You can be in the 3% that make a consistant profit

[sam21poddy]

Re: You can be in the 3% that make a consistant profit.

OK. On Monday I am going to do one trade with a stop, viewing it "as a cost of doing business" and I will see if I can get through to the end of the day without the whole world falling in on me. I can't do it this afternoon because I need the weekend to work up to it. I will report back on Tuesday, win or lose.

 

[RichKid]

Re: You can be in the 3% that make a consistant profit.

Re planning a stop before you enter a trade....
There is something depressing about accepting that you made a mistake on a trade and taking a loss. Has anyone got any hints on how I can overcome this problem?

I am dealing with this issue as well. My strategy is to set stops BEFORE entering a trade and sticking to it. Therefore I know my stop loss and my exit point to lock in profits. I also set criteria for when I will depart from it BEFORE I enter the trade based on technical analysis. Where I have not followed my pre-trade plan I have sufferred. By following it I may lose some profits but I can accept that.

So if you have set certain parameters before entering the trade the next issue is following it- come hell or high water. If it doesn't work change your strategy/plan/system but don't modify it for an individual trade. ie your strategy must be followed and applied consistently.

I've tried to provide a link to a recent article by Louise Bedford on how to follow stops but the ASX site is uncooperative- have a look under their investor newsletter section. But there are many ways to deal with risk (how to protect capital and how to protect profits) no doubt techA and the others will discuss these. In the end you have to find a way that you like and that works for you. I am still a beginner so my stategies/views are still evolving. Good luck.

 

[tech/a]

Re: You can be in the 3% that make a consistant profit.

This "cost" should be a quantified one.
Relative to expectancy,set for your method niether to wide or to narrow.
This is the"Minimising loss"we all hear bandied around.

Ill explain more in the next issue.

 

[still_in_school]

Re: You can be in the 3% that make a consistant profit.

Hi Sam21poddy,

if you cant set a stop, try setting conditional orders for exiting... personally for me, i dont set stop losses, but i do set profit targets, and hedge positions (potentially if there is a downside) but i personally i try to invest into solid blue chip stocks, that are trending or ranging (but trade on margin)...

the other problem ive found with stop losses, if your holding for long term... a stop loss, if set to tight, can stop yourself out...

also another important factor, if im trading commodities on a seasonal chart... there is no stop loss implemented at all...

*** simply over laying seasonal charts on top of each other, and entereing and exiting based on repeated history ***

Cheers,
sis

 

[Redwing]

Re: You can be in the 3% that make a consistant profit.

Great thread guy's and very informative, i'm enjoying following it.

Thanks

REDWING

 

[tech/a]

Re: You can be in the 3% that make a consistant profit.

Ive started another thread on Questions and Answers/Comments to attempt to keep the main thread cleaner so the gist of the tutorial can be followed:

https://www.aussiestockforums.com/forums/showthread.php?t=633

By all means comment and ask questions but rather than here do it there.

Thanks
tech/a

 

[tech/a]

Re: You can be in the 3% that make a consistant profit.

Now during the last week Ive had some replies and there has been some discussion.

Whithout offending anyone GENERALLY traders here are novice.Many finding their place and trying various methods they feel in theory and at times in practice,return a profit.

The aim here (In this Tutorial) to guide traders to their own trading methodology armed with the tools necessary to make a consistent profit year in year out.

This is a multi part process one which has a logical and quantifyable conclusion each part is dependant on the other and ALONE will not reap continued success.

See anyone can turn a profit now and again infact some can turn a spectacular gain every now and again.3% do it year in year out.

Thats where I want you to be!
Because here fear goes!
Trading is fun the stress is gone!!
You GET A LIFE.

So before we move to exits I think it best to go more indepth with,Entries,Stops and firstly the "Business" of trading.

 

[tech/a]

Re: You can be in the 3% that make a consistant profit.

The Business of trading.

Whether full time or Part time If you were working for me youd want to be paid.Infact if you worked after hrs youd want more as it eats into your leisure time.

So lets do some simple math.
Time spent investigating and implementing trading.
20 hrs /week----not un common.
Say $30/hr = $600
Software,computers,books, Data feeds, Brokerages IE the overheads of our business.
On a part/time basis generally equates to around $100-200/week.Work it out yourself.

So our business needs to make around $700/week to pay for our time and out goings,otherwise we are better off getting a job down the road at the pub and taking home $350 a week parttime which we can use!

