Better to lose than take small profits

[bfirth]

OK I've been working on my trading for a while now and am definitely getting there. Tonight i had a thought that seemed to me to be a bit of Epiphany,and i wondered what others think.
my method, altho irrelevant to my thought, uses a 5 point stop,and risks .5% of my account. now my thinking is that it is better for me to take a 5 point loss than a 4 point profit. If my system has a 50:50 win:loss (it seems better but bear with me) anything less than 8 points win, (2:1 win:loss) will, over a long enough time line result in me losing, if you think purely in probabilities.
OK so this assumes that i do achieve a win ratio of 50% or better, also i apologize if iv not explained this very clearly, but it seems to make sense to me in a fuzzy way.
Maby I'm just rehashing the old adage of cut losses, let profits run
anyone got any thoughts?

 

[Andvari]

There was once a man who would always carry a bomb onto a plane, as he feared someone blowing up the plane. The probability of two bombs on the same plane was so low, he was sure to be safe.

 

[abottoml]

Your Win Probability and your Win/Loss ratio are closely linked. Google "Kelly ratio" and check out this link:

Random Portfolio Simulator

 

[Rossini]

That means for every pip/tick up or down your instrument moves, you can add or kiss good by to 1% of our account! You cant trade without an account, be careful with it.

 

[theroguetrader]

Risk / Reward

OK I've been working on my trading for a while now and am definitely getting there. Tonight i had a thought that seemed to me to be a bit of Epiphany,and i wondered what others think.
my method, altho irrelevant to my thought, uses a 5 point stop,and risks .5% of my account. now my thinking is that it is better for me to take a 5 point loss than a 4 point profit. If my system has a 50:50 win:loss (it seems better but bear with me) anything less than 8 points win, (2:1 win:loss) will, over a long enough time line result in me losing, if you think purely in probabilities.
OK so this assumes that i do achieve a win ratio of 50% or better, also i apologize if iv not explained this very clearly, but it seems to make sense to me in a fuzzy way.
Maby I'm just rehashing the old adage of cut losses, let profits run
anyone got any thoughts?

you got it mate - ALL trading is probability based - Its not the individual trades that matter, but the overall results - (week /month)..!!
If you have a loosing trade (and everyone does) - it does NOT make you a bad trader,its simply the law of averages playing out.. !! if your system has a win/loss ratio of say 75% which is MORE than ample - you will be way ahead of the game - heres an example -

1) trader a - risks $100 and then takes profit at $25 - (risk/reward ratio of 4-1) - this means over time, 80% of his/her trades have got to be correct - " just to break even ".

2) trader b - risks $100 and takes profit at $100 - (RRR - 1-1) - this means to be able to break even in the long run, he has to be correct 50% of the time...

3) trader c - risks $100 and takes profit at $200 - (RRR - 1-2) - means to break even over the long term he got to be right 33 % of the time ..!!

4) trader d - risks $100 and takes profit at $300 (RRR - 1-3) - which means in the long run, you only have to be correct 25% of the time... !!


who do you think is going to succeed in the long run..?? its going to be easiest for traders 3 and 4,because they have " LESS PRESSURE " to get a high winning percentage of correct trades in order to MAKE MONEY ...!!


Dya see how important letting your winning trades run and cutting your losses means now..??


:idea:

 

[dash riprock]

My win loss ratio is less than 50/50

The secret is splitting my position in two.

Roughly speaking when the first position reaches my initial risk I look to take profits on the first half and move the stop to break even on the second half so I can look to let the second part of my trade run.

Just something for you to think about.

Dash

 

[bfirth]

Thanks for all the replys guys,and the laugh andvari,.
I agree totally with what's been said, I think the main drive of what I was trying to say and on a re-read failed to say, is a fundamental acceptance of probability's,excepting that you will get losers, and within a sound system with good MM this is not a problem therefore allowing myself to not panic and grab tiny profits.
I guess the question really was what type of behaviour is rewarded over the long hall. giving the market time an space to move or jumping on small profits.

As an example, I was up till recently a self-employed plasterer. I had periods of masses of work i.e. 6-7 days a week. After these rushes I would be surprised that I did dent really seem to have made much money, which made no sense,so I sat down and looked at a couple of weeks and realised why. Lots of little factors came in to it, I was rushed so I made mistakes pricing jobs, forgot to add extras, had more wastage, ect ect. I then took of some time balanced my books and found that I could afford to work 3 days a week as long as I priced jobs properly, I could see it very clearly on paper, but when I was rushing about it was impossible to see the bigger picture. Of course the trick is to put the theory into practice, I think this is the same stumbling block in trading, I know people say “ oh it works in theory but not in practice” but maby that's,with a few exceptions, due to being put into practice badly.
Once again sorry for a rambling post.
Reminds me of “ If you can't explain it simply, you don't understand it well enough” just need to keep on working at it.
cheers B.F

 

[trader_dante]

My win loss ratio is less than 50/50

The secret is splitting my position in two.

Roughly speaking when the first position reaches my initial risk I look to take profits on the first half and move the stop to break even on the second half so I can look to let the second part of my trade run.

