profit targets

[franky 10]

i trade the ym alot, and i make money consistently, so i am definitly not a new trader, i just didn't know which section to put this under. My question is profit targets. I wanted to know how you guys, from past experiences, use as your initial targets, and more importantly, when you take that target. For example, if your initial target is +5, and your final target is 30+, and you just started scaling in, meaning so far you only have 1 car instead of the 3 you usually take(full size), do you take that first car off emmidiately once you hit you +5 since you don't have your full size on, causing you to potentially miss the bigger move, or do you take your plus 5 after you've scaled in your buy points(so you can scale out)??

Is a +5 initial target too small?

 

I'll give an idea of how i trade this, maybe i can get some more experienced traders critique this a little.

-With the filters, i don't take my initial target. What i actually do is my first order i enter i expect it to be my homerun trade , so it only has a trailing stop, and then i scale in taking my +5 after my first order is in. So i get a buy trigger at 100, i enter at market with x stop, and then i see if i can get a better fill, and take my +5 from there with same stop as initial target. If i cannot get a better fill, , i actually average up into the trade and take my plus 5 from there.

Against the filters, i enter my first, but if i get to my initial target without trying to get a better fill, im flat, untill i can get a better fill.

The problem is sideways markets, when filters are useless. How do you play this? i tried looking at my past trades, and i can't seem to find a way to play it right. Some trades, i should pretty much look for a home run without even having a initial target, some, i get stopped out completely.

 

Also, since im on the topic, do you guys even try to scale in, or is everything at market. I know there's two camps on this. One of the reasons i scale in is because im good at scalping.

 

Looking forward for some comments from some pros...

[TheBramble 10]

Franky, I think you're asking at least three questions: How to calculate profit targets; how/whether to scale in/out; how to trade sideways markets. If I've missed any, let me know.

 

Calculation of profit targets is more of an art than a science. I trade basic patterns and once I get what I consider to be a high probability move, I calculate my R:R on where I’m going to place my initial stop and project my target to the most likely first level of S (or R) for the move. I’ll also overlay Fib retracements as well. If they match with the S (or R), so much the better. I also calculate a 2nd and 3rd target area, but these rarely get hit as they’re major moves out. Nice when they do though! I also use time-based criteria to get me out – if the price doesn’t work my time-price slope within 25% of the number of periods I’ve allocated for the move, I’ll exit. If I steam on through my levels I’ll hold the trade, or if there’s a pause with volume indicating it is just likely a pause, I’ll hold. Otherwise I’m out.

 

I rarely scale in or out. If I have a conviction for a trade, I’ll go in with my full position size. When it’s time to come out, I come out. I have used both methods and while putting on a partial position does reduce your losses on losers, if your W:L is high enough and your risk is sufficiently low, what’s the point, a scale in just robs you of greater profits.

 

Same with a scale out. Sure it’s good to lock in a profit, but again, if you have a W:L that indicates most of your trades are going to be outright winners anyway, and your trade is being traded to your plan and your method, why limit the profit? I suspect it all comes down to your performance ratios and your confidence in what you’re doing – if indeed there’s any difference between those two.

 

Sideways markets. If you’ve identified a sideways market with sufficient range to make it worthwhile (strokes for folks) then trade it. As you’re a scalper I guess that’s precisely the sort of market you’re aiming for. I don’t scalp (not intentionally anyway LOL), but if I did, I definitely wouldn’t be looking to scale in or out, there just isn’t the time to pick off 5 ticks in tranches and certainly if you’re trading size (which you must be to be making any money at scalping). 200-300 trades a day and scaling in and out? Keeping track of your tranches would be a nightmare. Would be for me anyway.

[franky 10]

its interesting that you mentioned that, going all in at once. My mentor loved scaling in and out, but i have seen other pro's, like linda raschke talking about how she enters full size at the market. Once of the reason why i like to scale in and out is because most trades i take never work emmidiately. Market always bounces up and down. Most of the time, i've scalped enough points during when the trigger went off that if my initial position does turn out to be a loser, its a scratch trade. If it does work out, i add to it. So most trades are potential big winner, potential small winner, potential small loser, and NO potential big losers(very rare).

 

But i wanted to know what others poeple experiences have been( hopefully at least a couple of years of daytrading). Im am willing to change the scenerio above to include potential big losers only if my winners are going to be really big and my bottom line is giving me better results.

 

It seems like you have tried both types of trading, and I appreciate your comments. Would be nice to hear other opinions as well.

[Soultrader 12]

Here is my input. I have tried both exits techniques of all-out and scaling out. I have been scaling out the majority of the time but now have chosen to go all-out.