Many dont even identify with this REALITY.

Now if your not or never have spent upto 20 hrs a week in this business then chances are youll fail due to lack of effort.(Every business requires time IN the business).
If you havent or cant invest $100 or so a week in planning and setting up your business then chances are youll fail purely because your business hasnt the tools to succeed.
Finally if your UNDERCAPITALISED and you dont have enough initial capital for the business to cashflow itself ,youll also fail purely because you wont have enough to stay in the game.

Lets state it very simply.
If I found you a business which you placed 3 hrs a week into and cost you $500 to buy into and suggested you need $5k to run it---------------what sort of weekly return do you think (realistically) that business could return you------------Id say very little if any.

If you wish to enjoy your trading,understanding that its NO GAME but a serious business either full or parttime will help you toward understanding that you must construct a business plan-------a profitable one based on FACT not THEORY.

As time goes on thats what we will do here! Youll have the BLUEPRINT to walk away and plan your OWN profitable business and STAY profitable.

tech

 

[Mofra]

Re: You can be in the 3% that make a consistant profit.

Sam21poddy,

Welcome, just thought I'd offer a suggestion for stoplosses, one of my most common ways of setting a stoploss. I take my entry conditions, and when it is no longer valid (ie its obvious I got it wrong) I exit. For example, if one of the reasons I have entered a stock because it is trading at just above a previous support level, a break of the support level is my stoploss. If I'm riding an uptrend and the trend is broken, time to exit.

It may sound like extremely dumbed-down baby-talk to the experienced traders in here, but simply writing down your reasons for entering a trade, keeping a diary, and re-reading your entry conditions when a position moves against you can provide a powerful motivation to execute your stoploss. That, and having taken an absolute whalloping once in the past when I didn't follow my own rules (held a short put position on NCP in Jun 02 past my stoploss, will NEVER do that again!).

Good luck

Mofra

 

[tech/a]

Re: You can be in the 3% that make a consistant profit.

OK.

First thing I will introduce is RISK to RUIN.
Placement and execution of stops keeps you in the game.
Firstly Ill post our master chart from where we can understand some stop placement and the consequences of where stops are placed.

Now this is a simple triangle breakout but could be any buy point in any trade either Technical or Fundamental its simply a point of buy.
There are 3 stop points which are logically on the chart from a technical veiw.
Although not shown you could have a set % risk of X% I use 10% of Initial Purchase price.

Here is the chart

 

[tech/a]

Re: You can be in the 3% that make a consistant profit.

Firstly we will discuss RISK to RUIN.

This is a typical trade for the exercise we will take stop 1 and 3 only to see the difference.The closer the stop the more often youll be whipsawed out,but lets see if thats a bad thing.

Stop (1) is a 7c risk so lets say we are trading in $5K parcels(Approx) and have an initial capital of $20k.So we can buy 3000 shares.7c stop or Risk means we are risking $210 or 1.05% of our starting capital.
Our win in this case is 50C (Approx) or 7.1 times our potential loss.
This could well be a short term pattern trade.

Table 1 shows our average return if we have between 30% and 80% winners as you can see important to keep up the win ratio!

Table 2 Is quite different.here we see that with a very tight stop of 1.05% or $210 we can actually survive with an average of $105 per win provided we are right 70% of the time.
If we are not that good at picking winners and only get it right 30% of the time we need $630 each win.

So you can see that we NEED to KNOW

(1) How often we have a Winning V Losing Trade.
(2) What tha average win is.
(3) How much we will risk on average / Trade.

Take a while to look at the tables before I present the second study using the WIDEST stop in our example.
Lets see how that effects the "NUMBERS."

 

[tech/a]

Re: You can be in the 3% that make a consistant profit.

Case 2 looks like this.Stop is now 38C Buy $1.80 Stop and sell is $1.42.-----Profit is still 50c
Risk / trade is now (In this case) 3000 shares X 38C = $1140.
Which is 5.7% of our initial capital.
Our ratio of winner to loss is only 1.31:1 (The sacrifice for wider stops)
GETS WORSE with NO STOP!

Now we can see just to etch out a profit we need to be right atleast 45% of the time with these types of NUMBERS.

Now lets look at Probability of Ruin.
We have to be right 60% of the time with a win of that which we risk $1140.
Even with a whopping 4:1 win size we need to be right 55% of the time AND win 4 times our stop value!