Just something for you to think about.

Dash

What a lot of people don't realise though is that to make this work, you have to cover the first half when it covers the risk in MONETARY TERMS not in pips.

E.g. if you risk 10 pips (£10 per pip so £100) then you should only cover £5 when you are 20 pips up e.g. £100.

Most people would cover the first half when they are 10 pips up - thinking the risk has been covered.

Problem is you are scaling out of half at 10 pips but then you are prepared to take a full loss on two.

 

[bfirth]

risk two, profit from one. tricky problem, the main reason put forward for it is to make it easier mentally on you, which in the markets is rarely the best way, trading is often doing the unnatural thing whatever the hell that is :-0

 

[Paul71]

risk two, profit from one. tricky problem, the main reason put forward for it is to make it easier mentally on you, which in the markets is rarely the best way, trading is often doing the unnatural thing whatever the hell that is :-0

Spot on! It's very natural to want a nice easy mathematical formula that gives 1000's of % returns over any given time frame, i mean, maths can't be wrong. What is evidently unatural in trading is applying the bugger year in year out.

 

[rathcoole_exile]

Aloha !!
why not scrap your Stop Loss altogether ?
just ride the drawdown, price will eventually move into profit at some stage, and it's almost impossible for it to go to zero.
Don't worry about things like margin call, interest charges etc, 'cos if you know what you're doing like what my mate does, you'll soon be in profit anyway...

adios amigo

 

[Joey25]

Regarding exiting part of your position to breakeven,

(1) The key purpose of the method is to allow you to keep your stop the right side of a "line in the sand" - above the intraday high, 4hour trendline etc.

So to combine it with trail to breakeven defeates the reason for using it.

(2) In terms of how much of the initial risk is taken out by the scale out, ideally this is the amount which over a large sample maximizes volatility-adjusted returns (i.e that which most smooths the equity curve).

It's OK to still come out with a loss (in terms of initial risk) when the remainder of the position deteriorates, if this has the desired smoothing result overall.

 

[dash riprock]

Regarding exiting part of your position to breakeven,

(1) The key purpose of the method is to allow you to keep your stop the right side of a "line in the sand" - above the intraday high, 4hour trendline etc.

So to combine it with trail to breakeven defeates the reason for using it.

(2) In terms of how much of the initial risk is taken out by the scale out, ideally this is the amount which over a large sample maximizes volatility-adjusted returns (i.e that which most smooths the equity curve).

It's OK to still come out with a loss (in terms of initial risk) when the remainder of the position deteriorates, if this has the desired smoothing result overall.

There are lots of ways to trade and numerous plans for entry's and exits and stops,etc.

I think that you have got to have a plan ( trading plan that is ) and be consistent and stick to it,.

Here is what I use for entry and exit , stop ,potential target. The trade is triggered or it is not.The software does all the calculations.I sell half the position at the 100% risk then move the stop to break even on the second part.Then if I reach the coloured bars usually the first one I move my stop to just below or above the bar depending if I am long or short.This way it lets the trade have a bit of wiggle room.

For me it takes it takes the emotion out of trading and helps me be consistent and stick to my trading plan.

The chart is just to show how I base my trading decisions and the calculations are for a £20000 pound account.You can set the account size to whatever your account may be but I never take trades less than 2.1 risk.

I am sure there will be lots of you that disagree with me but thats OK and honestly I don't care.I trade my plan and it works for me.

Dash

 

[bfirth]

yes eod different strokes for different fokes, me for instance am a control freak so whilst MTPredictor looks interesting it prob just wouldent mesh with my style, would i knock it? nope and goodluck to you dash. (please don't take that as patronising or scarcastic its genuine )
One thing about trading for me is not to remove the emotion but to accept it and get my self to a point that it is not a prob as this will be a usfull skill in many other parts of my life.
cheers bry.

 

[dash riprock]

yes eod different strokes for different fokes, me for instance am a control freak so whilst MTPredictor looks interesting it prob just wouldent mesh with my style, would i knock it? nope and goodluck to you dash. (please don't take that as patronising or scarcastic its genuine )
One thing about trading for me is not to remove the emotion but to accept it and get my self to a point that it is not a prob as this will be a usfull skill in many other parts of my life.
cheers bry.

Hi bfirth

If I switch to real time trading in the future I would use the same methods as described in the previous post as that is what is in my trading plan.

Best Wishes With Your Trading

Dash

 

[Scalper_max]

I hated taking small change, especially after paying for the spread. My bets got bigger and bigger and today I got stopped out and lost 10k on oil.

I am going back to a more conservative approach now but still hate taking small bits here and there. You can never make it big like that IMO.

 

[jeffsmith]

To get successful in Forex market Fund management plays a very significant role.
Trade in parts not with the major parts of your money. Look for the many small profits instead of grabbing big profits.

Happy Trading

 

[ymanly]

small profits and more contracts........the reason the low % system is bad for you is the emotional aspect of it. It will cause you to rather avoid the pain of losing than enter the trade...it is called trader's block or i call it lead paws syndrome...this is direct result of no confidence in low % system.