Need advice on risk/reward!
Hey Everyone,
So far I have been paper trading for 2 months. I am using Ninja Trader and a DTN.IQ feed to simulate live trading as best as possible. I am trying to make every mistake I can before I go live. My trades last anywhere from 1 min to a couple hours and I flatten everything before close. I trade 1 YM contract and am slowly creating system rules to compliment my strengths, but I am having trouble in a couple areas.
I realize in the recent markets, stops have to be wider as fake outs are a lot more common. Per trade I have been risking a maximum of 0.5%. (10 ticks with 1 contract). Is this a lot to risk per trade for short term trades? I find on my best days I will make 3-8 trades average. Initially this worked fine but lately I am getting faked out a lot. This problem directly affects my next issue.
My target daily profit is around 1.5% of my account (10K account) or $150 at this point. As my account increases and I become a better trader this dollar amount will scale up and I will trade more contracts. My problem is in regard to the maximum daily allowable loss limit. How much should I risk? Obviously I wouldn’t want to risk over 1.5% or I will be doomed to failure, but if I risk 1% that really only gives me 2 bad trades and I am done! If I get faked out twice in the early going it’s hard to sit back and watch for the rest of the day. Risking 2-3% would give me more breathing room as far as the number of losses I can take but realistically I don’t think I can make 5-6% reward consistently. ($500-600 with 1 YM contract!)
Any advice would be great. I am hoping to start some back testing in the next couple of weeks which I believe will help.
Gene.
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