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

[ob1kenobi]

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

Rich, just checked it out. I'm intrigued, can't wait to see the article!

 

[happytrader]

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

I thought I'd drag this out of the archives because I thought Starlight and anyone else trying to develop a trading plan would find it useful. I had to really know my numbers just so I wouldn't second guess my own system. There was just no other way around it. Thanks Tech/a

Cheers
Happytrader

 

[Kauri]

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

Rich, just checked it out. I'm intrigued, can't wait to see the article!

http://www.hquotes.com/tradehard/simulator.html

If this link works it gives you the article/instructions. Same simulator, different site.

 

[happytrader]

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

Hi Kauri

Thanks for the calculator link. Have been playing around with it testing my results and those of others. Excellent tool, very reassuring. Thanks for that.

Cheers
Happytrader

 

[MRC & Co]

I just scanned this entire thread and I appear to have missed the part of the tutorial on exits? Was it in there and I just skimmed over it?

Just to chime in on the 3% arguement that appears rife throughout this thread, I can say honestly when I went to my accountant for last years tax return after my first period of serious investing (more turned trading due to my lack of patience), he appeared shocked to see I was actually well in the green. Surprising considering it was a bullmarket! So maybe some truth rings out there.

Thanks.

 

[Awesomandy]

Just to chime in on the 3% arguement that appears rife throughout this thread, I can say honestly when I went to my accountant for last years tax return after my first period of serious investing (more turned trading due to my lack of patience), he appeared shocked to see I was actually well in the green. Surprising considering it was a bullmarket! So maybe some truth rings out there.

I have actually seen accounts where 25% of the capital was lost during 15 months of trading a few years ago - during the bull market. I'm not sure how they managed that one, and why they went on for more than a year before giving up is completely beyond me.

Having said that, I have also seen well-disiplined accounts that have gained consistently 1% each month for the past 12 months (i.e. including August 07, November 07, and as recently as Jan 08). Money just kept coming in no matter what the market was doing.

 

[MRC & Co]

I have actually seen accounts where 25% of the capital was lost during 15 months of trading a few years ago - during the bull market. I'm not sure how they managed that one, and why they went on for more than a year before giving up is completely beyond me.

Having said that, I have also seen well-disiplined accounts that have gained consistently 1% each month for the past 12 months (i.e. including August 07, November 07, and as recently as Jan 08). Money just kept coming in no matter what the market was doing.

Yeh, how people loose money in a bullmarket is beyond me!

Im sure accountants will be cringing when their clients show them their trading logs this year! Sure to be some HUGE capital losses!

Fortunately, mine will still be well in the green once more (must have found that holy grail, not sure how). I have actually done better this year than last (maybe due to MUCH more time devoted).

Are you an accountant awesomandy?

 

[happyjack]

I just scanned this entire thread and I appear to have missed the part of the tutorial on exits? Was it in there and I just skimmed over it?
.

Hi MRC If you check out the thread

"Trading and when to exit?"

You will get more or less the same people discussing exits

You can use the search facility at the top of the page

Happyjack

 

[happyjack]

Sorry change that to

"exits techa"

and that will take you to


Trading and when to exit?

Happyjack

 

[happyjack]

MRC

Just as a matter of interest My favourite exits are

1) whenever the price goes under the 21 day moving average for more than 5 days

2) If the share falls and hits the 150 day moving average

3) Automatic trailing stop loss of 10% in case I have gone fishing

4) If it is consistently advancing more slowly than its sector

That is to say if ANY of the above happens I sell.

Happyjack

 

[MRC & Co]

Thanks Happyjack!

 

[MRC & Co]

Thanks Happyjack!

On that note, couldnt find any real concerete backtested methods on where to exit.

I.e. As with the 8% stop mentioned on page 1 of this post.

Think I will just trade the momentum for now, a couple downdays I will exit and if that momentum turns back up (next wave up for example) jump back on board.

