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<DIV><FONT color=#000000 face=CastleT size=4>Good Morning All!</FONT></DIV>
<DIV><FONT color=#000000 face=CastleT size=4></FONT><FONT face=CastleT
size=4>I'm new to your group. Been day trading about a year. I've
read a dozen books and tried several styles of trading. I seem to be a good
stock and trend picker... getting better at taking advantage of quick momentum
moves. On the other hand, I used to hold my few losers forever, so I never
made much money. I'm now so tired of holding losers that I jump out of any
trade at even a 1/16th of a move against me. I've gone from careless to
downright paranoid! </FONT></DIV>
<DIV><FONT face=CastleT size=4></FONT> </DIV>
<DIV><FONT face=CastleT size=4>Here's my question to more seasoned
traders: I need to be in a high volume momentum stock with a tight spread
like DELL, but am I out of my league? Is there too much market maker and
professional competition? Am I better off in a less traded stock? I
use level 2 quotes. Does that level the playing field enough? Sucess
usually requires an edge. What is my edge? Any thoughts
appreciated!</FONT></DIV>
<DIV><FONT face=CastleT size=4></FONT> </DIV>
<DIV><FONT color=#000000 face=CastleT size=4>Linda <BR>Swope's Mountain
Photography</FONT> </DIV>
<DIV><FONT color=#000000 face=CastleT size=4>**Climb the mountains & get
their good tidings; Peace will flow into you as sunshine into flower; the
winds will blow their freshness into you & storms their energy, &
cares will drop off like autumn leaves. John
Muir**</FONT></DIV></BODY></HTML>
</x-html>From ???@??? Wed Sep 02 08:44:58 1998
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Date: Wed, 2 Sep 1998 11:32:35 -0400
Reply-To: OnWingsofEagles@xxxxxxxxxxxxx
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From: "Gitanshu Buch" <OnWingsofEagles@xxxxxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Subject: Re: preserving profits
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>While i'm grateful for the $300
>profit, i'm aware it was almost $1500 (about 6x the margin!) at one
>time. Seems to happen too often! I try to run stops that will keep me
>in the trend but these have the disadvantage of letting medium size (and
>here a pretty big) profit get away. My current stops are either
>volatility or parabolic based. (price-n*atr for vol-base; parabolic uses
>Wilder's fn. with my own parameters). When a mkt moves sharply, both
>allow substantial amts of the profit to be at risk.
Without looking at the specific chart pattern, this is what intuitively
comes through:
If your trade was coming in when price-n*atr was narrow relative to its
recent history, you were entering from a low volatility environment and
therefore the prudent thing to do would be to take advantage of range
expansion bar(s) to take money off the table. Prudent because you want to
close your trade when the rest want to jump in.
Only risk I have faced in similar situations is that of follow-through in
the direction of the range-expansion breakout. Here choose to trail/chase
the price by stopping myself out below the previous bar's low if long, and
vice versa.
These can be some of the best trades in risk/reward per unit of time terms.
>Yet at other points
>you need the "room" to get thru temporary reversals/consolodations. I
>could set the volatility to a lower multiple of atr or speed up the
>parabolic.
Entering a new trade in already expanded ATR is intuitively a bad idea
unless the idea is to scalp to begin with, or if the trade's result has
insignificant impact on account equity. In the latter case, is it worth your
time any way?
>Does anyone use the % risk approach to set *trailing* stops?
>equity? This would have the effect that, as you accumulated a profit
>that was large relative to your account, you might "have" to run
>tighter stops than your system, which may have widened them to allow for
>vol.
Yes, this is the prudent thing to do. Letting large windfall profits be
exposed to risk is not suitable unless the acount is well capitalized, one
has a significant long term position or directional view where the risk of
losing open profits is less than the reward of making even more outsized
gains.
This approach (letting large profits ride) works best in markets that are in
a trend-continuation mode as opposed to a trend breakout mode or
trend-reversal mode. Your parabolic would be of more value than ATR because
ATR expands and contracts beyond the normal parameters as a trend
accelerates or decelerates.
This approach (letting large profits ride) is not suitable for
undercapitalized accounts or for accounts where that single trade makes up a
large percentage of capital at risk.
>Maybe a small account *should* take smaller, more
>certain profits; but it would make backtesting pretty uncertain.
a. Small accounts should only trade very certain trends with even more
certain chances of continuation. Like flying an aircraft with tailwind as
opposed to flying it into a headwind.
Somewhere on the Futures Magazine web site is an interview of someone called
Phantom Of The Pits (POP). It is strongly recommended reading, online cover
to online cover.
b. Small accounts should not expose themselves to breakout risk, because no
amount of money management will change the eventual odds needed to increase
account size. When a price pattern reaches breakout potential, you have to
be conservative and give the breakout a 50-50 chance of going either way -
regardless of what the indicators and the systems say. The Cisco Systems
trade example posted here recently was a good example of what I'm talking
about.
c. The essence of conservatism is take profits agressively and losses even
more aggressively.
As many veteran traders have posted here before, anything below $20-$25k is
a no-no for futures trading.
Regards
Gitanshu
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