 

Let's say you have a profit target of 30 YM points a day. I would scale out half at +10, quarter at +20, and last quarter discretionary. Let's say you use a 10 point stop per trade.

 

First trade is a winner: +10 on half, +20 on quarter, and +30 on final quarter.

 

This averages out to 17.5 YM points on the entire position.

 

Now the second trader is a loser: -10 pts on full position.

 

The net here is +7.5 YM points. Even though you had a 30pt trade with only one losing trade of 10 points, youre net is 7.5pts. For me this led to more trades or even sticking around until the close to capture my daily target.

 

I have started using 15-20pt stops on a slightly higher timeframe to capture at least 20-30pts on half. (depends on the trade and market condition) Now all I really needed was 1-2 good setups a day. I rely heavily on tape making my trades extremely short term. Now, I am focusing more on candles or simply moving stop to break even to let trades ride.

 

With scaling out, the homerun trades will not offer optimal net profit. But can limit your losses with alot of scratch trades or -5pt trades. I personally do not aim for homerun trades.. if they happen great. But I think its really based on your daily goals, position sizes, risk tolerance. If your daily goal is $2,000 and trading 20 dow contracts, all you need is 20 points. If you are trading 10 contracts with a $2,000 daily goal then you will need 40 points. I prefer to use points as a daily goal instead of monetary gains. Account size, position size, style of trading, etc... needs to be incorporated in order to find what is optimal for you.

[TheBramble 10]

I have never been able to understand why anybody wants to work with daily profit targets. Always seems like unnecessary additonal pressure with no positive benefit. Maybe I'm missing something.

 

If you're below target and coming to close of trading, might that not put additional pressure on you to take a trade you might otherwise have not? Or to slack off and miss a few good ones when you've already hit your target earlier on?

 

I take what the market offers and that does occasionally mean a day where I'll take no trades at all and some days where I'll be down on the day. Being happy with the average works for me.

[brownsfan019 17]

Franky - great question and one that many traders struggle with, myself included. I am very confident in my setups - where to enter and where to place the protective stop - but when to exit is always a losing game (as far as your psyche is concerned). If you enter 'too early' you beat yourself up for getting out at +10 when it goes +25. If you 'get greedy' and 'had' +12 but wanted +20, you can calculate the $$$ 'lost'...

 

My point is that I think when to exit a trade is the most difficult part of this business and it has nothing to do with the $$$ involved - it's all about how your brain and mentality accept the exit(s) that you have chosen.

 

I truly believe in trading that you are your own worst enemy.

 

With that being said, I have been using WRB/Big Candles recently for exits. I started a thread here - http://www.traderslaboratory.com/forums/f34/wide-range-bodies-big-candles-1480.html I personally have found that having a set profit target is a tricky proposition and I am personally terrible at trailing stops. So, I needed a way to exit that made sense to me, and thus far, WRB's have done that. It's a work in progress, but I've spent quite a bit of time here lately on exiting with WRB's.

 

As for scaling in/out, I personally enter every trade with the same amount of contracts (based on the market) and exit all at one level or exit half at one level and the remaining half at another level. With WRB's, I have been spending time looking at exiting all at one WRB or two.

 

I personally like to keep things simple, so that may be the reason for the same amount of contracts being traded each time and a simple exit strategy. Watching 3-4 markets intraday on a smaller VBC chart is difficult, so I can't get caught up in minor details. I can't afford to miss a trade b/c I had too many steps to go thru on my current position.

[brownsfan019 17]

I have never been able to understand why anybody wants to work with daily profit targets. Always seems like unnecessary additonal pressure with no positive benefit. Maybe I'm missing something.

 

Bramble - I think it comes down to people working well when there is a finite goal in front of them, especially when new to trading. I personally think that for a newbie to go for $100/day at the beginning is a great idea. It gives them something to shoot for and provides the ability for a 'reward' for doing the job that day. And it's realistic to start.

 

This thread has reminded me of my time as a broker. When we were training new brokers, we had very definite goals given to each new broker that they had to meet each day. The 'recipe' as we called it was proven time and time again - follow these steps and the likelihood of becoming a successful broker was very high. Same can be said of trading - start small and then build your daily goal over time. Then, you'll just forget about even needing a goal b/c now the habit has been developed over time. You have to train your mind to repeat the same process over and over again. Your confidence is strong from reaching your goal most days, your account size is growing and all of a sudden you feel pretty good about what you are doing. Then it's not a matter of making $100 a day, it's a matter of how many zero's are going to be at the end of your goal...

