All in all out

I know this might be considered heresy in some quarters but the more I
backtest all my systems I end up at the same conclusion.
Multiple exits are not the optimum method for increasing equity.
Granted, its natural to want to grab profits before they evaporate but it appears to me that its better to sit and wait for the big one than cash in all the small ones.
Thanx, btw to Pips2007, for turning my head in this direction.
Thoughts anyone...

I agree with you on that one as that would be my preferable way but again that depends on peoples preference some are comfortable with short trades with others not. As long as one is able to turn one invested dollar into more than that i think he is already a winner.

the reason for this is because the underlying distribution of moves in a market is not a exact normal distribution curve but has fatter tails. What you'll find is that most of your profits come from catching a few outlier moves. If you choose to take profits early then you'll give up money when you do get in at the start of a big move.

Of course systems that generate a high winning % are psychologically much easier to trade but aren't necessarily the best in terms of pure return.

Very good points that you guys have made and I agree with them. I'm always suspicious of anyone that tells me that they're using a 90% wining system because that means that they have small targets and large stops and can easily get blown out by hitting a few large stops in a row. I think that the opposite that's been describe here is the better approach although an extreme like 10% winners might be a bit low.

So given an all-in all-out strategy and low winning percentages what are the targets and stops that you generally use on the ES?

With day trading, my initial R:R would never be less than 3/1 although in practice it's closer to 2.5/1 largely because my stop loss kicks in on a close above/below a previous swing high/low.For example lets look at yesterdays Emini action and take a plain Jane 50% retracement on the 3 min, long at 847.25. The target would be 1.62 times the range from the current HOD to the assumed LOD which would take me out at 873.50.
Admittedly, this might not be the best comparison in terms of "all in all" out versus multiple exits because a patient long would have been amply rewarded yesterday whether they staged out or not.
Ideally, once price hits the swing high I move my stop to breakeven, turn the monitor off (its taken me a long while to realize that watching every tick rise and fall is, at best, an exercise in futility)and go fishing. Either the target hits or the trade get stopped out for a scratch.
More often than not the stop gets hit at breakeven. Sometimes, by close, the trade ends up in never never land for a partial profit.
Maybe 30% of the time the target hits and, at worst, 30% of the time the trade is already a bust. Not spectacular but it rolls in well over a 100% profit ratio. And certainly that figure could be improved
by periodically monitoring the trade, but - maybe its Murphy's law - whenever I stick my ego in the pie it usually ends up less than if I had allowed the market to go where it wanted to go.
If you hadn't guessed I'm a big believer in the KISS method and, as with both technical analysis and money management, imo, if you can't succesfully explain your strategy to an eight year old then chances are its too complicated.
As a postscript, I am personally in the process of doing what I'm writing about so this is still my journey - and likely that of many others - but I don't as yet consider myself a consistently succesful trader. Happy Thanksgiving to all.

After trading all in, all out as well as scale out and trail stop (I never scale in), I have elected to stick with trailing the stop and here's why: it's easier on my nerves and I never can predict with any consistency how far the market will move in my favor after entry. To those of you who can, hat's off.

I manage my trades as if I'm in a casino crap game. The most important thing I want to achieve in the short term is to get my original bet back and get a free shot of taking some of the house's money. I don't keep pressing my winners only to see the profits melt away on a reversal or in casino parlance, wait for the dice to show a 7.

So, here's how I manage my trades in the S&P e-mini. I sell 1/2 position after the price move 4 ticks in my favor and I move the stop to entry -3 ticks (to cover commissions). Then, I trail the stop at -7 ticks until the trade is +12 ticks in my favor at which time I move the trailing stop to -5 ticks and ride out the move to eternity or until I get stopped out. (As of this writing, I have always been stopped out, lol.)

Hope this helps. I may miss some huge home runs with this method, but I believe the singles, doubles and triples so to speak make up for it.

