Big Mike's Trading Blog

Day trading futures, discussing money management and trade management techniques, and more

Poll results: Risk vs Reward (stop vs target)

Here are the poll results where I asked what risk to reward ratio you trade with.  It's expressed like risk:reward (ie:  stop:target).

This one was pretty evenly split, looks like the majority trade with at least a 1:1 ratio or better.  I will admit that I am still trading with a 2:1 ratio, but I am working on my runners which will make that more like a 1:2 ratio.  I have a problem with getting out of winning trades too quickly, even for no reason.

What's your strategy?  How do you manage your trades?  I'd like to hear from you, please leave your comments.

My motto is that I better be able to email my trades to a friend and SHOW him why I got out.  If I can't show him why I got out... well, then.. why did I get out???  Probably because I was scared to lose money or give back the profits I already had in the trade.

I like to trade 2 or 3 contracts, with the first target usually 4 ticks, 2nd target can vary around 8 ticks, and the runner to around 12 to 16 ticks on the ES (4 ticks = $50 USD).  My initial stop is usually 8 ticks, and I move it to -4 once the first target hits, then to break even once 2nd target hits and let the runner try to go all the way.

Mike

10 comments:

Anonymous said...

I trade 1 contract at present, with a view to increasing once confidence in the signals increases. Previously I used an 8/8 tick stop/target on the ES, but more recently use a 16/8 to allow more space to allow for retracements after entry. However, since using the ECO2NEW + VMAZones indicators, I will return to using an 8/8 as these have significantly improved my trading profitability (SIM at present).

Big Mike said...

Hello anonymous,

I am glad the ECO2 and VMAZones are working well for you.

Feel free to share some chart pictures and indicator settings, I recommend using tinypic.com as an image host.

Mike

Anonymous said...

First of all, thank you very much for your inputs. I've been trading now for 9 years. My approach to trading have been about mastering the mental game. That I've been doing by trying to understand how the mind works. Actually it's about knowing yourself well enough in order to master the key to success. By implementing your strategies and your chosen indicators, I must say that I've come very, very close to who I am on the trading scene. SO A BIG, BIG THANK YOU. Actually, I can't thank you enough in order to express how much I appreciate what you have done for me, and how you've helped me in order to get together my stuff.

Now let me get to the point of my trading and to how I approach it.
I trade 5 range bars (takes out a lot of noise). After all, it's a lot about trading with the least amount of noise. Minute bars measures all the actions showed by events, and because the type of trading I'm using, has to do with the price action, I find it more accurate to use range bars.
In trading, the most important thing is risk management, and that you get by your exist. The ECO indicator, is so, so awesome, that I still find it unbelievable.
Now, the way I'm using the ECO is to exit the trades as soon as I get the second bar confirming the color change.
What does that do for me? It gives me a very narrow risk (means that I get out of the trades in case they don't take off, with a very low risk, and second they maximize my profit if they take off. Now what do I miss by that? Well, I could be missing out, maybe 30-40% of the trade. But I'm still very satisfied with the results, because, after all, it's about risk, and momentum.

The entry signals I'm using are based on the double MA in conjunction with confirmation from the ECO.

So it's about getting momentum, and having the right exits.

What I would like to improve is a way to filter out, choppy movements, in order to stop giving back to the market to much.

Any idea, how to improve that?

Again, a big, big thank you Mike, for sharing and for improving trading a lot, for a lot of people. Your work, is worth gold.

Best regards
George

PS: Pardon my English, I'm not a native English.

Big Mike said...

Hello George,

Sounds like you are on the right track. The mental aspect of trading is no doubt the hardest for me, I am very technical which is a blessing and a curse. So, I need constant help and reminders to follow the rules which I wrote. It sounds so easy, but for me it is hard.

The market is non-trending (chop) most of the time. Eliminating chop is very hard to do. I think if you end up cutting out all the chop, you are left with not much that's really good to trade from -- because once the break out from chop has happened, it's too late to enter that trade and, well, now you're probably back in chop again.

It's like a good steak. Cut off all the fat and you're left with a steak that doesn't taste as good. What you need is to cut off SOME of the fat, leaving just the right amount to make it still taste savory.

If you make a trade and then afterwards it enters chop, then just know you are in chop and trade accordingly. Don't go long from the top or short from the bottom. If you want to trade, then reverse your thinking and wait patiently for the chop to come back down and close towards the bottom of the range box and then take your long.

