If you're having trouble deciding whether scale in, scale out, or going all in all out, I think first question to ask is "do the #s make sense?"
A Quick Story With a Fellow Trader
I was having a conversation this week with a fellow trader and we were talking about the feasibility of a strategy that risks 2 to make 1. That is, your reward is less than your risk. While I was somewhat intrigued, the first thing that I thought of was the challenge of overcoming a draw down, or string of losers.
As an independent trader, I feel the edge lies in the ability to get in and out of the markets 'unnoticed.' Riding a trend or the meat of the move is the way I approach the markets. So that lead our discussion to risk/reward, what do the #s say?
Does Scalping Work?
While scalping (a few ticks/pips) can be a profitable strategy for big firms with co-located servers, it's not my method of choice. Holding out for a big profit target, well that allows for 1 winner to make up for a bunch of small losers, but waiting for that home run can be tiresome, and when the opportunity presents itself, it can be advantageous to want to take a small profit to "lock in gains." (Yes, you can go broke taking a profit).
What About Trail Stops?
That brings me to the trail stop approach, entering a position an incrementally tightening your stop as the trade works in your favor. I find this works well if you can have the self-control to not tighten the stop too quickly at the onset of the trade. Wait for the trade to get away from your entry price before tightening and then don't trail too close.
So What Should a 1 Contract Trader Do?
From my experience when trading a 1 lot, and having to go all in all out, setting a profit target 3-4 x your stop size and trailing your stop to that target is extremely effective.
Strategies for Trading Multiple Contracts
When increasing to 3 contracts then the options for scaling begin to factor in. I prefer to take a small profit (scalp) on 1 contract, set a target of 3x my stop price on the 2nd contract, and trail the third contract until I am taken out.
This reduces the risk at the onset of the trade, as a high percentage of trades (whether they work to a bigger profit target out or not) tend to give at least a small bounce. I use this same method for larger lot size as well, small profit target, 3:1 profit target, trail stop.
Everyone enjoy their weekend, and when you have some time perhaps share your method.
A Quick Story With a Fellow Trader
I was having a conversation this week with a fellow trader and we were talking about the feasibility of a strategy that risks 2 to make 1. That is, your reward is less than your risk. While I was somewhat intrigued, the first thing that I thought of was the challenge of overcoming a draw down, or string of losers.
As an independent trader, I feel the edge lies in the ability to get in and out of the markets 'unnoticed.' Riding a trend or the meat of the move is the way I approach the markets. So that lead our discussion to risk/reward, what do the #s say?
Does Scalping Work?
While scalping (a few ticks/pips) can be a profitable strategy for big firms with co-located servers, it's not my method of choice. Holding out for a big profit target, well that allows for 1 winner to make up for a bunch of small losers, but waiting for that home run can be tiresome, and when the opportunity presents itself, it can be advantageous to want to take a small profit to "lock in gains." (Yes, you can go broke taking a profit).
What About Trail Stops?
That brings me to the trail stop approach, entering a position an incrementally tightening your stop as the trade works in your favor. I find this works well if you can have the self-control to not tighten the stop too quickly at the onset of the trade. Wait for the trade to get away from your entry price before tightening and then don't trail too close.
So What Should a 1 Contract Trader Do?
From my experience when trading a 1 lot, and having to go all in all out, setting a profit target 3-4 x your stop size and trailing your stop to that target is extremely effective.
Strategies for Trading Multiple Contracts
When increasing to 3 contracts then the options for scaling begin to factor in. I prefer to take a small profit (scalp) on 1 contract, set a target of 3x my stop price on the 2nd contract, and trail the third contract until I am taken out.
This reduces the risk at the onset of the trade, as a high percentage of trades (whether they work to a bigger profit target out or not) tend to give at least a small bounce. I use this same method for larger lot size as well, small profit target, 3:1 profit target, trail stop.
Everyone enjoy their weekend, and when you have some time perhaps share your method.