[Anonymous 11]

I struggle with this one.

 

My sensei uses WRB's to scale out of positions. That is, as partial profit taking opportunities. WRB's represent changes or shifts in supply/demand. They also are support and resistance zones created by the market itself.

 

I however, must stay true to my own belief system. I believe in surrendering to the market, in following it. In mirroring it. I am partial to the idea of staying in the trade as long as the market will let me.

 

Taking a profit at a profit target is about what I want and it is trying to predict the future when it is not necessary to do so.

 

I believe the amount of profit that can be realized by staying in a market that trends beyond expectations, will more than offset those times when the market takes you out at a lesser amount than had you exited at a target.

 

WRB are created by the market itself and are thus superior to mathematical targets however.

 

Because of what WRBs can be, I am more inclined to move a trailing stop to just below the most recent WRB. This way one is using the markets own information to manage the trade while refraining from unnecessary prediction and speculation.

[dalby 10]

i scale out. i will sometimes scale in in the entry zone (like for example +3 to -3 from a pivot level (globex level, market profile level, etc.), but usually enter full size. i almost NEVER add in once the trade starts really moving my way (+5 POINTS) and i almost always enter with limit orders, not market orders.

[brownsfan019 17]

I believe the amount of profit that can be realized by staying in a market that trends beyond expectations, will more than offset those times when the market takes you out at a lesser amount than had you exited at a target.

 

Not sure I agree with that Pivot... Again, it's all based on each trader's trading methodology, but for me and using snug stops, more often than not, the market may tip my stop and then move if I get 'greedy'. This was why I was using set profit targets that we discussed in another thread. I needed a way to exit before any threat of a retracement. So far, WRB's seem to help with this.

 

WRB are created by the market itself and are thus superior to mathematical targets however.

 

Great statement. I only wish I had looked at WRB's more closely sooner!

 

Because of what WRBs can be, I am more inclined to move a trailing stop to just below the most recent WRB. This way one is using the markets own information to manage the trade while refraining from unnecessary prediction and speculation.

 

That is another idea Pivot. Thanks for sharing... I will have to consider a stop movement based on the WRB. Question though - where exactly would you move it to? Take a look at my attached chart and let me know what you think. If I trailed that stop in that example, I would inevitably be taken out at the low of that red candle...

[Happyguy 10]

I believe the method of getting in and exiting is a function of each person's trading methodology and his personality.I always enter all in one go. I had tried to exit by scaling out but I find that most often, I end up earning less points than if iI had exited all in one go. When I reviewed my trades, I discovered that the first price level that i scaled out was too early an exit for the way i trade. This is why the total points made in 'one' exit is greater than the scaling out exit.

[Anonymous 11]

LOL. Clearly no method is without some negatives.

 

First, do you scale out, or exit all the position on the first WRB? While one needs to do what fits their individual personality, the idea is once the first pt is hit, all other pts MUST be higher than the first. So if price does move in the opposite direction you would NOT be exiting at further WRBs.

 

Now as for the trailing stop. I would place it 1 or 2 ticks from the low of the body. As long as the that is not on an even number or a round number. More correctly, 1 tick below unless that is an even number or a round number (which of course, is even). If it was, then I would use 2 ticks.

 

I don't know what happened in this chart, but it looks like you would still be in on the last bar shown.

[brownsfan019 17]

LOL. Clearly no method is without some negatives.

 

First, do you scale out, or exit all the position on the first WRB? While one needs to do what fits their individual personality, the idea is once the first pt is hit, all other pts MUST be higher than the first. So if price does move in the opposite direction you would NOT be exiting at further WRBs.

 

Now as for the trailing stop. I would place it 1 or 2 ticks from the low of the body. As long as the that is not on an even number or a round number. More correctly, 1 tick below unless that is an even number or a round number (which of course, is even). If it was, then I would use 2 ticks.

 

I don't know what happened in this chart, but it looks like you would still be in on the last bar shown.

 

OK let me see if I have it - first, you exit some of your contracts on the first WRB. Your trail stop is placed 1-2 ticks below the body on the remaining portion and either another WRB will form later or that trail stop on the remainder will be taken out... correct? And how long are you willing to wait for that next WRB? You could easily have a stop that would not be in jeopardy of being hit, but also not get a WRB shortly after the first. In other words, if price just slowly chugs up and down far enough from your stop, but not enough to create another WRB, what's a trader to do? Just sit and wait? At that point, I think that's more hope than anything... Just my view though.