I'm mainly day trading ES and in this case I have a mixture of taking some off at a profit target and running the remainder on a trail. That said if the day is choppy I'll probably just take profits and if it looks like a trend day then I'll try and trail.

My opinion (not based on any data) is that the shorter the time frame you trade over the more it makes sense to take partial profits along the way. So someone who is scalping a couple of ticks will probably have fixed targets for taking profits.

neath: I tend to agree with your premise.

One technique is to construct a probability table for each target point on the spectrum, then select the target that maximizes profit potential and probability (win percentage) for your system.

For example, One method I use to trade the ES has a very high probability (above 80%) of making 8 ticks of profit. And also has a 25% probability of reaching 10 ES points (40 ticks) of profit. We have found the ideal target for this strategy is in the general area of 4.5 ES points (16-20 ticks). This target maximizes profit and maintains a high probability of success (above 60%). We have tried every type of exit strategy imaginable, but keep coming back to the fixed 4.5 point target as the best (most profitable) exit point ("all-out").

pt: Can you share your stop management from beginning to close of the trade?

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Originally posted by Montecristo

pt: Can you share your stop management from beginning to close of the trade?

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Before I get into the details, I would like to state the premise underlying the stop loss strategy. We want to give the trade as much breathing space, in terms of both price and time, for the trade to find a way to reach the profit target. Thus, we do not crowd the open trade by moving the stop aggressively. We tend towards being reluctant to move the stop at all.

The basic strategy is:
Hold the stop in place until the trade moves N ticks in your favor, then move the stop once up to break-even and hold it there until the trade either fills at the profit target or triggers the stop. Where N is generally equal to the size of the stop, so for example an 8 tick stop will move to break-even at 8 ticks of open profit. Note: this strategy affects the probability table by introducing break-even stop outcomes and thereby reducing both the win percentage and loss percentage.

A simpler strategy I prefer to use, which does not affect the probability table, is to hold the original stop loss order in place until the trade closes as either a win or loss. I tend to prefer this strategy when I have the advantage of a natural stop. A natural stop is one which is placed outside the nearest S/R price level, this keeps the stop outside the market noise. When I have a good entry price, the stop safely outside normal volatility, and at least a 2:1 reward:risk ratio, then this is the strategy I will use because I want to give the trade as much breathing space as possible to reach the profit target.

I specify N as a variable because the actual stop depends on three things at the time of the trade: The entry price, the natural stop level, and current price volatility.

Here are the rules used to determine N:
1. As mentioned above, the ideal (or natural) stop location is outside the nearest S/R price level and away from normal volatility. Depending on the actual level of volatility at the time of entry and the specific entry price, the distance from the entry price to the ideal stop level may be too far away to achieve at least a 2:1 reward:risk ratio in which case we need to apply rule 2.

2. The maximum stop size available in the trade must maintain at least a 1.5:1 ratio. Preferably the ratio is 2:1 or higher. If we are dealing with a volatility issue, and not an entry price issue, then we have the choice of expanding the target and stop range by widening out the target in order to maintain the 2:1 R:R ratio. If we are dealing with a less than ideal entry price and not a volatility issue, then we maintain the normal target price which then restricts the stop (pulling it inside the noise), in which case we are looking at a less than ideal entry and an at risk stop. When rule 2 is applied, I almost always use the basic stop strategy (the break-even stop technique) because my confidence in the outcome is reduced by the situation being compensated for by rule 2.

Pt

Can you expound more on your natural stop? What are you using as the nearest S/R price level and how far outside it?

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Originally posted by Turk

pt mini, Thanks for the explanation and suggestion. I am confident that I know what to do. I need to "Just Do It Every Time" and not just if I am on a winning streak.

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your welcome Turk.

It's a matter of developing more desirable habits and instincts that take the place of less helpful old habits. This development process takes time so be patient and believe you will get there. Stay focused on consistently doing the right thing at the right time.