Take some time to absorb these NUMBERS.

If your having trouble building CONSISTENT profit chances are you dont know YOUR Numbers.

Now we have all heard the old adage of "Let Your Profits Run" This is actually a trade of mine but I didnt enter at $1.80 it was a little higher but for the exercise the next lot of charts will reflect this trade and profit at my exit of a cross of the Close over the 180 day ema of the LOW.

 

[tech/a]

Re: You can be in the 3% that make a consistant profit.

So lets now do the Matrix as if we had let profits run

 

[tech/a]

Re: You can be in the 3% that make a consistant profit.

For the exercise we will use the LARGEST stop of 38c

The NUMBERS
Same Risk 5.71% (which is higher than I would adopt,more on this and why later).
However win is 16.7 X Risk. Note the enormous difference in Table 1.

Table 2 remains the same,The win however is $19200 way off the scale for this Matrix.
If anyone wants a copy of the Matrix just email rwi@chariot.com.au and Ill send you one.

Think thats enough hopefully to spark some discussion and having you consider analysing your numbers----if you dont know keep a record of trades so you can test your profitablity.

NEXT before exits.
TIMEFRAMES

 

[Redwing]

hmmmm

Ok need time to digest that..

Thanks

REDWING

 

[tech/a]

Re: You can be in the 3% that make a consistant profit.

Hmm I see a lot of blank and bemused faces upon the forum!!

I see a need for Summary.

(1) Stops keep you in the game.
(2) The closer the stops to your entry the more often youll be whipsawed.
(3) The further your stop is from your entry the more youll need to make on each trade.
(4) Testing (Mine do your own if you feel it necessary) shows that less than 20% of trades recover to profit from a greater than 8% decline from buy price.
(5) Approx 80% decline further than 8%.
(6) You should keep a trade report sheet on every trade so you can calculate.(After minimum of 50 trades.)

(A) Average width of stop.
(B) Average run of consecutive losers and winners (More on this later)
(C) Average trade win.

(7) If shorter term trading youll need tighter stops and a higher % of winners as your win will be only 1.5-3x your risk (Stop)
(8) If longer term trading you will have the luxury of wider stops,less winners but you must let your profits run.


Once you have all this information at your disposal youll be in the position to hone your trading.Better still youll be able to evaluate your profitability and your risk.

If your Numbers dont add up then you've some work to do.

tech

 

[wayneL]

Re: You can be in the 3% that make a consistant profit.

Question:

>>(4) Testing (Mine do your own if you feel it necessary) shows that less than 20% of trades recover to profit from a greater than 8% decline from buy price.
(5) Approx 80% decline further than 8%.<<

Do you have US data Tech? I would be interested if this applies to US stocks. My impression is that this number would be greater. Perhaps double...at a guess?

ATR's exressed as a percentange are certainly much greater on US Stocks.

And a point:

>>(7) If shorter term trading youll need tighter stops and a higher % of winners as your win will be only 1.5-3x your risk (Stop)<<

Not wanting to argue the point, but I this is not "necessarily" true. Perhaps true with breakout strategies with trailing stops. But entering from support/resistance and trading to targets (with a trailing stop as a failsafe) this number can be higher. In my own case the number is 3.4:1

...certainly true with mechanical systems.

*******************

Following with interest Tech...could be a good home for some spare margin capacity.

<edit> shoulda posted this in the other thread...pardon me!

 

[tech/a]

Re: You can be in the 3% that make a consistant profit.

I know there are a few following from the emails and the feed back on the thread.

For those who are now looking a little closer at the way they set their stops relative to their trades this will be a handy tool.

http://staybaker.customer.netspace.net.au/PositionSizeCalculator.html

More soon.

tech

 

[Stockcaddy]

Who knows your business better than you ????

OK.



Lets start with what we "THINK" can make us profitable.

Analysis.
Fundamental or Technical.
Niether are exact sciences and neither can be guarenteed to deliver a profitable trade.


Its not the analysis which will determine your profitability.

 

[tech/a]

Re: You can be in the 3% that make a consistant profit.

My apologies I will no longer be posting on this site

Explaination here if interested.

https://www.aussiestockforums.com/forums/showthread.php?p=4112#post4112

All the best with your trading you should from what Ive written get an idea of how to become part of the 3% crowd.

Being successful in whatever you do only maintains financial freedom----nothing more.

Happiness comes from within.
Enjoy.

tech