The key to not losing money is chop is to not trade it over and over again from the wrong end of the box. It takes practice but is absolutely possible. I am pretty good at avoiding chop.

Another way is to trade with larger stops and targets, then you don't care so much about chop.

BTW, your English is fine. Probably better than mine!

Mike

Anonymous said...

Hello Mike,

Thanks a lot for the steak :). Now I'm gone give you a camel :). I've been studying, in order to understand, as I told you, the mental aspects of this game. And it hit me when I heard the analogy of the camel. What I wanted to understand was the greed factor and why it works the way it works. And as we all know that's a huge problem in trading. Because the effect of it is so biting, both when we win money and when we lose money.

Now to the bad news. It's built in us. So please Mike, and everybody else. Forgive yourself, it's not your fault it's just evolution playing us traders a trick.

Back to the camel :). As I said before it hit me when I understood what's in the puck of a camel. Honestly, and I do confess with the risk of being normal, that a camel, was holding water in its puck. But it's actually fat.
And why is it fat? Because fat contains energy. And the camel, is made in order to walk,run etc in the desert, where there's no food around. So in order to survive, it stores fat in the puck, that can be, and eventually is turned into energy.

You see, life is actually about preservation.
But what does the camel has to do with trading? Well, because we're alive, we respond under the same rules. For us too is about preserving life. So in order to survive, we're trying to store every time we get the opportunity, in order to survive through bad times. And as we all know, that's very common in trading.

So whenever you get to ride a trade, and you see that the trade gives you a lot of ticks in your favor, your subconscious instincts gets activated and you turn on the storing mode.

When you loose money, it's about surviving as well. You turn on the surviving mode again. And you find yourself looking for opportunities that permeates survival, in other words. You get very keen to succeed.

That's how we function more or less. The biggest problem with all this, is that our mind gets very selective in those moments. It gets very stuck on those scenarios, and it also becomes very subjective.
It like buying yourself a new car. Suddenly you see those cars all over the place. And you hardly noticed them before.

We all know both the results and the effects of that. We get the total opposite side of the coin. We don't survive, we day as, not even brave traders, we die anonymous and in pain!

Now the solution to all this is to learn to know yourself. That's why all these books tells you that. It's about being aware of how you react in different situations and why you react that way. And in order to do that, you have to dig, and then I really mean dig. Most of us, don't have the time nor the money to do that, and if we happen to do that, we're not gone like what we find (believe me, been there, done that).

That's why a better solution is the one you're using Mike. You've build yourself tools, in order to keep you objective, and focused on the market and its action. Now in order to get those tools to function. You still have to do some mental work. And this ought to be easy.
The way I see it, it has to contain two elements:

1. The right reason behind it. (picture, you're out jogging, without the right reason, you gone give up eventually. Or pick whatever activity you've done in your life, without giving it the proper reason. It always turns the same, either you give it up in time, or it kills you while you do it. So the effect is always the same.) So the right reason for the tools, strategy etc.

2 Move your trust into it. You have to know that it's going to take you, where you want it to take you. You have to trust your tools, the same way you trust your mother, till the age of 7. You just know that it's right.

That takes out a lot of stress and noise. And it keeps you away from all those surviving modes.

So Mike, congratulate yourself that, even though you have the impression of having problems with the mental game, in my very point of view, you are not.

Best regards!
Til the next time
/George

Big Mike said...

George,

Excellent response. I really appreciate it, you've nailed it.

There is nothing really to add so I just wanted to say thanks!

Mike

Anonymous said...

Mike,

Thank You!

/George

Guilherme Ceschiatti B. Moreira said...

Hi, Mike. Congratulations for your blog. It's really awesome and I'm considering leaving Thinkorswim and starting using a NinjaTrader supported IB. Maybe AMP or Mirus.

I'd like to suggest a poll about NinjaTrader, asking if users lease it, own it (multi broker or single broker), or just use the free version. What do you think about it?

Big Mike said...

Guilherme,

If you are not trading stocks I would stay away from the Ninja + IB combination personally (speaking from experience). If you are trading stocks, well then.. IB is probably the best choice, but still has major pitfalls when combined with Ninja.

I like the idea of your poll and will consider it when the new one is due..

Mike

AsboPet said...

Mike
Just found your blog. I too spent hundreds of hours coding up everything to arrive at exactly the same spot as yourself!

Love the Zen Camel concept by George.

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