Am I About To Do Something Stupid?
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Glenn
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Here's another way to look at this issue:-
To get any trade right you first have to get two decisions right, the entry and the exit.
Let's imagine that you are 70% successful in each. Not a bad score by many standards.
So in 100 trades there would be 70 good entries.
70% of those good entries will have good exits i.e. 49 trades.
So you have less than 50% success overall despite your skills.
What seems to be missing from the debate is the size of profit or loss per trade, which is where the money is actually made or lost.
A good trade is one in which you make a much bigger profit compared to your acceptable loss level. (High Reward/Risk ratio)
I think it is vital to know how to run a profit, not just to your first (potential) exit signal, but beyond it to others.
Every succesful trade has it's first exit decision point. "Shall I exit now or stay in this trade for more profit?"
If the decision is made to continue with the trade, then this introduces something other than the entry and exit into the process - a Continuation decision. And this may be followed by others before the final exit is made.
To focus only on entry and exit is insufficient in my opinion. We have all heard the sage advice "Run your profits" and yet on a board like this full of traders, how often do you see it discussed in detail ? Hardly ever.
Glenn
To get any trade right you first have to get two decisions right, the entry and the exit.
Let's imagine that you are 70% successful in each. Not a bad score by many standards.
So in 100 trades there would be 70 good entries.
70% of those good entries will have good exits i.e. 49 trades.
So you have less than 50% success overall despite your skills.
What seems to be missing from the debate is the size of profit or loss per trade, which is where the money is actually made or lost.
A good trade is one in which you make a much bigger profit compared to your acceptable loss level. (High Reward/Risk ratio)
I think it is vital to know how to run a profit, not just to your first (potential) exit signal, but beyond it to others.
Every succesful trade has it's first exit decision point. "Shall I exit now or stay in this trade for more profit?"
If the decision is made to continue with the trade, then this introduces something other than the entry and exit into the process - a Continuation decision. And this may be followed by others before the final exit is made.
To focus only on entry and exit is insufficient in my opinion. We have all heard the sage advice "Run your profits" and yet on a board like this full of traders, how often do you see it discussed in detail ? Hardly ever.
Glenn
Look for a minimum 3:1 risk/reward and if you can't see your exit point don't enter.
I think most traders work harder when they're in a losing than in a profitable position.
As for the successful floor trader, just think how much more he would've made if he'd known what he was doing.
Different styles of trading should be applied depending on which market you're following.
I think most traders work harder when they're in a losing than in a profitable position.
As for the successful floor trader, just think how much more he would've made if he'd known what he was doing.
Different styles of trading should be applied depending on which market you're following.
I have found in the past that being too finicky about exact entry prices meant that alot of good trades blasted off for the stars with me left standing at Cape Canaveral rueing the fact that I had been a dick for a tick!
this is so true Dr L, u obviously speak from experience & r not just a fancy talker as I first thought..........I apologise.
I think this is one of those debates that will have no winner......would be a bit like trying to convince a 'black belt' that a punch on the nose & swift kick in the nuts would be just as affective.....you'll just end up scrapping.
In what I have learned I would say both r important, but it all comes down to how u personally trade at the end of the day. for if somebody is successful....they r successful & just because somebody disagrees it wont make that system fail.
one point I will make is that when I first began trading I never second guessed myself, managed the trade well & had good consistent success............when I started to 'analyze' & compare to what others were doing & try to make it an exact science............my confidence fell, I failed to execute trades, always second guessed & took early profits & my profits fell. this has taken a long, long time to get over
my point: entry & exit r important, as they r part of trading, but a belief in what U r doing is I think more so
Jay
this is so true Dr L, u obviously speak from experience & r not just a fancy talker as I first thought..........I apologise.
I think this is one of those debates that will have no winner......would be a bit like trying to convince a 'black belt' that a punch on the nose & swift kick in the nuts would be just as affective.....you'll just end up scrapping.
In what I have learned I would say both r important, but it all comes down to how u personally trade at the end of the day. for if somebody is successful....they r successful & just because somebody disagrees it wont make that system fail.
one point I will make is that when I first began trading I never second guessed myself, managed the trade well & had good consistent success............when I started to 'analyze' & compare to what others were doing & try to make it an exact science............my confidence fell, I failed to execute trades, always second guessed & took early profits & my profits fell. this has taken a long, long time to get over
my point: entry & exit r important, as they r part of trading, but a belief in what U r doing is I think more so
Jay
Trader333
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On any trade I enter there are only two things I know at that stage.
The first is what my maximum risk in the trade will be. The second is the type of order I will use to exit if the market does not prove me to be correct because order type is important if the market moves very quickly.
Do I know in advance what my profit will be if the trade is profitable ? No I dont and I havent got a clue what it will be because it is not my decision and is determined by market action. All I know for my exit is that I will get stopped out at some point by a market reversal to the point where my trailing stop is. In a proftable trade the profit could be anything from 2 points to 200 or even more depending on how I manage the trade.
