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I have a very analytical mind. I'm a mechanical engineer with a master's degree from Stanford. I'm used to solving puzzles and getting the right answer. Sometimes I get married to the idea that prices are going to go up or down because I'm "smarter than the market" and I have correctly solved the PA puzzle. Obviously, when I allow myself to get in this frame mind, it usually doesn't work out well. Obviously I am never smarter than the market. So, I need to work on checking my ego. Check myself before I wreck myself. :-)
I agree completely. I usually add on to a loser when I'm in that frame of mind where my ego has taken over and I think I'm smarter than the market. I almost always get put in my place though.
Yes, I agree the emotions are different when real money is on the line. I will use real money again but for now I've set myself the goal of making $3000 in my demo account by trading 1 contract only. The learning period is increased, for sure. I'm treating it as an exercise in patience.
This is kind of a grey area. I believe there are many ways to do this profitably. One way is what you're suggesting - a small risk to reward ratio, which doesn't require a high win/loss ratio. I'm trying a style I learned from Mack at priceactiontradingsystem.com. I risk 8 ticks and my reward is only 4 ticks. But these parameters also make it easier to be right, which can lead to an 80-90% win/loss ratio. I believe it is possible but it takes considerable time and practice to develop the necessary skills. Also, right now I'm just learning to scalp (close the trade at +4 ticks). Eventually I'll trade multiple contracts and keep some of them as runners after I scalp out the majority of them. That will increase my reward to risk ratio.
I struggled a bit with the PA today. I screwed up a few times with counter trend trades trying to find a bottom to the big down trend this afternoon. With my trade parameters it's really hard to come back from more than 1 or 2 losses. I really tried and I was able to get quite a bit of my money back but not all of it. No doubling up on a loser today so that was good. In the end I just wasn't patient enough to wait for good short entries once prices were very clearly trending down.
Major comeback today! I started the session with 3 big losses but then I was able to put together a string of 11 wins. The PA was a little tricky today, too, so I'm pretty happy to post a win.
Again, I am trading 3 contracts in my demo account but I'm only counting the 1 contract loss or win (scalp) towards my daily P/L. The reason I'm trading 3 contracts is to get some experience with holding a runner contract after scalping out 2 contracts. Most of the time the market is coming back and getting my runner at b/e +1. A few times today it came back and stopped out my runner only to take off again several points my way. I'm not sure if I should manage the runner a little differently. I don't want it to come all the way back and stop out for a loss, wiping out my profits from the scalp. But on the other hand I could have gotten a lot of extra profits today if I had given my runner just a little more room.
What I've been doing is taking my scalp at +4 ticks (limit order), then if prices touch +5 ticks I move my stop to b/e +1. I think tomorrow I'll try the same thing only I'll move my stop to b/e only. If it comes back I'll lose commissions ($3.52) instead of winning lunch money ($8.98) but I think it'll be worth it if I can get just 1 or 2 more runners (3 points or more).
I can definitely understand the confusion! I'll try to explain what I'm doing more clearly.
The orders I am executing (in a demo account) are for 3 contracts. I try to scalp out 2 of them at +4 ticks, then manage the 3rd as a runner. I'm doing this for the sake of practice and experience with multi-contract trading.
At the same time, I've set a goal for myself. I want to make $3000 in my demo account trading just a single contract. This is my milepost for when I will allow myself to deposit real money into my account and try real trading again. I based my goal on single contract trading because I only want to trade a single contract when I first start trading for real money again.
So, for the purpose of my $3000 goal, I do the math as if every trade was only 1 contract. In other words, I'm only counting the scalps, win or lose. The result for yesterday was 14 single contract trades, 11 wins, 3 losses, net profit $109 including commissions.
As far as runners, I'm just experimenting with how to manage them. The reason I want to try moving my stop to breakeven only (as opposed to breakeven +1) was because I had a few runners yesterday that would have survived and turned out really well.
I hope everyone had a good holiday weekend. I had a pretty good day today. There were plenty of trades that setup today even though I missed a few of them. You have to love this volatility!
I made a mistake going short at the bottom of a steep down channel, for my only significant loss today. I had one other loss when I entered and exited at the same price, losing just commissions. Other than that I had several good 4-tick scalps and a few 1-tick or 2-tick winners. These happen when I second guess my entry and exit the trade with a tick or 2 of profit. It's not ideal, of course, but sometimes I'm right to exit with just a tick or 2 of profit instead of an 8-tick loss.