 

It's kinda funny how our views and ideas can change over time... With WRB's as exits, I am getting in, getting out and waiting for the next set up. If you have multiple WRB's or set profit levels, you can stay in a trade for many minutes or even hour(s). I used to do that - sit and wait b/c my profit level was +20 and I wasn't budging till then. For me, this is a much better way for me to trade as I am not always the most patient. So, instead of getting into a trade and feeling like it is taking forever for my profit to hit, I am simply looking for a boost of volume in my direction and then exiting the trade. And while it does create more trades during the day, it keeps my attention more and with more round turns, I can keep negotiating that rate down. :p

[Anonymous 11]

BF, do you scalp?

 

As far as waiting for another WRB, correct, one would just wait as long as it takes. But remember, the definition of a WRB is the largest body of the last 3 intervals. So WRBs are not simply ultra huge bars. The wider the more significant but a "narrow" body could be WRB of the prior intervals are extremely narrow.

 

I am glad you are finding value in this concept. Like I said, I like the fact that WRBs are market driven. The more we can get out of our own way and listen to the market the better.

[brownsfan019 17]

BF, do you scalp?

 

As far as waiting for another WRB, correct, one would just wait as long as it takes. But remember, the definition of a WRB is the largest body of the last 3 intervals. So WRBs are not simply ultra huge bars. The wider the more significant but a "narrow" body could be WRB of the prior intervals are extremely narrow.

 

I am glad you are finding value in this concept. Like I said, I like the fact that WRBs are market driven. The more we can get out of our own way and listen to the market the better.

 

Pivot - I don't call myself a scalper, but some might think so. :p

 

I see what you are saying about the WRB and the largest body of the last 3 intervals. I am equating WRB with big candle and that is not how you are using them. My only concern with using the last 3, 5 or whatever intervals was that when I looked at doing that and coded into TS, it was giving me 'WRBs' that I did not think were good exits at all... Again, I may be using a very simplified and literal interpretation of WRB, but I was just not impressed saying of the last X intervals, if this body is bigger, I am out. Have you really tested and looked at that analysis? I guess it also depends on the type of chart and timeframe being used. I am using 450 share bars on the YM, so with that 'low' of a setting, it's easy for many WRB's to print based on the interval analysis, which ends up taking me out of trades almost immediately after entry... So, that's not going to work for me.

 

After some more analysis on my end using WRB's in the literal sense, I am comfortable with them as exits, but only after the trade moves so much in my favor. In other words, once the trade moves +8 on the YM, then I will look for a WRB as reason to exit. The idea being that I cannot be taken out at +3, even if a 'WRB' technically showed up. I realize that this may conflict with the idea of taking what the market gives you, but I also cannot turn a trade that would have delivered nicely into +3.

[wrbtrader 10]

Pivot - I don't call myself a scalper, but some might think so. :p

 

...I am using 450 share bars on the YM, so with that 'low' of a setting, it's easy for many WRB's to print based on the interval analysis, which ends up taking me out of trades almost immediately after entry... So, that's not going to work for me...

 

Hi brownsfan019,

 

Can you post a annotated chart example of what you consider to be WRB's via a 450 share bar chart?

 

Thanks because I'm curious to see what this looks like.

 

Mark

(a.k.a. NihabaAshi) Japanese Candlestick term

[Don4 10]

well im certainly no expert on the mater we can never realy be sure where price will go but to me scaling only adds to the problem, it keeps u glued to the screen and only adds more emotions in the trade. (just my opinion)

[brownsfan019 17]

Hi brownsfan019,

 

Can you post a annotated chart example of what you consider to be WRB's via a 450 share bar chart?

 

Thanks because I'm curious to see what this looks like.

 

Mark

(a.k.a. NihabaAshi) Japanese Candlestick term

 

Mark - I don't want to hijack this thread, so I posted screenshots at the thread I started - http://www.traderslaboratory.com/forums/34/wide-range-bodies-big-candles-1480-3.html

 

Let me know what you think!

[walterw 10]

Brown : I would appreciate if you could remeber me whats the soft you use to mark your charts.... thanks Walter.

[brownsfan019 17]

Brown : I would appreciate if you could remeber me whats the soft you use to mark your charts.... thanks Walter.

 

http://www.techsmith.com/snagit.asp

 

It is the best $39.95 you will ever spend. I use SnagIt for so many things, esp to annotate charts quickly. I used Microsoft paint, but what a pain that thing is. SnagIt is one of the most useful programs I use for anything and everything!

 

And if you want to make videos and such, Camtasia is a great program as well! http://www.techsmith.com/camtasia.asp