It was brought to my attention that there is a trader who has a very consistent daily profit over the past few months. So I took a look at his stats:
This is very familiar to me because this is how I’ve been trading for the past couple years. I typically used a 6 pt stop and have even taken 10 pt losses (about $500/contract).
This can “work”, but is it optimal? I have been trading 2 contracts for 2 years now because I was not comfortable increasing size knowing that at $500/contract, a $2k loss could happen any time. And what if I had two $2k losses? It’s bound to happen. So that fear kept me at 2 contracts.
Even trading 2 contracts, I’m still scared because a $1k loss could be around the corner. So every time I put on a trade I know this could cost me $1k. This is a bit stressful. The result is I’d scratch trades that came back to my entry, and I scratched a lot of winners that way. And I’m convinced that this isn’t the best way for me.
Lately I’ve been learning a lot from RomaTrader & GoldTrader740 on Twitter and how they use small stops, 2 pts on average. RomaTrader will aggressively trail his stop so I’d say his average loss is probably much less, I’d guess around 1 pt. He’s not fearful, when he sees a good opportunity he takes it. There is a lot to learn from these guys.
RomaTrader has made a very strong case for tight stops and says you can just re-enter if you want so best to just get out. So why wouldn’t one just stop out at -2 and look for another entry?
Commissions is one reason. Every time one does that it costs $3.80/contract (or more depending on your broker). So that weighs in the decision making, at least subconsciously. When I’ve tried using “tight” stops, it was usually 4 pts. And when I stop out -4 and re-enter, I usually re-enter at a worse price than my stop out, meaning it would have been better not to stop out. So I had a delima and that’s how stops got to be more flexible and quite large.
What I learned from these two traders is that my timing was off. I knew I was always too early. GoldTrader says to watch and see how it trades there. You might miss a few but you are less likely to be early. Entering early requires a bigger stop. If one enters late, one can use the recent high/low for the stop. So one advantage is smaller stops. The disadvantage is missing a few. There’s no perfect answer here so everyone has to find out what works best for them.
For the past month I’ve been trying my best to use 2 pt stops and trail aggressively. It hasn’t been easy and my performance has decreased a bit. But I really feel like I’m on the right track. When I know a trade will cost me at most $250 for 2 contracts, I have less fear to take it. As soon as it moves my way I trail my stop and then my risk becomes $100 or even $0. When a loss is on average $100 and winners are $300-$500, I really don’t care about taking losses.
At least in theory. In reality I really hate losing and I hate being wrong. But I am making progress in accepting this reality. And once in a while a really good R:R comes up where I can risk 3-4 ticks with a potential reward of 4 pts. These types of trades don’t have to win often to be profitable. So I feel I must take these. One winner will make up for several losers.
Lately I compute the R:R for every trade and if I can’t get 2:1 on the first scale I will pass on the trade. As a result I’m taking less trades, but so far the results are encouraging. My results are improving each week.
I’m rewriting my trading plan again, it’s a never-ending process. But with input from RomaTrader & GoldTrader, I really think I have a plan that will work well. I’ll trade this plan in January without any fear. My max loss will be 2.5 pts/contract and I’ll have loss limits for each session, day, & week. I’ll keep detailed records on every trade so I can track my progress of each setup. I’ll have a written plan before the start of each session and I’ll only trade my setups. I’ll review my trades every day.
I’m really excited about this and I can’t wait for January 2. In the mean time I’m working on my plan, practicing on sim, working on some programming projects, and just enjoying some time off.