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Bob:
So...let your profits run. Why didn't you just say so?
Bill Wynne
SmartTrades.com
In a message dated 2/26/00 12:37:45 PM Pacific Standard Time,
bheisler@xxxxxxxxxx writes:
> The following are just some thoughts on Trading versus scalping that I
> thought some on the List might enjoy. While there are many different ways
> to approach trading, scalping seems to be a very popular approach - and one
> I employed with less than optimal results. But then again maybe it was
just
> me or that I just did it incorrectly...
>
> In any case, somehow/someway we absolutely must allow a trade time to
> develop and progress - and then try and profit accordingly so we can keep
> the Math on our side. I have heard this comment/question a lot - "but what
> if I am just trading for a certain daily profit objective and I get
> it...what's wrong with that". For instance, I want to make $500/day and I
> just had a trade that made $250, so if I take that AND then can do it again
> I will have my daily objective. At first thought that makes some sense, or
> does it???
>
> It sounds right in theory, but it just isn't the way it works in reality.
> Because we know that there are losses to compensate for AND commissions AND
> slippage AND the bid/ask spread, not to mention your data, software, etc.
> AND we know that even if a trader is good enough to make that $250 60-65%
of
> the time (or more), he/she will always be a marginal trader at best.
>
> Let's use a 60% win/loss ratio along with a 2:1 dollar ratio of winning
> trades:losing trades. Even though I have no idea how you could trade the
> Spoos with a 1 point stop, we will use $500 on winners and -$250 on losers
> just to keep the Math simple.
>
> 10 trades @ $500 profit/$250 stop = [6 x $500 = $3,000] - [4 x $250
> = -$1,000] = +$2,000 - [10 commissions x $20 = -$200] = +$1,800. Now what
> about the slippage on your objective - certainly something is going to
> happen on 1-2 trades out of 10 where a $500 objective only gets $400 OR
> a -$250 stop ends up at -$350+. Figure that 2 of these cost you ONLY
> another -$200 = a grand total of +$1,600. (and considering that on 10
> trades there are at least 20 transactions, that is being quite generous)
>
> 10 scalps for quick profits instead of doing what the market says you
should
> do. And IF you are good enough to get 60-65%+ wins and ALL good fills you
> might end up with $1,600+ of profit. AND then I look at the charts from
the
> last couple of weeks and see all those huge swings where some simple setup
> would get you in a trade and the price action kept you in the trade for
over
> 60-100+ ND points or 10-20 SP points per contract - and all the trader had
> to do was monitor the progression AND go along for the ride. And we could
> have done this numerous times just in the last couple of weeks.
>
> AND then I see where a 2-lot NQ at $20/point on these swings gained over
> $2,400 with only 2 commissions AND 1 chance for something unforeseen to
> happen. Or I see a 3-lot ES at $50 a point which gained over 10 points per
> contract = $1,500, and you get such a graphic example of the "math of
> trading" that I know exactly what a trader has to try/learn to do IF they
> are going to survive in this business.
>
> And if we accept as true that you cannot trade the Spoos with 1 point
Stops,
> the above 2:1 winning trade:losing trade dollar ratio would have to be
> changed to $1,000:-$500 at a bare minimum and more like $1,500:-$750 to
> approach reality. Hmmm...how many scalpers routinely make 4-6 points on
> their wins? What if we did the above Math on a 1:1 winning trade:losing
> trade dollar ratio? What if we did the above math with a 50% win:loss
ratio
> instead of 60%?
>
> Regardless of what tools you use to determine entries, you still must have
a
> plan that once in the market allows you to capture the larger swings and
> keep the math on your side.
>
> Hope a few on the List find some value in this post.
>
> Bob
>
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