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Most of your profits come from ... (base hits vs homeruns)


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  #1 (permalink)
 
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 Big Mike 
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Where does most of your trading profit (overall) come from?

Is it from consistent "base hits"?

Or is it keeping most trades near break even but every now and then hitting a "homerun"?

Where does most of your trading profit come from?

Total votes: 190
 


Please vote and discuss.

Mike



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  #3 (permalink)
 
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 ratfink 
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I voted small base hits, it never ceases to amaze me how these stack up the profits. Historically I have then always undone the good work by thinking that I must therefore somehow 'deserve' a homerun and taken that fatal swing or three. Here with the journal I am endeavouring to no longer do that, anything bigger that comes along with be strictly a bonus, much as I'd like one or two per day.

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  #4 (permalink)
 
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 Fadi 
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When I first started to be profitable, I had most of my profits from 2 or 3 trades per month, while all my others were small winners or small losers. That didn't give me the confidence to leave my job and dedicate myself 100% to trading for income... But I was extremely proud of myself nonetheless to have reached the point in which I manage and contain my losses, apply solid and strict risk management plan and generate some cash.

However, nowadays, and that's perhaps after two years of time, I am only taking trades with potential gains of at least 3x the initial risk.
This has reduced my number of trades tremendously (I am done with over-trading at last) and also reshaped and improvement my three fundamental KPIs: average loss, average gain and winning probability per trade.

Surprisingly enough, I have also found that with this approach my maximum drawdown has dropped considerably too; and that can only be an advantage of course.

With this came the longer time frames in play too; perhaps not something that most day traders want to transition to; but that is out of topic for now anyway

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I have changed my approach drastically since the beginning of April and my stats (and resulting equity curve) now speak for themselves.

I use to be obsessed over win rate. I just hated taking losses. I ended up skipping a lot of good trades because I was scared of losing. I figured if I could just consistently get small winners with very few losses, then ill be on my way to success. Turns out having a high win rate firstly is extremely difficult, near impossible. And secondly win rate doesn't mean that much over time. What matters is expectancy, and in my opinion the more important component of that equation is the win vs loss size.

So my current approach is to aim for as large profits as the price action reasonably allows, and not worry about how often im right. Sure I am getting stopped out more often lately, but my winners are more than making up for it.

Here's a few interesting stats from my trading since the beginning of April (94 trades).
51% winners vs 49% losers
$208.46 average win vs -$100.95 average loss
$57.05 expectancy

Now the same over my last 20 trades, just to further illustrate the point:
35% winners vs 65% losers
$237.14 average win vs -$85.19 average loss
$27.63 expectancy

With what some may say is a shocking 35% win rate, im still positive over the last 20 trades.

cheers.

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 Itchymoku 
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I don't understand how people can trade "Keeping most trades near break even" or even how that wouldn't be considered a base hit if the trade was profitable. If I put on a trade and get to a point I feel comfortable placing my stop at break even, I most likely will at some point feel comfortable scaling out or trailing my stop according to what the market has to offer obtaining a base hit with the possibility of a home-run.

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 deaddog 
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Iím looking to take small bites out of the markets. I will probably leave quite a bit on the table for others.

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I am a bit surprised by the results so far, with the overwhelming majority selecting "base hits" (small but consistent gains).

I figured the results would be more even. I also subscribe to the base hits method myself, but I know a lot of others who subscribe to the homerun method.

The homerun method has always left me with a bad taste because I grow suspicious of "luck" or simple curve fitting in some cases. Since it's a homerun then by its nature there are far fewer of them, and any time there are few samples to look at I feel the results are not as trusted.

One could be trading for 10 years on the homerun style and have only 100 trades under his belt. We know just by luck alone that it doesn't mean he is actually a good trader.

Mike



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  #9 (permalink)
 
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Big Mike View Post
I am a bit surprised by the results so far, with the overwhelming majority selecting "base hits" (small but consistent gains).

I figured the results would be more even. I also subscribe to the base hits method myself, but I know a lot of others who subscribe to the homerun method.

The homerun method has always left me with a bad taste because I grow suspicious of "luck" or simple curve fitting in some cases. Since it's a homerun then by its nature there are far fewer of them, and any time there are few samples to look at I feel the results are not as trusted.

One could be trading for 10 years on the homerun style and have only 100 trades under his belt. We know just by luck alone that it doesn't mean he is actually a good trader.

Mike


I think one transcends from one style to another as he progress... Dunno, at least that was my own experience.
And I agree on the "luck" part you are mentioning, I lived that phase in my trading exactly as you described it.

But if I am not mistaken, I thinking having heard Linda in her webinar saying that you will find most of your income skewed towards few trades per month. Would that mean she is also trading with a home-run style?
It is definitely not a taboo, but for me coming from a corporate culture, and used to guaranteed fixed incomes per month, I naturally favour the base hits style instead.

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  #10 (permalink)
karoshiman
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The "homerun method" is also called "trend following"... many, if not most CTAs trade this way...

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