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Money management Ideas?


While I'm watching the "paint dry" on this S&P market I thought I'd find out what most of you do regarding Money Management under the conditions I describe.
Lets suppose the following and we'll also say this is all hypothetical so there are no "issues":

1)You are short from 1444.50 with eight contracts and you initially risked 2 points. Total risk is 16 points initially.

2)You take 4 off at 1442.50 and move your stop to breakeven on the remaining 4 which we will call "Runners". For those who don't know this term, I use it because I am planning on having these remaining contracts "run" to further targets.

3)You take 2 more off at 1440.50 ( which was twice your initial per conract risk ). Ok at this point you have made back all of your initial risk. Would most now put their stops at 42.50 on the last two contracts?

4)I will admit there are probably better ways to manage the first 6 contracts and I'm open to ideas but lets "talk" for a minute about the ramianing two contracts. Would most trail their stops so you are always risking the same amount of equity to your target? In other words if I am 2 points away from my target would you place your stop 2 points back? When I get to within one point of my target would you keep your stop one point away to keep the risk to reward even or would you make it even tighter?

I've actually struggled with this for quite some time as it seems to be a big trade off between giving the market some "wiggle" room and keeping a decent risk to reward. Perhaps it would be better to just take all of them off when there is a two point target and not have to think about "runners" but for me it is sometimes a bit painful to watch the market go in my favor and not have enough contracts "working" to get to bigger targets.

Hope this is understandable.

Bruce
...its a compromise, soon as you choose one solution, another will seem better (for a while)... in general patience is rewarded, within reason...thus it's better to use the wider profit target (all-in/all-out, or scale-in/all-out)...then it becomes a question of a statistically valid target....

...as with most things in life and especially trading, there is always room for improvement...if we never ask questions, as Bruce has done here, then we hinder or block the path to improvement. Having the flexibility to adapt to the ever changing market landscape is a vital personal trait required to survive over the long term in this business. Flexibility of character and adaptability arise not from ego but rather from honest self evaluation and the desire to learn and improve.
Quote of the day:

quote:
Originally posted by pt_emini

Flexibility of character and adaptability arise not from ego but rather from honest self evaluation and the desire to learn and improve.




Well put, PT. I can't think of any worthwhile endeavor where this would not apply.
Glad to see you back Pt-emini and thanks for the feedback.

Bruce
quote:
Originally posted by pt_emini

...its a compromise, soon as you choose one solution, another will seem better (for a while)... in general patience is rewarded, within reason...thus it's better to use the wider profit target (all-in/all-out, or scale-in/all-out)...then it becomes a question of a statistically valid target....

...as with most things in life and especially trading, there is always room for improvement...if we never ask questions, as Bruce has done here, then we hinder or block the path to improvement. Having the flexibility to adapt to the ever changing market landscape is a vital personal trait required to survive over the long term in this business. Flexibility of character and adaptability arise not from ego but rather from honest self evaluation and the desire to learn and improve.


quote:
Originally posted by pt_emini

...its a compromise, soon as you choose one solution, another will seem better (for a while)... in general patience is rewarded, within reason...thus it's better to use the wider profit target (all-in/all-out, or scale-in/all-out)...then it becomes a question of a statistically valid target....Why is it better to use a wider profit target? Are there any studies to support that? How do you deal with trailing stops, or do you?

...as with most things in life and especially trading, there is always room for improvement...if we never ask questions, as Bruce has done here, then we hinder or block the path to improvement. Having the flexibility to adapt to the ever changing market landscape is a vital personal trait required to survive over the long term in this business. Flexibility of character and adaptability arise not from ego but rather from honest self evaluation and the desire to learn and improve.


quote:
Originally posted by T Rex

quote:
Originally posted by pt_emini

...its a compromise, soon as you choose one solution, another will seem better (for a while)... in general patience is rewarded, within reason...thus it's better to use the wider profit target (all-in/all-out, or scale-in/all-out)...then it becomes a question of a statistically valid target....Why is it better to use a wider profit target? Are there any studies to support that? How do you deal with trailing stops, or do you?

