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All in all out


I know this might be considered heresy in some quarters but the more I
backtest all my systems I end up at the same conclusion.
Multiple exits are not the optimum method for increasing equity.
Granted, its natural to want to grab profits before they evaporate but it appears to me that its better to sit and wait for the big one than cash in all the small ones.
Thanx, btw to Pips2007, for turning my head in this direction.
Thoughts anyone...
pt: Thanks for the generous reply. With respect to stops, some people refer to breakeven, when they really mean entry. Since you don't scale out, I assume you mean entry, right?

quote:
Originally posted by Montecristo

pt: Thanks for the generous reply. With respect to stops, some people refer to breakeven, when they really mean entry. Since you don't scale out, I assume you mean entry, right?





Your welcome


Yes for break-even I mean the entry price.
quote:
Originally posted by myptofvu

Pt

Can you expound more on your natural stop? What are you using as the nearest S/R price level and how far outside it?



This is based on basic price action chart reading techniques. In general the nearby S/R levels are the intra-day consolidation areas that develop within a trend or a turning point. The run of the mill stuff like bull and bear flags, A-B-C retracements, reversals (double tops / bottoms, 1-2-3 turns)... ect.

I employ the Bressert model of trading signals:
1. Setup (pattern)
2. Trigger Entry price level
3. Confirmation price level
4. Projected Target price level

So for example, a simple bull flag formed Friday morning (following a triangle breakout) which retraced from 888 back down to support at 884, with an equal move projection up at 890.75 (= 884 + 6.75). For a long trade, let's say entry was around the 886.25 level in this case, the natural stop would be placed below the nearby S/R level of 884. For this specific example, I would use a tight stop, no more than 3 ticks below 884.

Using the Bressert model:
1. Setup : Bull Flag
2. Trigger Entry price level: breakout above 886
3. Confirmation price level: breakout above 888.50
4. Projection target: 890.75

If we were using the break-even stop technique, then price touching 888 would trigger moving the stop to break-even. This is based on price touching apparent resistance (in order to protect against a reversal pattern, in this case a double top at 888).

In this example, we see the efficiency of our entry determines risk within the structure of the natural S/R levels. The closer to 888 our entry is, the more risk the trade is exposed to.

pt mini, In your above post you mention your entry will be in the area of 886-886.25, your stoploss will be below 884 but no more than 3 ticks below the 884 level. So your actual max potential loss would be 2.5-3 handles? Is this correct?

My reason for asking is that my main trading problem is setting initial stops too tight. I have been trading with a 2h stop. Since monitoring you, Kool, VO and the others, I have gotten looser but no larger than 3 and my profits have really improved. I still have a tendency to tighten the stop 4 ticks when price moves in my favor 8 ticks and that is still hurting me. Once I get comfortable NOT MOVING THE STOP and simply exiting on my target, I will be fine.

Your explanation of a trade is very similar to mine. I look for a setup, place my entry with a OCO stop and profit limit. Unfortunately, my hand always likes to move the stop once its placed.
quote:
Originally posted by Turk

pt mini, In your above post you mention your entry will be in the area of 886-886.25, your stoploss will be below 884 but no more than 3 ticks below the 884 level. So your actual max potential loss would be 2.5-3 handles? Is this correct?

Yes that's correct in this example. I have my trading program setup to automatically set the initial stop at a fixed distance from the entry fill price (8 ticks), then I adjust the stop manually to the correct position on the chart. In this example, with an 886.25 fill price, the software would automatically put the stop at 884.25. Given this is inside the noise zone (above 884 support), I would manually move the stop down 3 or so ticks to say 883.50. Stops placed inside the noise zone have a high probability of being picked off. The stop is designed (correctly used) to protect the new trade from a complete breakdown or failure of the larger pattern. Thus putting the stop inside the pattern itself violates the original intent of the stop, because the stop can be swept and the pattern remain perfectly valid. Also, how wide of a stop you can use is also a function of your target, I prefer to maintain at least a 2:1 reward:risk ratio.

My reason for asking is that my main trading problem is setting initial stops too tight. I have been trading with a 2h stop. Since monitoring you, Kool, VO and the others, I have gotten looser but no larger than 3 and my profits have really improved. I still have a tendency to tighten the stop 4 ticks when price moves in my favor 8 ticks and that is still hurting me. Once I get comfortable NOT MOVING THE STOP and simply exiting on my target, I will be fine.

Your explanation of a trade is very similar to mine. I look for a setup, place my entry with a OCO stop and profit limit. Unfortunately, my hand always likes to move the stop once its placed.

I think you understand the problem your working through, and the solution is simple enough in concept. It might help to understand this is a natural process your experiencing, meaning most traders go through this phase. Eventually (hopefully sooner rather than later) you will break free of the old habit and feel more comfortable with the new habit of sitting tight and being patient. Just remember what I said in the earlier post, you have to give a trade time and space (price freedom) to find a way to work itself out.

Also consider this: If for some reason I lose confidence in the new trade, my tendency is to find a good fill price at a small profit and close the position completely rather than (waste my time) moving the stop tighter. In my view of things, moving the stop prematurely to anything less than break-even is asking to take a loss.




Edit: I had one more thought on this stop placement issue while we are on the subject. One problem we encounter with this high level of intra-day volatility is the ranges on these patterns can be very wide. One technique that helps manage this wide range problem is to use a faster chart. For example, I will use an 800 volume or 1000 volume chart for the NQ to manage stops. This allows me to get inside the larger pattern and achieve a better R:R ratio 3:1 or 4:1 without arbitrarily violating the integrity of price structure.
pt mini, Thanks for the explanation and suggestion. I am confident that I know what to do. I need to "Just Do It Every Time" and not just if I am on a winning streak.
quote:
Originally posted by Turk

pt mini, Thanks for the explanation and suggestion. I am confident that I know what to do. I need to "Just Do It Every Time" and not just if I am on a winning streak.



your welcome Turk.

It's a matter of developing more desirable habits and instincts that take the place of less helpful old habits. This development process takes time so be patient and believe you will get there. Stay focused on consistently doing the right thing at the right time.