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


Discussion in Psychology and Money Management

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  #11 (permalink)
 
Jura's Avatar
 Jura   is a Vendor
 
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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.(...)

Small gains are probably, psychologically speaking, easier to achieve with discipline since they are more rewarding and with less drawdown. If you use a big hit, trend following like method, you'll also have some pretty hefty drawdowns.

Perhaps some self-selection is also playing a role here: if people that are achieving small and consistent gains are less likely to drop out due to the financial and psychological pressure of big drawdowns that come with the home run method, it stands to reason that most of the still active traders are the ones that achieve small gains.

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  #12 (permalink)
 
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 keymoo 
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I presume "base hits" and "home runs" is an American baseball term? I dunno, I'm from UK and have never played or watched baseball. Anyway, I take lots and lots of tiny losses and breakevens and the occasional huge winner. I trade trends only and have to jostle for my position and expose myself in anticipation of trends and quite often they don't materialise. But when they do occur I take huge winners, at least 10R, but more commonly 20R+.

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  #13 (permalink)
 
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 rubyslippage 
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I'm an intraday scalper so I go for lots of base hits. But if a strong trending moves transpires, I often get a home run or two because I don't use fixed profit targets in a strong trend or if a measured move target is far away from an entry price.

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  #14 (permalink)
 
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 treydog999 
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I clicked base hits. Most of my trades RR is between 1:1 - 3:1 but I am trading intraday maybe 1-3 trades per day.

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 Itchymoku 
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Just out of curiosity, does "Consistent gains over time and minimizing big losses" mean that the limit is closer to the entry point than the initial stop-loss? Doesn't this contradict the traditional method of keeping a smaller risk to reward?

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  #16 (permalink)
 
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 dbarno 
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Pull the first set of lots when a base hit is made and resistance raises its ugly head. Use a 2-1 R/R ratio. Always keep a few runners in to get the homerun if it should appear, but never let the runners turn into loosers. Usually get one or two big trades a day. The one homerun seems to cover most losses and brokers for that day.

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  #17 (permalink)
 
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 David_R 
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Don't have trading profits. Have had winners, have had profitable week, have had a profitable month, but in the end it was all lost.

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  #18 (permalink)
 Yoyo4830 
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keymoo View Post
I presume "base hits" and "home runs" is an American baseball term? I dunno, I'm from UK and have never played or watched baseball. Anyway, I take lots and lots of tiny losses and breakevens and the occasional huge winner. I trade trends only and have to jostle for my position and expose myself in anticipation of trends and quite often they don't materialise. But when they do occur I take huge winners, at least 10R, but more commonly 20R+.

Me too. I am taking small risk and usually get stopped out - but when I don't - my winners are 15x Risk. My win rate is only around 20% but the sheer size of the winners more than make up for the low winning percentage.

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  #19 (permalink)
 
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 Fadi 
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i would like to quote an extract from "the black swan" by nassim taleb - that I found would complement quite nicely the discussion in this thread:


Quoting 
Making $1 million in one year, but nothing in the preceding nine, does not bring the same pleasure as having the total evenly distributed over the same period, that is, $100,000 every year for ten years in a row. The same applies to the inverse order making a bundle the first year, then nothing for the remaining period.

Somehow, your pleasure system will be saturated rather quickly, and it will not carry forward the hedonic balance like a sum on a tax return. As a matter of fact, your happiness depends far more on the number of instances of positive feelings, what psychologists call "positive affect," than on their intensity when they hit.

In other words, good news is good news first; how good matters rather little. So to have a pleasant life you should spread these small "affects" across time as evenly as possible. Plenty of mildly good news is preferable to one single lump of great news.

Sadly, it may be even worse for you to make $10 million, then lose back nine, than to making nothing at all! True, you may end up with a million (as compared to nothing), but it may be better had you got zilch.


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  #20 (permalink)
Ilikefutures
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I think you have to let the markets dictate whether your trades are base hits or home runs. A lot of traders leave alot on the table by taking profits too soon. As a result, they need to be more precise in their trade entries, and have far more winners than losers. If you haven't noticed, most traders lose money, and most are looking for base hits because they want to have more winning trades than losing trades. Allowing for home run trades to occur may result in more losing trades, but they make up for it by generating more profits per trade. With that in mind, if you prefer being a singles hitter, consider letting a portion of your profits run to see if a home run develops for at least a portion of your position.

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Last Updated on July 27, 2013


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