Trading Strategy of high risk stop loss

I can close my positions at any gain levels I am pleased with if I dont see the trend getting stronger - ideally 50% of original limits (ie, 250/2). Also, while monitoring my P&L, as soon as it moves in blue territory, I can manually change my stop loss at a profit of £30 or £50 plus range.

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london_lad said:

I am very new to trading and have been trying out a trading strategy recently with success on demo account. I wanted to check with experienced people here to see if I have got it completely from the wrong end.

I know that as a principle, we have to limit our risks and maximise our profits. However, consider this example:

I have £10,000 as my trading capital balance.

FTSE is on 4250. Last time FTSE was on 4000 was mid April-ish, and within that time-range the maximum up has been 4500 in early June.

I dont have very good knowledge of technical indicators ( I am learning though ), but I see based on the news (eg, worldbank report) and the movement on the graph that it has gone too UP quite a lot or Down quite a lot. Then I make (one) of the following moves:

Long at 4250 contract value £2 p/p with s/l at 4000 and limit at 4500
Short at 4250 contract value £2 p/p with s/l at 4500 and limit at 4000

you are limiting both your losses and your gains, in this example, on a trade which may have a 50:50 chance of success for a risk vs reward of 1:1.

This way my loss is limited to £500 for which the price hasn't moved that much in past 2 and a half month (if Long) or in past 1 month (if Short), and if it does, I am prepared to lose £500. At the same time, my limit will not be reached for the same reason, but I can close my positions at any gain levels I am pleased with if I dont see the trend getting stronger - ideally 50% of original limits (ie, 250/2). Also, while monitoring my P&L, as soon as it moves in blue territory, I can manually change my stop loss at a profit of £30 or £50 plus range.

not good, even worse than a risk to reward of 1:1, you are not maximising your gains, or limiting your losses

In summary, what I am trying to say is that you bet less per pip, but leave yourself a large range stop loss (which market is unlikely to cross) and you make money in the "in-between" noise.

inverse your thinking, you want to bet more by carefully selecting an area to enter the market which has a better probability of moving further in your favour. giving you much more when things move in your favour, compared to when they dont. as a rough example, given from what you have mentioned above. buying the FTSE when it comes close to 4000 with a smaller stop in the anticipation that it might get to 4500, or short at 4500 and cover at 4000.


Am I gone crazy?

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london_lad said:

True. How about, if I am prepared for that? specially in a short position, whereby I will continue to recieve interest from my broker as well?

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london_lad said:

Jiggly,

I understand your point. So far I have made money on demo account and to keep myself in check, I have never let my margin requirement increase more than 5k and my losses within £500.

Now look at this. How many times does the FTSE go 500 either way from any starting point? VS how many times does it go either way from any starting point for more than 4 points? The 4 points being my spread provided by the broker.

the latter has a much higher probaility than the former, that is the only thing i can say about that

Keeping above in mind, my strategy is to profit any moves above 4 points when they are in blue and wait out on the ones which are in red. If I wait too long, the max damage is £500.

when do you decide that 'any moves above 4 points' is good enough to profit, so if it goes 20 points will you cut it, if it goes 30 will you cut it, when do you decide that enough is enough and it is time to get out? if you are risking 500 to make 50, whatever way you try to justify it, you will end up a loser, you are picking up pennies in front of a steamroller.

I agree, I am having trouble explaining my viewpoint. Plus interest comment was to suggest that any overnight positions will in the longer run be offsetted between long and short positiong (meaning long interest paid being offsetted against short interest recieved).

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london_lad said:

let me give this a go for few days on demo and I will post my trades here. Re your view on how I am risking 500 to make 50. If you account for the probability for 500 s/l to reach vs 50 to reach up or down, then perhaps the risk reward ratio balances or tilts more towards reward.

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