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No trades today, just doing back testing on crude.
I'm a crude oil day trader and I have the simple goal of trying to buy the low of the day and sell the high of the day.
I am back testing potential drawdowns for my strategy. If I buy new lows or sell new highs what is the biggest drawdown I experience in the last month. Average drawdown looks to be about 40 ticks before market moved in my direction. In the last month there was one trade with a drawdown of +200 ticks. If the trade remained in a drawdown I exited at the end of the day for a loss. It's probably important to have a specified stop loss in the market.
No trades today, AMP requires $145 day trading margin for the MCL and I only have $113 in my account.
Current thoughts are that I only have one rule: use a stop loss order or mental stop. There is no way I can let the market go against me 1000 ticks and just hold a loss like that.
What about buying lows and selling highs? This is how I approach the market but do not want to limit my opportunities so I am relaxing with this approach. I could be waiting all day for a new low/high and I like to trade a lot.
What is the rationalization for using a "mental stop" when you can place a hard stop with your broker?
I would think that would lead you to making tough decisions in the heat of battle, never a good thing.
That being said I don't initially put hard stops in the market. I let the price trade below my calculated stop for one bar (I know you don't use charts and I'm trading daily bars) then place my hard stop below that bar.
Prevents me from being taken out when price dips temporarily on news or stop hunts.
"The days when I keep my gratitude higher than my expectations, I have really good days" RW Hubbard
I use hard stops but prefer mental stops. Seems like there is a lot of price spikes and dips and I don't want a hard stop to be triggered just so the price rebounds and continues in the original direction.
12:21pm MES short 4495.00, Exit 4495.50, -$2.50
1:14pm MES short 4498, Exit 4499.25, -$6.25
1:16pm MES short 4501.25, Exit 4501, +$1.25 (trailing stop)
Trades tonight
9:34pm M6E short 1.0987 exit 1.0990 -$3.75
9:41pm M6E long 1.0985, exit 1.0984 @12:27am, -$1.25
So I am back testing and trading two strategies and am now starting to choose one over the other.
First I will say that I believe that there are only two things that can happen in my trade, price can either go into profit or a loss. The goal is to make all the profits larger than all the losses. I choose to be in a world of two extremes, which outline the general idea of each one of my strategies.
Strategy 1 consists of many small losses and few large winning trades. For this strategy I use a very tight stop, usually a mental stop. Trading the micros I take an extremely small loss on each trade, typically 3-10 ticks. As the trade moves into a profit I move the stop up to break even, like a trailing stop. When do I exit a winning trade? When my will power is strong I would exit a winner for this strategy at the end of the day if the trade isn't stopped out. This opens the door to unlimited profits that could make up for the many small losses incurred on the way to the winning trade.
Strategy number 2 consists of taking quick profits(trading the micros, this is usually 5-15 ticks) and holding onto losses until they turn around. Naturally this will lead to a large percentage of trades that are winners and handful of large losses. How do I determine when to close a loss for this strategy? Well, the way I have been back testing this strategy is to hold a loss until the end of the day when I would close the loss.
I am finding through live trading and back testing that strategy number 1 is superior to producing profits but, in my opinion, is more painful to execute. The pain factor is due to the fact that the high loss rate percentage is psychologically difficult to handle, taking one loss after another. But the large winning trades, when they do seldom happen, more than make up for the paper cuts inflicted through many small losses. I think this is ultimately the right path for me but I am sure I will continue testing strategy number 2 on the side.
As you can see I value risk management very highly. My entries are timed using trends that last anywhere from 30 minutes to 3 hrs. When the trend hits what looks like it's peak I fade the move. In short I sell highs and buy lows.
Had one trade today, MES, 1 contract, long 4491.25, Exit for a breakeven.
I used a mental stop. Told myself to get out if price goes 5 ticks against me. Well price went 10 ticks against me and I didn't get out and held until it recovered. I think I got lucky that time. Need to keep working on discipline.
