[SpearPointTrader]

Hello all!
I have been trying a new system recently. One of it's prime tenants is to only trade when you have the picture perfect set up in order to minimize the number of losing trades that you have.

The idea is to trade to always win (or at least 80% of the time) by waiting for massive momentum and taking small fast jumps in and out of the market when the power and direction are just too strong to lose on.

The method has a lot of small wins, of less than $100.00, with an occasional medium to large win.

All trades are for the day only. It does not hold over night.

This seems to be in opposition to other methods i have seen where the idea is to expect lots of losses and draw downs, but to keep them smaller than your wins. Draw downs and losses are something I have never been comfortable with. I seem to like the smaller wins, but more wins philosophy.

So, in my quest to further this concept, I was wondering what everyone does to minimize the number of losing trades?

[SIUYA]

Originally Posted by SpearPointTrader »

So, in my quest to further this concept, I was wondering what everyone does to minimize the number of losing trades?

to be honest, while it feels good to have less losers and lower drawdowns, a lot will depend on how big your account is, how big you wish to grow it, how much time you have, how much patience and concentration, or computer knowledge and power you have and what you are trying to achieve.
By staying short term and going for many small gains, you are effectively entering the world of the high frequency trader......yes you can make money, but how big can you grow this without computing limitations, or how tied to a computer do you wish to be.
There is no right and wrong - so long as you understand the limitation/expectations of each system and where you want to get to.
So in answer to your question....as more of a trend follower myself....I dont focus so much on limiting the number of losing trades but more on maximizing the winners, and trying to minimise the damage the losers do (note its not their number, but their magnitude).
In your quest I think if you are playing for momentum, then you should have a very quick move to BE, a time based stop and realise the intensity and frustrations this style can have....then it is all fine. Your focus is on great entries and protecting that.

[TheNegotiator]

To answer the question, planning and discipline.

I can see some issues with the strategy you mention. Firstly, you need a quick connection. If the market is moving fast and you only are looking for small profits, if you are seeing a lagged market you'll either not get a fill using limit order(unless you don't want one) or using market orders you'll be in at a very different price (and momentum) to where you'd made the decision in your mind. Secondly, there is the chance that you read a big move as strong momentum. If that happens, you might get in at the extremity of the move just as a strong reversal happens.

It's like Siuya says. It's effectively HFT. I used to do it but it is stressful and the competition is just way faster than I am these days(competition = largely computers located next to the exchange).

[SpearPointTrader]

I seem to get fairly good fills, so there is no problem there.

The system I am using uses the Bollinger Bands, and the 3 main moving averages, or more correctly the relationship between the two, to determine entries, and exits. When the set up is there, it's pretty easy to make fast profitable trades. However, it's not the only method.

I used to trade break outs of major congestion and violations of major support, resistance and trend lines using the Williams%R as a guide for my exits.

Although I have seen good gains from the wins, half of them were losses. I had stop issues when I did that. It seems of I pt my stops far enough back to allow enough recovery room to catch the winners, then then loser were too big and I would be doing little more than breaking even. If i put them closer, many would be wins became losers, and I lost money.

So, I am thinking to myself, that there has to be a way to limit the number of losers, and keep the ones I do have small, yet still keep the winners.

[SIUYA]

Originally Posted by SpearPointTrader »

So, I am thinking to myself, that there has to be a way to limit the number of losers, and keep the ones I do have small, yet still keep the winners.

Isn't this the holy grail.
As everything in trading is really a trade off between what you can have and what you cant have, another solution that might suit you is to have more trades, that break even BUT an extra step that allows you to get back onto trades.
eg; you move your stop to BE quickly, if its stopped out, you need another entry solution to reenter....you broker may like you (so find the cheapest most reliable one around), but if it makes you money then it is all good.

This trade off between the number of trades that are losers and winners should be a trade off between the amount lost or gained.
In simple terms.....
eg; In FX - If I had a system that lost 99 times in a 100 but my AVERAGE loss was only 1-2 ticks, then I know I only need 1 trade to trend and for me to run that trade to make money......look at any long term FX chart and tell me - how many of them stay in a 100-200 tick range.

[steve46]

The subject is complex and can be approached in a number of ways. For intraday traders one assumes they have a risk management protocol in place otherwise why trade a system?

Generally risk can be managed by position size, by stoploss placement and by managing proximity to risk events (managing the timing of trade entry in relation to economic reports, earnings reports and unanticipated events (usually "pending" or "breaking news" that causes markets to move). Finally one can manage risk by chosing entries that would be likely to benefit from anticipated economic or news events.

As an example if one were to believe that markets would move positively on news of a solution or agreement to the current Euro problems, you would orient your entries to the long side in advance of meetings or announcements. This is more "macro" in terms of approach but thats the general idea.

On the micro side, one may prefer to trade a system that produces a high percentage of entries that move favorably and then require confirmation. If you don't see that confirmation you exit either with a small win, a scratch or a small loss. I am using that approach now and the downside is that you have lots of little wins and losses to deal with (therefore you have to have patience and a good commision rate). For those who cannot find that type of edge, you may want to experiment with a scale in process that limits your initial loss if the trade goes against you right away.

[enochbenjamin]

to limit losses - DON"T TRADE. if you insist on trading then you must learn to embrace your losses as lessons and part of the game. you will not last if you cannot accept that losing is going to occur (unless you are a US bank).

[bonchi07]

Originally Posted by SpearPointTrader »

Hello all!
I have been trying a new system recently. One of it's prime tenants is to only trade when you have the picture perfect set up in order to minimize the number of losing trades that you have.

The idea is to trade to always win (or at least 80% of the time) by waiting for massive momentum and taking small fast jumps in and out of the market when the power and direction are just too strong to lose on.

The method has a lot of small wins, of less than $100.00, with an occasional medium to large win.

All trades are for the day only. It does not hold over night.

This seems to be in opposition to other methods i have seen where the idea is to expect lots of losses and draw downs, but to keep them smaller than your wins. Draw downs and losses are something I have never been comfortable with. I seem to like the smaller wins, but more wins philosophy.

So, in my quest to further this concept, I was wondering what everyone does to minimize the number of losing trades?

I totally identify with this system because I am a day trader myself and I trade this way too.
My way of minimizing losing trades is by having an R (max amount of money I can lose per day) factor. This helps me control my trading. As hard as it is, I think this is a great rule because it keeps me in check. It pushes me to be more careful with my picks and my buying time.
I like being a day trader because I sleep better at night. I dont have to worry about waking up to a disaster in Europe or who knows where...and the market is down big...
Yes, of couse I have missed the gaps too, but overall my peace of mind is more important at this point.
I hope this helps!