Am I too greedy?

Dec 4, 2018
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#1
Back into trading after taking a bath back in 1999.

Looking to do swing trades, mostly. I have a cash account so no margins, no fancy stuff.

Taking 500 or 1000 share entries only in stocks I know and understand. Stocks with large daily volumes.

Only been going for the last week or so and finding I'm missing out because I'm holding out for what may be too high a gain, per trade.

I buy a stock at $5 then put a sell in for $5.50. The stock reaches $5.45 a few days later, then reverses. For holding out for 5 more cents, I get nothing.

Reverse that, now. The stock opens or is pre-open trading at $5.25 and I miss that entry because, you guessed it, I think it will drop a few cents lower. It does not.

I'm learning by these mistakes but my main question is: What is a fair expectation on a short interval swing trade such as this if you were making trade?

Thanks!
 

tomorton

Well-known member
Feb 28, 2002
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#2
This is the hardest part of trading.

I don't know if there's a radical approach answer or if the solution is incremental, e.g. if you literally mean but at 5 and exit at 5.5, eliminate your trades that depend on round number entries and exits, there will always be clusters of orders around these levels so you're just going to be a passenger for better or worse.
 
Dec 4, 2018
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#3
Thanks for that.

I bit the bullet and took a lower sell point a few minutes ago. So $300 instead of $500 for a trade that was in play for three days.

I can work at my business all day and not make $300. Enough said.

Lesson learned. No more Mr. Greedy.
 
Likes: tomorton

hatemypips

Active member
Nov 11, 2014
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#4
Thanks for that.

I bit the bullet and took a lower sell point a few minutes ago. So $300 instead of $500 for a trade that was in play for three days.

I can work at my business all day and not make $300. Enough said.

Lesson learned. No more Mr. Greedy.
Basically its not an easy thing to understand where you are greedy and where not. Use fixed targets to avoid emotions interrupting your trading.
 
#5
Back into trading after taking a bath back in 1999.

Looking to do swing trades, mostly. I have a cash account so no margins, no fancy stuff.

Taking 500 or 1000 share entries only in stocks I know and understand. Stocks with large daily volumes.

Only been going for the last week or so and finding I'm missing out because I'm holding out for what may be too high a gain, per trade.

I buy a stock at $5 then put a sell in for $5.50. The stock reaches $5.45 a few days later, then reverses. For holding out for 5 more cents, I get nothing.

Reverse that, now. The stock opens or is pre-open trading at $5.25 and I miss that entry because, you guessed it, I think it will drop a few cents lower. It does not.

I'm learning by these mistakes but my main question is: What is a fair expectation on a short interval swing trade such as this if you were making trade?

Thanks!
What I would suggest, instead of aiming for an arbitrary value, focus on a level that corresponds to a ratio of 2:1 in terms of risk reward. Thus, if you always take trades with this type of goal in your head, you'll know exactly when to get out.
The worst thing you can do is to enter a trade without knowing exactly when you should get out, whether it is about your maximum loss or reward.
Hope I answered your question.
 
Jul 15, 2017
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#6
“I buy a stock at $5 then put a sell in for $5.50”

Why? What is that $5.50 target based on? Gut feeling?

Before you put any trade on, you should know the exact probability and impact of every possible outcome. You can only know that by backtesting backtesting and yet more backtesting.

Only backtesting can give you the confidence in your strategy.
 
Dec 4, 2018
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#7
“I buy a stock at $5 then put a sell in for $5.50”
Why? What is that $5.50 target based on? Gut feeling?
The reason for my post is to try and determine what is a fair profit on a simple swing trade. As i said, I waited for the price to reach $5.50 and it reversed. I my mind I was too greedy and lost out... that day, anyway.

As to the idea of backtesting, perhaps that's something I should look into. How would that have affected the outcome I just described?
 
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Dec 4, 2018
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#8
What I would suggest, instead of aiming for an arbitrary value, focus on a level that corresponds to a ratio of 2:1 in terms of risk reward. Thus, if you always take trades with this type of goal in your head, you'll know exactly when to get out.
Not sure I understand what you mean. Can you explain using a stock price entry of, say, $5.00/share?
 
Jul 15, 2017
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#9
As to the idea of backtesting, perhaps that's something I should look into. How would that have affected the outcome I just described?
It would have affected the outcome because you would have known in advance what the probability of success would be, and could manage your risk accordingly.

Just trading on what you *think* is going to happen is, to be blunt, gambling.

You need to have a trading plan before you trade. There are various ways to create a trading plan, and there are numerous threads about that. But once you have your plan, you backtest to calculate the probability and impact of each possible outcome.

I’ll give a very simple example.

