even trade is by far the most likely scenario but a win is well over sized for my account size. So I tend to get an even(ish) loss to b/e ratio @ 1-2% risk. And then a minority of longer term trend trades going a lot further in price at a much heavier weight than the 2% loss or b/e.
This style is not easy and not for everyone because most people require a higher win ratio.

I am a bit curious about this. The main thing with overnight holding that I don't deal well with is the potential for large price gaps close to open. Although it is easy enough to size a position for a fixed percent loss based on where you set your stop, when holding overnight you really can't ever say you know for a fact what % or $ risk you have since you may be gapped over.

For this reason I have always limited my position size when holding overnight based more on half of what I would consider a "worst case" gap or what my analysis indicated a reasonable support point would be --> whichever resulted in the smaller size (almost always worst case gap controls). Reasoning being the gap would be unlikely to occur and twice my intended risk would suck but not be the end of the world.

It would seem to me that pyramiding in the way you are indicating would open yourself up to a substantial blow to your account if the stock gapped against you. Is that a fair assessment, and has that ever happened to you?

tomorton · Jun 23, 2017

I find in my trend-following trades, that very few opening gaps occur. Whether that's because I'm trading stocks that are strongly trending I don't know. But more of the gaps that do occur are with-trend than against it. Using TA-based stops means only a gigantic opening gap would take me out of a position - possible but its going to be very rare.

barjon · Jun 23, 2017

tomorton said:
I find in my trend-following trades, that very few opening gaps occur. Whether that's because I'm trading stocks that are strongly trending I don't know. But more of the gaps that do occur are with-trend than against it. Using TA-based stops means only a gigantic opening gap would take me out of a position - possible but its going to be very rare.

Tom (and Dr Toad)

Same experience. If you've got the momentum with you then it's more likely that you'll forsake more by missing favourable opening gaps than you'd lose by avoiding the unfavourable ones.

Early on in a trade when my stop maybe close by I often take it off overnight to avoid being stopped out by the opening volatility and/or widened spreads. Sounds dangerous, I know, but if there was a biggish opening gap against me I'd be slipped on my close stop anyway.

tomorton · Jun 23, 2017

That's really fine jon, just the sort of tactic I was hoping to confirm. I do see opening gaps but they're not catastrophic. On top of which, very frequently the strongest with-trend price movement of the day is in the first hour, don't want to miss that.

Jason101 · Aug 1, 2017

Dr. Toad said:
I am a bit curious about this. The main thing with overnight holding that I don't deal well with is the potential for large price gaps close to open. Although it is easy enough to size a position for a fixed percent loss based on where you set your stop, when holding overnight you really can't ever say you know for a fact what % or $ risk you have since you may be gapped over.

It would seem to me that pyramiding in the way you are indicating would open yourself up to a substantial blow to your account if the stock gapped against you. Is that a fair assessment, and has that ever happened to you?

Hi Dr Toad,

Yes, pretty much as Tom and Jon are saying in that when trading with the long term trend, a gap is more often than not going to be in your favour (favor for your side of the pond). So any gaps against your position are usually a sacrifice worth taking.

But, my post, as you pointed out, was referring to early pyramiding. When I am intraday pyramiding (to hold for the longer term) I am pretty careful as to what I am trading. I will only do this on FX or something that a look back on the charts shows very little gaps (sometimes bonds and comms). I really don't like early pyramiding on stocks at all.

I did not make this clear in my reply because I was answering Tomorton and I was convinced he only traded FX. But now looking at his replies I am not so sure. Either way I should of made myself more clear for other readers too.

Jason101 · Aug 1, 2017

barjon said:
Tom (and Dr Toad)

Early on in a trade when my stop maybe close by I often take it off overnight to avoid being stopped out by the opening volatility and/or widened spreads. Sounds dangerous, I know, but if there was a biggish opening gap against me I'd be slipped on my close stop anyway.

I have occasionally done this too, especially around holidays.
The other thing I have done is to widen my stop and hedge with an apposing direction for the gap. I suppose this is the same thing, but I find it easier psychologically to close a losing trade (usually the hedge) than setting up a new trade to open after the volatility and or gap.
PS. sometimes on the right instrument I will use guaranteed stops for early pyramiding.

Quantt · Aug 1, 2017

tomorton said:
Let's look at the experienced traders here. We each have a system that gets us in and out at the right times. Risk control is in place, money management is fine, we've got past emotional trading and we're making some money. And this through consistent planned trades, not lucky windfalls or tips.

But isn't there a higher level? Can we reach it? How can we make the MAXIMUM profit from whatever we're doing? And I mean maximum, not just another decimal on the r:r, not just another ten quid by waiting just one more candle.

How are you doing it?

The best approach I am using is to optimize betting size using Kelly criterion... Hope it help...

Jason101 · Sep 7, 2017

Hello Tom, have you made any headway on stepping up your gains?

Another idea for you (other than early pyramiding) is the the use of notional accounts.
In other words instead of risking a percent of your account you risk a larger percent of an imaginary part of your account formed by profits. For example you may say " I am bullish on EUR/USD so for the next quarter (as in 3 months) my long EUR/USD (for example) will be my usual x% of my whole account plus 50% of all profits from short USD trades from this quarter (for example). So you are allowing greater risk but only on profit within a certain predefined criteria which has been ring fenced for this purpose.

tomorton · Sep 7, 2017

Nice idea Jason, and it formalises what have been tendencies in my trades anyway so there's a real parallel.

In fact I have been tracking the comparative TA strengths of all the pairs containing a major currency to identify if he consensus is bullish or bearish for each. I then positively favour trades in line with those tendencies and avoid all trades that would be contrary. Simple stuff, but same effect.

I have started pyramiding every trade now as unrealised profit reaches break-even. The trend TA only comes in for the first trade, after that the profit or lack of tells me whether the trend continues or not. This has enabled me to get into some trends at an early stage that actually started more weakly than results would have suggested. Which just goes to show. Wish I'd done this sooner.

brewski1984 · Sep 7, 2017

The psychology behind pyramiding or using profits as above is an interesting one. You're just tricking yourself into thinking of it as one trade that wins you a massive amount when in reality all you've had is 2/3/4/x separate trades in a row that are winners. Unrealised profits are still actual profits just the same as unrealised losses are still losses.

tomorton · Sep 7, 2017

brewski1984 said:
The psychology behind pyramiding or using profits as above is an interesting one. You're just tricking yourself into thinking of it as one trade that wins you a massive amount when in reality all you've had is 2/3/4/x separate trades in a row that are winners. Unrealised profits are still actual profits just the same as unrealised losses are still losses.

Not really.

In order to take 4 consecutive trades as separate unrelated actions, I would need 4 separate entry signals. for me, these would be from TA to confirm the trend and the timing of the entry.

When pyramiding, I only use TA on the first trade, the subsequent trades are opened as profit passes each threshold, each being another increment of an amount equal to the original risk. The only input TA has after the initial entry is e.g. if the trend supporting these pyramid trades significantly weakens.

As a rule of thumb, I see from my TA so far that the trends I use tend to weaken significantly before I would ever get 4 valid entry signals, so there would never be 4 consecutive trades without the pyramid.

Maximum profit?

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