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Subject: Gen: Help understand statment.
Regarding Ray's comments below...
I have the utmost respect for anyone who can successfully employ this
approach (small losses, large wins, basically). When _I_ try this approach,
what I find is that I can't do much better than break even! I take
lots-o-small losses, an occasional moderate win...and I break even. I suspect
that many (most?) of those who try to operate on this basic principle (Ray
has some more refined approaches clearly, but I think the principle is still
there) of "keep losses small, ride winners", in fact lose money, for the
simple ("simple", NOT!) reason that the markets fluctuate more than we want
to believe, and our stops get whomped to easily. (Okay, maybe this doesn't
happen to the experts here, but too the average joe trader, perhaps?).
(By the way, I'm speaking in a futures context here, because that's where
I've been working recently)
In my system work, I've found this to really be true: deeper stops are
better. (!) Way deeper stops. (!!) My best systems have win/lose size ratios
of as "bad" as $600/$3100 (!!!). Sounds silly I know...but with win
ratios as high as 98%, it works our pretty well. These are almost
always counter-trend, limit entry/limit exit (fixed profit) systems,
with fixed stops (no trailing stops). Some are closer to one to one
(i.e., $2100/2400 win/lose sizes), so they aren't all so skewed.
I haven't had nearly as much success developing small loss (frequent loss),
large win systems, and I find them hard to trust anyway, because
the number of wins is small and they are infrequent...too scary. (Might
they also have poorer pessimistic profit factors? Have to look at the
formula again.)
At any rate, my perspective. Again, I'd LOVE to always only take little
losses, and still make consistent money. I just haven't found a testable
method to doing so (yet), that makes decent size profits per trade, doesn't
rely on a few big wings, and (?) has a good PPF.
Every now and then (too often!) I dive back into a discretionary trade,
I use the "stop should be here because that's where resistance is"
or "if it goes below that it's not doing what I think/want so get out"
approach, usually fairly tight...and over all, I break even. But it
does engage my happy finger; following systems makes me just another
"rude mechanical" (sorry William).
Anyway, just a little different viewpoint.
-k (the other one)
>
>...when you put on a trade assume a trade is
>wrong and unless the market proves the trade right, you exit.
>
>Most traders take the opposite view - place the stop and let the mkt
>prove the trade wrong.
>
> <stuff deleted>
>
>For me missing a move doesn't matter - my main concern is to protect my
>capital. If I limit my losses, then I know it is only a matter of time
>before I make my profit target for the year.
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