Not convinced by targets.

[Mathemagician]

The brevity was as much for humor as anything. The reality is that one week is meaningless due to nonstationarity. The markets can go perfectly for an awful trading idea or horribly for an outstanding trading idea for a lot longer than a week. Two of the key assumptions that go into calculations of statistical significance are independence and stationarity. Both of these are violated in trading, and this results in extreme difficulty in calculating statistical significance. The net effect of this is that huge and relevant samples must be collected before any reliable statistics can be done.

Heuristically, the noise in the data swamps the signal to a great degree.

jj

 

[Splitlink]

The major problem having a daily target is that you are in the frame of mind of taking trades each day. You run the risk of taking marginal trade setups rather than patiently waiting for the high probability setups. Quality vs Quantity.

Annual and quarterly target ranges are far more important. You can then incorporate wide monthly and weekly target ranges to ensure you don't deviate too much from your longer period targets.

Absolutely. The more trades I make, the more jumpy I get.

Split

 

[0007]

The major problem having a daily target is that you are in the frame of mind of taking trades each day. You run the risk of taking marginal trade setups rather than patiently waiting for the high probability setups. Quality vs Quantity.
..........................
.

Agree with that. When all the singing and dancing of my "trade-in-progress" paperwork is over, I summarise it on a spreadsheet. When i see gaps in my activity because i actually followed logic and stayed out when I should, I get this annoying psychological temptation to "get in there" because it's unnatural (and uncomfortable !) to sit on your hands.

You have to resist it

 

[RedGreenBen]

The brevity was as much for humor as anything. The reality is that one week is meaningless due to nonstationarity.

Heuristically, the noise in the data swamps the signal to a great degree.

jj

Thanks for expanding, and the humour. I agree 100% with everything you say from a theoretical standpoint but for the practical purpose of setting personal (motivational) targets (rather than system testing) then I don't think a week is unreasonable, although it might be pretty close to it. You do though need to increase the tolerance you give yourself as the time period decreases (stealing black bear's thought from this thread).

If we are really in the business of measuring personal performance (which incs a discretionary, psychological element and is again different from system performance) then we would need to normalise for market conditions. That however is far from straightforward and probably the point that our eyelids would start to grow over due to lack of natural light

Thanks jj and all for comments.

RGB.

 

[Mathemagician]

Fair enough. If randomly failing to meet arbitrary weekly targets will improve your emotional well-being, then by all means go for it!

jj

 

[nine]

Perhaps you could have performance targets (number of trades, quality of execution) and outcome targets (monetary goals) but with knowledge that random factors will impact the outcome. Performance targets ARE highly motivating for some people.

Thus your review should include, beside the monetary outcome, a 1-10 assessment of how hard the week was with 5 being average (should have hit goal) and 10 being amazing for your style (should have overachieved) and 1-4 being grades of difficulty. Then you'd put a monetary number you think you should have achieved that week. Deeper commentary and reflection could be below.

This is relevant to traders who take 10-100 trades a week. It might even be applicable to slower timeframe traders.

Target :: Achieved :: Market Difficulty :: Adjusted target :: Trades Taken :: Process Performance ::

Damn, I think so much of that idea that I might implement it myself. I think I'd rate each day as I moved along to make assessing the week simpler. Adjusted target is found by multiplying target by Market Difficulty divided by 5.


Doing this would make your motivational targets more motivating, provide history for review and assessment, and let you know how realistic you were really being in your targets and your assessment of your ability to achieve them in future.

 

[subarashi]

There are 2 types of target. There is a profit/loss over a given trading period. Rather like fishing, (where to succeed you need to be fishing the right stream, with the right tackle and bait, and have the skill and knowledge to catch your fish). To make a profit trading you need to be in the right market at the right time with the right method. Even then success depends more on the market than you.

The second target is a price target for an individual trade.This is an educated guess, based on your own knowledge of how a trade is likely to go. It is an expectation, (not a certainty), and things will often go wrong for you.

The only charting method with a reliable price targeting method is Point and Figure charting.

 

[Mathemagician]

Nine is correct. Process goals are very good goals. I do explicitly use these and they guide my performance in times of stress. They are in order of priority:

1. Above all, actual account position must match theoretical position. (i.e. never interfere with the trading models)
2. Live working orders must match theoretical working orders.
3. New orders must be transmitted to market with as little a delay as possible.
4. Written disaster recovery and business continuity plans must be tested, reviewed and improved weekly.

Being fully automated these things generally take care of themselves (and that's why I have so much time to spend goofing off on message boards :whistling). However, no automation setup is perfect so I spend a fair portion of my day checking to see that two numbers and a couple dozen orders match up.

As subarashi notes, the market determines a far greater proportion of your success/failure over the short run (weeks/months/quarters) than you do. There is no avoiding this fact.

jj

 

[Mathemagician]

"The whole idea of quarterly performance reporting implies you can predict the makret or successfully shoot for profit targets. Quarters may not be real, but they provide a comfortable structure for investors who mistakenly believe they can demand nice, consistent profits. This demand for consistency can lead to the constant search for the Holy Grail or 'hot hand' to the detriment of ever winning.

Imagine playing a football game where there are four quarters, and you have to score in each quarter to win. Imagine placing more importance on scorign in each quarter than winning the game. Now Bill Dunn says, 'I might score 28 points in any of the four quarters. I might score at any point in the game, but the object, at the end of the game is to win.' So if Bill Dunn scores 28 points in the first quarter and no points in the next three quarters, and wins, who cares when he scored? Wall Street's misguided emphasis on quarterly performance puts more importance on scoring each quarter than it does on winning the game."

Michael Covel, Trend Following

jj

 

[nkruger]

It seems similar to the (possibly apocryphal) tales of taxi drivers who work until they make a certain amount of money and end up working really long shifts all week and pack up early on Fri night when there is a fortune to be made.

RGB.

Would it be better for the 'taxi driver' to start his accounting period on Friday afternoon ?

 

[Chorlton]

There is a lot of sensible advice given to newbies in books and in this forum. It's the usual but vital stuff... money management, having a plan, concentrating on one or two markets etc. All of which I agree wholeheartedly with.

However, one of the common nuggets of advice that often appears at the same time is to "have a daily/weekly target" and this I struggle with (note that I am not saying it is bad advice, just that I am not convinced).

My feeling is that my only target should be to make as much money as possible within the constraints of the risk I am willing to accept. It seems inevitable that once you have a target then your behaviour will immediately become sub-optimal e.g. it would be a shame to achieve that 25 pip target on a Mon morning by closing what was the one trade for the week that (based on sound reasoning) should have been left open and made 200 pips. Why 'bust a gut' to try and make a target on a choppy day when it would be more prudent to step aside?

It seems similar to the (possibly apocryphal) tales of taxi drivers who work until they make a certain amount of money and end up working really long shifts all week and pack up early on Fri night when there is a fortune to be made.

Perhaps I have misunderstood what people mean by these targets, or perhaps it is a price worth paying for a bit of discipline, but thoughts would be welcome.

RGB.

RGB,

I haven't read through all the replies on this thread, so my apologies in advance if my comments have already been made.

I would suggest that whether one uses a Target Stop or not is directly dependant on the type of strategy being employed.

For example, if a Medium/Long term trending strategy is being used, then using a Target / Profit stop is counter-productive. As you have pointed out, no one knows in advance what the Mrkt will give us so why try to potentially limit it.

On the otherhand, if one is using a short-term Reversal System then setting a target stop is probably very sensible.

Chorlton