Postion management strategy

[kagein]

I'm looking for advice on how best to manage my position once i've initiated a trade. My main strategy at the moment revolves around trading divergent pullbacks around S/R levels. I've experimented with taking half my position off at 1R and letting the other half run. This was to a certain extent less stressful, but what i often found was that 4-5R trade would turn into a 2.5R trade and i depend on those big trades to offset the losses i make so i can achieve my monthly ROI target. My other method was not to manage the trade at all , problem with that was i almost certainly closed the trade too early.

Basically what i need is help with a strategy thats easier on the nerves but also has potential to capture the really good moves.

I know its a bit much to ask for but any help whatsoever will be greatly appreciated

 

[0007]

I'm looking for advice on how best to manage my position once i've initiated a trade. My main strategy at the moment revolves around trading divergent pullbacks around S/R levels. I've experimented with taking half my position off at 1R and letting the other half run. This was to a certain extent less stressful, but what i often found was that 4-5R trade would turn into a 2.5R trade and i depend on those big trades to offset the losses i make so i can achieve my monthly ROI target. My other method was not to manage the trade at all , problem with that was i almost certainly closed the trade too early.

Basically what i need is help with a strategy thats easier on the nerves but also has potential to capture the really good moves.

I know its a bit much to ask for but any help whatsoever will be greatly appreciated

1. If you're not achieving ROI -is the target unrealistic?
2. Examine why your losing trades lose (and why your winning ones win)
3. I would put my emphasis on improving and/or measuring accurately the profitability of my system and calculating ROI from that. Are you doing the reverse?

Hope this helps.

 

[kagein]

1. If you're not achieving ROI -is the target unrealistic?
2. Examine why your losing trades lose (and why your winning ones win)
3. I would put my emphasis on improving and/or measuring accurately the profitability of my system and calculating ROI from that. Are you doing the reverse?

Hope this helps.

My ROI target is realistic enough, its 45%, seeing as i risk 3% per trade its very doable.

I have a win ratio ~71%, im very comfortable with the method i use. I dont adopt fixed targets so when i'm taking half my position of the table at 1R often what would happens is i would get a reversal signal and close the trade for just over 1R or sometimes less. These are trades that would have closed for at least 1.5-2R had i not closed half the position initially. Technically these are trades that have made me profit and contribute toward my win ratio. When using this method, my ROI hovers around 10-15% not very good considering the risk im taking to achieve that. When i dont manage the trades at all, i reach my ROI easily but tend to cut winning positions early hence missing out on further opportunities.

So what want is the best of both worlds really, being able to hold onto a position as long as possible while still reaching my ROI target.

 

[abottoml]

45% ROI per annum? That seems pretty hardcore to me. Not to sound pessimistic, but to achieve that consistently year after year would be quite a serious compounded accumulation of wealth. Personally, if I manage to get 15-20% ROI I will be very impressed with myself. Even Warren Buffet (although an investor, not a trader) is only in the twenty-something percent-range ROI year on year.

But back to position sizing, I aim for 1-2% risk of total equity per position, let the profitable ones run until you just can't bear it anymore, and have a max of three open positions at any one time. So that's an absolute max of 6% of risk to your total pot at any one time.

Perhaps I'm being too conservative?

 

[gamma]

45% ROI per annum? That seems pretty hardcore to me. Not to sound pessimistic, but to achieve that consistently year after year would be quite a serious compounded accumulation of wealth. Personally, if I manage to get 15-20% ROI I will be very impressed with myself. Even Warren Buffet (although an investor, not a trader) is only in the twenty-something percent-range ROI year on year.

People should stop comparing themselves to Warren Buffet and using his returns as a mean to measure everyone else by.
Retail trading is very different from institutional investing namely economies of scale are vastly different.
It is very possible to achieve 20% a month with proper money management and a lot of people do just that.

 

[Rhody Trader]

It is very possible to achieve 20% a month with proper money management and a lot of people do just that.

Did you mean 20% per year?

If not, then you and I have a very different idea of what "a lot" means because that's not a performance level very many traders can sustain for any length of time.

 

[PualoP]

Hello kagein,

I'm guessing by your use of the term R, you're a fellow disciple of Dr Van Tharp?

In the latest edition of "Trade your way to financial freedom" he explicitly says not to close out a portion of you trades early because this totally goes against the principle of "cut your losses and run your winners". I see his point, you're losers will be with a full position (running your losers) and your winners will be with only half a psoition (cutting you winners). One of the reasons he says people do this is psychological weakness i think. I'll have a look tonight and paste it.

I back tested this with my system and found that in the long run it produced the same ROI but skewed the R distribution alot, which is what I think you have found?

 

[kagein]

Did you mean 20% per year?

If not, then you and I have a very different idea of what "a lot" means because that's not a performance level very many traders can sustain for any length of time.

Why is this unsustainable for long periods, If a trader is winning more trades than he's losing on average, then the actual return made is totally dependent on the risk taken to achieve that return.

 

[kagein]

I just looked up Dr. Van Therp and how he defines the R term is how i understood it when writing my initial post. Yeah thats more or less what i was getting at, maybe keeping the trade open instead of cutting would be better as he suggests.

 

[gamma]

Did you mean 20% per year?

If not, then you and I have a very different idea of what "a lot" means because that's not a performance level very many traders can sustain for any length of time.

No I mean 20% a month!
And a lot of good traders do achieve that.
its all in good money management.
One's concept of 20% a year being a good return is dictated by pre conceived limitations.
and a lot of traders do achieve that over a long period.
The ones who fail to do so only fail because they do not have a trading plan and stick to it.

 

[gamma]

Why is this unsustainable for long periods, If a trader is winning more trades than he's losing on average, then the actual return made is totally dependent on the risk taken to achieve that return.

It is sustainable!!!
You only lose out if you change your plan which unfortunately is what a lot of people do.

 

[Chorlton]

No I mean 20% a month!
And a lot of good traders do achieve that.
its all in good money management.
it.

To achieve this kind of return, I'm assuming the technique of Pyraminding into a position is adopted? And would this kind of return require the use of leverage?

 

[gamma]

sorry posted twice

 

[gamma]

To achieve this kind of return, I'm assuming the technique of Pyraminding into a position is adopted? And would this kind of return require the use of leverage?

Again!!! People pigeon hole themselves and their trading by methods and techniques that might or might not have worked for someone else at a different time.
They quote and follow

Dr Van Tharp?

or whoever!!
stop following other peoples principles and techniques.Chances are they will not work for you.
Most techniques and methods quoted by these authors are curve fitted anyway.
A solid grounding in T.A and a good understanding of fundamental analysis is more than enough to give you a good return each month.

Oh! and patience