GOAL? 10 points at 5x$ or 50 points at 1x$

[SuperDriveGuy]

Hi ,
I am new to trading and have been learning a lot from these forums.

I have basically picked up from here that its better to have a points target than a $ based one. My question is ..

? Which is better, having a goal set to 10 points a day, with 5 times the dollar amount input COMPARED to 50 points target a day at 1 times the dollar amount input.

Sorry, if this sounds very basic and ODD, this will really help me in defining my strategy.

Thanks for you time

 

[tomorton]

Hi - It is a basic question but you can be forgiven because the answer is not simple at all.

You set your target according to your chosen instrument and your methodology. So, its easier to get 1% out of a volatile instrument like the Dow than a flat one (its also easier to lose 1%). But if you wish to day-trade and have a methodology that allows you to identify good set-ups and entry points for day-trading, you might have to wait 6 hours to squeeze 1% out of the Dow or even risk carrying overnight into the next day.

What about this? - Look at the charts for your market. Let the chart tell you what to do. If your signal normally gives a gain of 100pts, make 80pts your target. Try to keep a part of your position open then for the remaining 20 (or more if you can) pts. But make sure you are not accepting a loss of 200pts on the trades that go wrong. Concentrate on not losing big before you focus on winning big.

Success at trading = Capital x Time x Risk.
If you try to reduce Time, you will have to either increase your Capital or take a bigger Risk. New traders cannot do the first and should not do the second.

Make sure you always use a stop-loss to get you out of losing trades with a small loss: many people say only risk 1 or 2% of your total; capital per trade. Plan to be able to take a large number of consecutive losers without being wiped out. Once you have a system that consistently lets you make money and avoids big losses, increase your Risk by putting more money into each trade. But slowly.

 

[SuperDriveGuy]

Hi Tomorton,
Thanks your reply was very comprehensive!

My goal is to make 10 points a day and get good at it. This may mean scalping is the way forward for me.

I am assuming that making 10 points is relatively easier than making 50 points, so if one becomes good at making 10 points, one need not(my assumption here) spend effort in increassing the points tally to say(50 points), but rather to ensure that one can get the 10 points(net) on more occasions then before.

I am not a experienced trader, so please ignore my presumptions, but I am just trying to get my logic cleared, as most people(from what I have seen on these forums) equate more points with more success.

Regards

 

[tomorton]

Hi SuperDriveGuy - Cheers!

Just aim to be good at not losing. There are many ways to win the game but the only way to lose it is to be knocked out. So make sure you stay in the game long enough to learn just one of the ways to win it.
Manage your money in each trade and your risk so that even if you have 20 bad trades in a row or 20 bad days in a row, you can still keep trading and improving.
Whether you make 10pts a day or 50pts a week, its all the same. If the entry signal and methodology will only give you 10pts, it would be foolish to try to make it 20. Take the 10 and wait for the next one. But its not easier to make 10 pts 5 times a week or 50pts once.

Its what you do if (I mean when) a trade goes the wrong way that will show if you can trade or not. So, if you're looking for 10pts profit and the position goes up 9, then drops 14 so you are now -5pts, what will you do? And what if it drops another 5 and you are now -10pts, what will you do? Whatever you decide to do, the result must be that you are not knocked out, even if you make that same decision 20 times, because this pattern happened 20 times.

 

[SuperDriveGuy]

Hi SuperDriveGuy - Cheers!

Just aim to be good at not losing. There are many ways to win the game but the only way to lose it is to be knocked out. So make sure you stay in the game long enough to learn just one of the ways to win it.
Manage your money in each trade and your risk so that even if you have 20 bad trades in a row or 20 bad days in a row, you can still keep trading and improving.
Whether you make 10pts a day or 50pts a week, its all the same. If the entry signal and methodology will only give you 10pts, it would be foolish to try to make it 20. Take the 10 and wait for the next one. But its not easier to make 10 pts 5 times a week or 50pts once.

Its what you do if (I mean when) a trade goes the wrong way that will show if you can trade or not. So, if you're looking for 10pts profit and the position goes up 9, then drops 14 so you are now -5pts, what will you do? And what if it drops another 5 and you are now -10pts, what will you do? Whatever you decide to do, the result must be that you are not knocked out, even if you make that same decision 20 times, because this pattern happened 20 times.

Thanks for the words of wisdom! much appreciated.

 

[HaloTrader]

To be honest... When you can consistantly make 10 pips a day, you can make 50 pips a day...

Thats why it takes so long to become profitable at all... When you can make £10 a day, its easy to make £100 a day, but making £10 every day consistantly is a very difficult task, except once you can do it - its easy.

 

[timsk]

. . . is better, having a goal set to 10 points a day, with 5 times the dollar amount input COMPARED to 50 points target a day at 1 times the dollar amount input.

Hi SDG,
Excellent advice from Tom, as always!
Your question centres around trade size so you'll actually answer it yourself when you set your stop loss - or at least you should! Place your stop at a point that makes sense for the instrument you're trading, i.e. one that is based around solid TA patterns and takes account of volatility. Once you've determined where to place your stop, you don't want to lose more than a fixed percentage of your account in the event that it's triggered. Typically, it's 2% max for daytraders, unless you're trading with a very small account, then it might get up to around 5%. Market dynamics and the placement of your stop determine position size. Focus on what you stand to lose and not what you stand to gain. Making 5 points may be easier than making 50 but, if you increase the size of your position by 500% to make the same profit, you'll have to shrink your stop loss pro rata a massive 80%! In all likelihood, that's not going to be possible and virtually guarantees you'll be stopped out.* As I say, focus on 1) where you want your stop if the trade goes wrong and 2) the percentage of your account that loss would represent - and everything else will look after itself. Good luck.
Tim.
* unless you're a star trader who specializes in reversals and can pick tops and bottoms to within a tick or two.

 

[SuperDriveGuy]

Thanks HaloTrader and TimSK. Good advice allaround.

I am glad I found this forum!