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In a message dated 98-06-16 06:00:18 EDT, TomKochik@xxxxxxx writes:
<< I ve just came accross an thought. Would you rather say its better taking
position in the S&P 500 Futures for say 0.5 point instead of 1 point ?
Lets say I think the market will go up so I take a long position - call my
broker and say I want to buy @ market and then as soon as I got filled I
would
figure the point Value goal say 1 point and place that sell @ limit 1point +
,
and also the STOP LOSS @ 0.25-0.5 points below to what I got it for.
Now do you think its better ON AVERAGE to place a limit order to get out @ 1
point or its better to deal with only 0.5 point or less in terms of taking
the
profit ??
Also how about the Loss Management - Stop loss ? Should that be @ around 1/4,
1/3 point value of what I would of make as a profit ?? or .............??????
>>
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Tom:
As a daytrader of the S&P, I have a different view to your question than some
of the previous responses. First, daytrading is tough because it requires a
more precise indicator or pattern than for position trading. This is why many
position traders have a tough time when they start to daytrade, their previous
indicators produce whipsaws that lose money. Second, many traders do not
recognize their own ATTACK mode. There are several types of daytraders and
the recognition of your attack style is critical to your success. Many
traders daytrade using a position traders methodology which usually involves a
chart longer than 5 min and up to 60 min for their trading decisions. ( Don't
confuse this with looking at a longer time frame for a trend even if you use a
5 min chart for signals.)
Next are the traders that use 5 min charts or less. There are at least 2
types here. Generally you have a trend player and a scalper. The trend
trader looks for the larger moves, has a larger stop and perhaps a different
set of indicators than the scalper who has tight stops,smaller price targets
and shorter chart timeframes (usually). The scalper ususally operates of a
1-3 minute chart although some can use the
5 min chart. Your question deals with scalping so you will have to sort out
the views of the trend trader or convert to their methods and abandon
scalping.
DETERMINE YOUR TIMEFRAME
Whether you scalp or not, you should analyze the market looking at several
factors. The first factor is the Range of each bar on your chart which is
strictly the high minus the low equals the range of the bar and do this for
each timeframe you are considering. As a scalper this will quickly eliminate
everything above a 5 minute chart and may force you to go to a 1 or 2 minute
chart. Then you must determine if you can act this fast and get fills back
fast enough to trade these charts. On a 5 min chart, a very small bar has a
range of .60, a normal range is 1-2 points and a large bar can be 3-6 points.
Will a .30 to .50 stop be effective on a 5 min chart?
I doubt it. It is practically impossible to trade WITHIN any 1 bar on the
chart where you are making your trading decisions.
DETERMINE PRICE TARGETS
Next you should look at the Range of the Swings on each chart and find the
same low, normal or wide ranges for each chart. This will help you to
determine the profit objectives that you can expect. However, you must also
apply your entry techniques to this range to see how soon you can enter on a
swing. If a chart has a 5 point swing as normal but your entry point
generally gets you in 3.50 points from the low, then you may barely get your 1
point profit with slippage and a 2 point objective will lose money faster than
you can write a check to satisfy the margin call. (BTW for a scalper, a swing
is any move in your direction before the market moves against you more than
you can stand.)
STOPS:
Once you have determined the previous information, you are ready to determine
the size of your stop. Why guess when you can do a little work and get the
averages in your favor. Go to a chart that is at least 1/2 the time frame you
plan to trade. If you are using a 2 min chart, go to a 1 min chart to look at
the point where you would enter the market and write down the low, normal and
highest number of points that the market moves against you after you enter a
trade. You can only see this on a shorter chart because you cannot tell what
happened first, the high or the low after you get a signal.
I am a FIRM believer in placing a stop based on the market but I refuse to act
blindly if that stop is less than the lowest move against me. If a market
always moves against me by at least .80 but I get in on a retracement that is
.60 from the swing low, I will not use .60 as my stop because the ODDS are I
will be stopped out before the market takes off in my direction. If you don't
know what happened to you in the past on your charts, then how can you know
what to expect in the future.
Be prepared for one other benefit that may also distress you. It is possible
that you will discover that your methods are profitable BUT they require a
stop so large that you cannot afford to trade it. Wait until you accumulate
more capital or develop another method with smaller stops. There are few
things worse to a trader than to have a profitable system that loses money.
Invariably your stop is hit just before the market moves in your favor. Hope
this will help you in your trading.
Lynn Green
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