...as with most things in life and especially trading, there is always room for improvement...if we never ask questions, as Bruce has done here, then we hinder or block the path to improvement. Having the flexibility to adapt to the ever changing market landscape is a vital personal trait required to survive over the long term in this business. Flexibility of character and adaptability arise not from ego but rather from honest self evaluation and the desire to learn and improve.






Why is it better to use a wider profit target?
My observation was a generalization, one worth consideration and exploration. You mentioned in another thread having a 90% accurate trading setup/method. The question then arises: 90% accurate at what profit objective ? 1 ES point, 2 ES points, 4 ES Points, 8 ES Points ? At what point does the 90% probability fall-off ? At what point does it become more profitable to take the profit than let it run ?

Once we determine a reliable probability table for a specific method, it's simple math...if the proability of success is 90% using a 4 ES point profit target, then you will make more money holding the full position size for the 4 ES point profit target than to scale out at say 1 ES point, ect. Don't take my word for it, sit down with pencil and paper and do the math, varying each parameter and see the effect doing so has on profitability.

In my experience, scaling-out for a few quick ticks is based on comfort/ego needs, and has nothing to do with the actual math behind optimizing long-term profitability. The need to win (self-validation) is a powerful internal force to understand and control. The hard work comes in trusting the market, rather than projecting our selfish needs and insecurities onto it.


Are there any studies to support that?
There are books written on the subject. Any trading method will produce a probability table from which the math can be applied to determine an optimal position management strategy. The objective being to optimize long term profitability. This is system/method/case specific.

How do you deal with trailing stops, or do you?
I do not use trailing stops in the stock index futures. For my style/method, trailing stops tend to short-circuit winning trades by forcing the market to move in a straight line to the profit objective. At most I use an initial protective stop which I move to breakeven in response to the trade moving to a pre-determined price objective. In the all-out exit strategy, rather than taking a partial profit at this intermediate target, I move the stop to breakeven and let the full size winning trade run to the larger profit taking objective.
T Rex's account was locked subsequent to his last posting and your reply the reason for which I've detailed in the thread Con Man. Thanks for your very informative (as ever) reply - I'm sure that many traders will benefit from what you've said.
I've been so guilty of this and your reply hits home perfectly for me. This is what I am constatntly re-evaluating. In looking back at many past trades it seems that taking the "all-out" approach is the way to go for me. I will admit it can still be frustrating when you "Know" the market is going to trade to a certain price and your not in trade.

Definately a work in progress for me but I'm in the process of breaking down the Math and getting my ego out of the way. In other words we should concentrate more on good trade execution, and stop management instead of trying to be "right". I'd rather make some consistent money then be "right" and not be in the trade. Thanks PT-emini

Bruce

quote:
Originally posted by pt_emini

In my experience, scaling-out for a few quick ticks is based on comfort/ego needs, and has nothing to do with the actual math behind optimizing long-term profitability. The need to win (self-validation) is a powerful internal force to understand and control. The hard work comes in trusting the market, rather than projecting our selfish needs and insecurities onto it.
One of the dangers with the 90% strategies that you see being banded about is exactly what PT has just mentioned and that is that it is rarely specified to what target and risk you are trading to get that 90%.

I've mentioned before that it is easy to create a 90% win strategy. In fact, I'm sure this deserves its own topic...
Here we go: 90% Winning Strategy
quote:
Originally posted by day trading

T Rex's account was locked subsequent to his last posting and your reply the reason for which I've detailed in the thread Con Man. Thanks for your very informative (as ever) reply - I'm sure that many traders will benefit from what you've said.



I felt the questions and my responses fit well with the original posting and theme of the thread, and thus decided to go ahead and respond. Hopefully my comments will add dimension to the topic under discussion, and perhaps be of added benefit to the folks reading this thread.

My comments here and on other topics are intended to give folks things to think about and research. It is not my intent to tell folks how to trade or what to do, but rather to share a little of what I have learned and perhaps spark new ideas or discussions.
Very Intersting TraderBrian.

I'm trying not to set any stops, but determine the mkt direction for the week...5-7 trading days....at sell at at the high or close to the high and buy close to the low...and wait for it to hit the weekly pivot.

This week both ES and ER opened to close to weekly pivot. I like to see a variance of 8-12 pts...the more the better....as the weekly pivot will be hit.