One of the toughest things about trading is figuring out exactly what one needs to do to get better. We have always been taught to work hard, learn everything you can, talk to the experts etc etc.
This is all fine and dandy but unlike a sport there is really no clear point of study, There are NO experts, and No success stories in most peoples sphere of influence. There are so many methodologies and so much psychological work that needs to be done within, many times we simply cant see what to work hard on and we wind up spinning our wheels LEARNING WRONG. That is, NOT Learning the necessary things to be a good traders. Trading is an art of SUBTLETY. Meaning intangibles and tiny details about YourSelf and the Market are the make or break factors in trading.
So I put together some Exercises that will help develop certain aspects of my trading. I will continue to add more over time as think of them.
This week I'm working on
CUTTING LOSES, NEVER GIVING BACK PROFITS and EXCEPTING SMALL GAINS.
- The exercise will be to move my stop to break even after a 3/4 - 1 point profit.
- Then trail the position to allow for further profits if available.
This idea was influence by Richard D. Wykoff method of the NIMBLE 1/8 and how very small AVERAGE profits over time can add up to substantial gains.
"Strive for an increasing average profit but I do not keep my eye so much on the fraction or points made or lost, so much as on myself and keeping alert. I endeavor to perfect myself in resolute calmness and precision, quickness of thought, accuracy of judgment, promptness in planning and executing my trades, foresight, intuition, courage and initiative. Masterful control of myself in these respects will produce a winning average - it is merely a question of practice."
Results for the week ending March 18
CUTTING LOSES, NEVER GIVING BACK PROFITS and EXCEPTING SMALL GAINS.
This concludes the week for ATM money management excersize I spoke of in the Learning how to Learn article.
The purpose was to practice excepting small gains and being content with breaking even on trades, in an effort to NEVER GIVE BACK PROFITS!!
In doing this excersize I employed an Automatic Trade Management strategy that moved the 1st of 2 lots to breakeven after a 4-6 tick limit target was hit, at which point it was set to move the 2nd and now only remaining stop to lock in 2 ticks. In testing i used 6 ticks as the 1st target and 14 as the second.
The results were GREAT as i placed over 100 trades based on setups from all time and tick frames in order to get a quality sample size. If course they where not all winners but the idea was to take advantage of the ones that actually showed some profit.
What i found was that the trades that went in our favor at least 4 ticks would usually go to 6 ticks around 65-70% of the time, before if ever coming back to our original entry. Which means if we move to break even after 4 ticks, there is less than a 35% chance of getting stopped out as a scratch trade and 100% chance that you will NOT lose any points.
Further more I found that if your position moves 6 ticks there is at least a 60-70 chance that it will go 8-10 ticks, it only went the whole 14 ticks 2x's the whole week. (keep in mind that the percentages are purely guestimation based on what I logged for the week,) (Also note that this was a very rare week in that we saw 30 point gaps over night and less than 10 point ranges during peak trading hours on multiple days this week coupled with a Tsunami that hit Japan causing Nuclear melt down concerns). So this part of the test can vary from week to week.
However I can conclude that if you NEVER want to give back gains moving to breakeven or closing after a 4 tick move will help cure this problem.
However in the area of MAXIMIZING profits based upon tick targets (NOT trade signals, ie.1500 tick Exhaustion)
I found that when a trade goes 6 ticks in our favor it is very likely to go 8-10 tick before returning to break even or 2 tick profit lock. This happends at least 70% of the time.
Thus when seeking to MAX profits the 2nd target must be adjusted according to the days range etc. But more than 10 ticks you risk a return to the 2 tick lock profit.