Not sure if its just me, but exit timing after upward price movements are the hardest part about trading, full-stop!

 

[MRC & Co]

a couple downdays I will exit

Note: Not sideways movement, actual downdays that stand out, in collaboration with my other indicators and fundamental changes.

 

[tech/a]

MRC.

The 8% stop is from my testing over the years in the optimal range for INITIAL STOPS.The stop you place upon entry.
These were tested on a number of systems just based upon % of initial entry price only.

3% and below was too tight and had premature exits and many went on with it after being stopped.
5-10% had the right balance between winning and losing trades and final R/R.
10-20% gave more winners but far less trades resulting in many trades flaoting in no where land.

These results were from my own testing and far from definative.However as a rule Ive found them in LONGER TERM trading to be pretty indicative of results.

To exits.

Try to think in terms of Return to Risk NOT profit.
If you get that right then profit comes with doing more of it.
Short term trades rely on MORE Winning Trades and less R/R
Long term trades rely on LESS Winning trades but more R/R.

I'll give you an example of how I set up a long trade (Short term) and try and explain R/R

First the setup



Now I want 3 x R so see if there is a logical place to set a target which my analysis tells me is high probability



The lines to the right are Multiples of the Risk so you can see where 3 x was and where I thought a high probability exit existed.

This is what happened



The stock actually went way beyond my target but that was of no consequence as the trade setup and target was complete so on to the next one.

So how you determine your exit on short term trades doesnt matter as long as you can achieve your R/R more often than not.
So I determine that IN CONJUNCTION with my exit---will a logical technical exit achieve my R/R?

 

[MRC & Co]

Thanks tech, very helpful.

I understand the 8% was only for initial stop placement (but still an interesting observation nonethelss), I read the whole post thoroughly.

As far as this example, you determined your exit through EW yeh?

Another question, have you ever backtested holding past your pre-determined exit point, if, as in this example, the SP is on an upward trend? And any results?

Cheers

 

[tech/a]

No.

I don't care.
My aim is to be profitable.
If I have a 65% hit rate at 3:1 R/R
then I'm happy with that.
If I can crank up the R/R with tighter stops and the above example isn't a very tight stop then my profits soar with EXACTLY the same move.

This can be done if you have shorter term charts and you have one on watch.
My live charts are at the office so I cant give you an example.
But just imagine if the same trade had a 5c risk rather than 15C

I'd have 3x the amount as the position size---same risk---3x the profit---same move.

In the above example my R/R would become 9:1

Worrying about whats left at the table is unproductive.
Knowing what you have and how to minimise losing it is all that matters.
Profits come.
Add Compounding and Correct use of Margin and you wont be worrying about whether you got all of the move.

You got the best part of the move---the one with YOUR profit in it.

 

[julius]

happytrader - once you start using profit targets you get a push/pull effect between equity curve variance and profitability...you decrease risk at the expense of return, regardless of timeframe.

depending on the stategy it's possible to use staggered exits so that you get the reduction in equity curve variance as well as the less frequent, higher %return trades

 

[MRC & Co]

Yep agree.

Another question, what if in the above trade, you get to a R/R of 2.5:1 and the trade starts to move against you, say right down to 1.5:1, would you use a trailing stop to gain a portion of that profit? Or wait for it to either hit your 3:1 or stop out?

Cheers

 

[julius]

MRC - my short term systems have a breakeven trigger at roughly ~2:1 R/R. So I'd be waiting for either b/e stops or my profit target to get hit. Set and forget...

That said, I don't use R:R in the same way as Tech/a. For me the R:R is secondary to the set-up; I know where the historical average lies, but the actual return of any given trade is variable.

 

[MRC & Co]

Julius,

B/e as in break-even? So once your position moves in your favour, you move your stop to break-even?

"For me the R:R is secondary to the set-up; I know where the historical average lies"

Historical average, can you elaborate?

As in, you know which way your set-up is historically likely to move and take actual movements from there?