My only strategy is to minimise risk and let the profits look after themselves. I have recently been looking at different ways of trading which has been sparked by the posts on vwap and pairs trading although it will be a while until I am fully familiar with this.
Paul
The first is what my maximum risk in the trade will be. The second is the type of order I will use to exit if the market does not prove me to be correct because order type is important if the market moves very quickly.
Do I know in advance what my profit will be if the trade is profitable ? No I dont and I havent got a clue what it will be because it is not my decision and is determined by market action. All I know for my exit is that I will get stopped out at some point by a market reversal to the point where my trailing stop is. In a proftable trade the profit could be anything from 2 points to 200 or even more depending on how I manage the trade.
My only strategy is to minimise risk and let the profits look after themselves. I have recently been looking at different ways of trading which has been sparked by the posts on vwap and pairs trading although it will be a while until I am fully familiar with this.
Paul
Rognvald
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"Do I know in advance what my profit will be if the trade is profitable ? No I dont and I havent got a clue what it will be because it is not my decision and is determined by market action"
Well said that man - once you are in you can only control your exit by 2 criteria - amount of loss or amount of profit and what ever the basis for your entry the market determines price - not you
Well said that man - once you are in you can only control your exit by 2 criteria - amount of loss or amount of profit and what ever the basis for your entry the market determines price - not you
dont see why u should have to Dr L, as i cant see that anyone has actually proved a coin toss as wrong.....& surely it is all relative anyway as in which way the 'coin toss' decision is connected to the entry & time scale.
bit of an exaggeration, but If I risked everything tomorrow on going short or long on the toss of a coin, by chance got it right & made a fortune .........would I be wrong?
Jay
bit of an exaggeration, but If I risked everything tomorrow on going short or long on the toss of a coin, by chance got it right & made a fortune .........would I be wrong?
Jay
Glenn
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Hi Paul
Regarding a trailing stop, if it has a constant value (number of points) then as the profit grows, the trailing stop size becomes a smaller and smaller proportion of it.
e.g. a trailing stop of 4 points is large in proportion to a 10 point profit, compared to a 200 point profit. So as the profit grows you are in danger of being stopped out too soon by keeping the trailing stop the same size (because prices don't move in a straight line, profits are taken etc).
If you alter the trailing stop size as the trade develops, then you are making continuation decisions as well as the entry/exit decisions.
You don't say whether you alter the stop size as you go along as part of managing the trade, maybe you do (?). e.g. a percentage stop rather than a fixed points value stop.
Using trailing stops is one way to run a profit, but there is more than one way to do it.
I'm just trying to draw attention to this aspect of trade management in addition to entry/exit.
Perhaps the lack of other comment suggests that most people prefer to exit at their first target or sign of a reversal.
Glenn
Regarding a trailing stop, if it has a constant value (number of points) then as the profit grows, the trailing stop size becomes a smaller and smaller proportion of it.
e.g. a trailing stop of 4 points is large in proportion to a 10 point profit, compared to a 200 point profit. So as the profit grows you are in danger of being stopped out too soon by keeping the trailing stop the same size (because prices don't move in a straight line, profits are taken etc).
If you alter the trailing stop size as the trade develops, then you are making continuation decisions as well as the entry/exit decisions.
You don't say whether you alter the stop size as you go along as part of managing the trade, maybe you do (?). e.g. a percentage stop rather than a fixed points value stop.
Using trailing stops is one way to run a profit, but there is more than one way to do it.
I'm just trying to draw attention to this aspect of trade management in addition to entry/exit.
Perhaps the lack of other comment suggests that most people prefer to exit at their first target or sign of a reversal.
Glenn
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Trader333
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Hi Glenn,
Yes I take your point but I actually do just use a fixed number of points which has worked well for me so far. Once the trade is in profit I trail the stop from breakeven to about 15 points on Nasdaq stocks. This is a manual stop and is also dependent upon the Level II screen and what is happening on T&S.
Cheers
Paul
Yes I take your point but I actually do just use a fixed number of points which has worked well for me so far. Once the trade is in profit I trail the stop from breakeven to about 15 points on Nasdaq stocks. This is a manual stop and is also dependent upon the Level II screen and what is happening on T&S.
Cheers
Paul
Regarding the entry vs exit debate - I don't think that optimising either is particularly important. Most of my profits are not determined by skilful entry or exit, but by hanging on and letting my profits mount up when I find myself in a good winning position.
And exits are a pet hate of mine. There is nothing so costly as a great exit in a bull market.
"It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine--that is, they made no real money out of it. Men who can both be right and sit tight are uncommon."
- Reminiscences of a Stock Operator
And exits are a pet hate of mine. There is nothing so costly as a great exit in a bull market.
"It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine--that is, they made no real money out of it. Men who can both be right and sit tight are uncommon."
- Reminiscences of a Stock Operator
CityTrader
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Old stock market adage. " nobody ever went bust, taking a profit"