Let’s say you notice that on market opening, XYZ stock tends to rise in price by about 20 pips. So you formulate a trading plan to exploit that pattern. That might be to buy that stock at the open and to sell it after it has risen 10 points. You also set a stop loss of say 20 points.

You now have to look at previous days and see what would have happened had you implemented this plan. This is what backtesting is. The more data you collect, the better, but I would say a minimum of 1 year is required.

From your backtesting, you find that 70% of the time you are correct and make a profit. 30% it goes to stop loss.

So, based on that data, you now know that if you trade 100 times, this will be the outcome:

70 x 10 pips = 70 pips profit
30 x 20 pips = 60 pips loss

That’s a net profit of 10 pips over 100 trades.

You might be happy with that, or you might want to go back and refine your trading plan, but the point is, you know what the outcome is likely to be in advance, it’s not just chance.

Only by backtesting this way can you have confidence that your trading plan will produce a profit, and that will help give you the discipline to stick to your plan rules.

Similarly, this will highlight if your trading plan will result in a loss (rather than a profit) so you can go back and re-think it before you commit any real money to it.
 
Dec 4, 2018
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#10
Well, in an deal word that would be nice, but how many stocks do you know of that do nearly the same thing at the same time day after day? I have another posting on this forum about my current swing trading strategy. Perhaps you can read that one and comment either here or there.

https://www.trade2win.com/threads/advice-on-perfecting-this-method.233455/
 
Jul 15, 2017
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#11
Well, in an deal word that would be nice, but how many stocks do you know of that do nearly the same thing at the same time day after day?
I understand what you are saying, but you are missing the point I was making. The example I gave was a daily pattern, but you could spot any pattern on any time frame and devise a way to exploit it. The actual pattern is not the point, devising and testing the exploit of the pattern is the point.

I read your other thread, and you have already have the beginnings of a trading plan, because you have spotted what appears to be a pattern, namely :

The stock goes up and it goes down but most of the time it trades at around a certain level, at least if we look at the last 52 weeks or some similar specific time interval.
You even say as much yourself:
If you take most any stock like this that tends to move just a couple of dollars over the course of a few weeks to a month you can see sort of pattern over the long term history.
Let's say that this is an accurate statement (and I have no idea if it is or not), you now have to think of ways to exploit that phenomena. You could look at your charts and say, for example, that if the stock deviates from it's average price (measured over the previous 12 months) by more than 10% then it is likely to retrace at least 20 pips. So, your entry point is the point at which the deviation reaches 10% - if the price is falling then you place a buy order, if rising you place a sell order.

You could set your take profit to be, say 10 pips, and your stop loss to be say 20 pips. Now you have a specific plan that exploits the pattern you have spotted, and you can backtest and see how it would have performed over the previous year or two. You'll be able to calculate what the probability and impact of each possible outcome for each trade would be (as I described earlier). Remember, you don't need to be right all of the time, you just need to be mostly right for the plan to be profitable.

If it's not profitable, you then try adjusting the parameters (eg take profit at 15 pips instead of 10, Stop loss at 15 pips instead of 20 etc etc) and keep going like that, refining your plan until backtesting shows it making an acceptable profit.

You've already done the most difficult part already, which is identifying a pattern you can exploit. Backtesting may seem to be boring and laborious, but it isn't really difficult, and as you gradually realise that you have a strategy that will produce a profit - well there is nothing like that feeling in the world.

The actual act of trading the plan after it has been fully backtested and the probabilities calculated is actually quite boring, and I welcome that. It just comes down to collecting the profit, taking the (smaller) losses, and continually verifying that the trading results aren't wandering outside of the established probabilities.
 
Dec 4, 2018
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#13
I really appreciate all your comments. I'm always willing to learn new things.

However, it's hard to argue with my track record of 100% over the last 2+ weeks or so. I must be doing something right... so for now I will keep doing what I'm doing and continue sharing my plan with others who want to do the same. If it ain't broke, don't fix it.

I am getting better at taking smaller bites of a profit so as not to lose out. That's been the hardest part for me to get past.

The greed factor is a very powerful thing to deal with.
 
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Dec 4, 2018
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#14
Stillkicking's Rules for Swing Trading:

- know the business you are buying or do not buy it

- add in batches, not all at once

- only buy at the perceived normal price and not any higher
(apply a TPO* profile to a five day chart and take your entry point at the lower price mark from that study)

- stick with thinly traded, highly liquid stocks or the price will never move.

- never tie up all your cash in trades (I do not have or want a margin account) or T+2 will hang you up

- wait for your opportunity... you do not need to trade every day

- take your profits like you buy... in batches... and try hard to avoid the greed factor

- the average return on a mutual fund is 12% annually so if you cannot do much better than that, give up trading


*Time Price Oppportunity
 
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