Friday, 4 December 2009

Trade to Win or Trade Not to Lose- that is the question

To paraphrase Mr Shakespeare, when you create your style, one of your choices is to Trade to Win or Trade Not to Lose. The two things sound very similar but are two opposite philosophies.

Yesterday, I had a comment about the lack of losing trades. I said I'm running at about 27% for losers.

That's the idea!

If you have a lot of losers, you need very big average winners. I can't trade like that. Most of the successful traders I know have low percentage of losers. That's one of the reasons why they are successful.

One of my earliest posts spoke about the importance to me of a high percentage of winning trades.I cannot emphasis this enough. For me, the head games I play with myself have a big part in my trading. I KNOW I cannot trade a method where I have a lot of losers and have to make them up with a big winner. I come from a floor environment where holding a trade for 15 minutes is a very long time. Trading from "upstairs", I have always had to fight the urge to take profits quickly. This is one of the reasons why I nearly always scale out of the first 1/3 of my position at 2 points (ES) or 10 ticks (Dow Euro). I know that often this is too early, but it helps me make the most out of the other 2/3. I feel like I've already won. Instant gratification. A trick of the mind, of course, but it works for me as an experienced trader and for Kiki as the beginner trader. 

I learned Market Profile from Pete Steidlmayer and then Jim Dalton in the early 1980s. Luckily, shortly after that I found range bars . This took a lot of the chop out of the market, as I now had a context and as good a read on vertical development as was possible. My last improvement was being able to see order flow electronically. This took my winning percentage to where it is today. I trade not to lose by having setups that filter out the losers. Within that, I trade aggressively with as early an entry as my plan permits.

As I said in a couple of the comments, I have a number of other setups that trade the peaks and troughs. Because it's top and bottom picking, they are a lower percentage trade, usually, but with higher average wins. I plan to work on these with Market Delta so I can bring the win rate up to the other setups.

As I said, for the time being Kiki only trades the setups you see on the blog. These are pretty stress free and should be with almost NO HEAT unless they become losers, which is about 27% of our trades. This is why I said that I think anyone can be taught to trade if they have no fear of losing by using extensive SIM trading and then position under sizing versus account size.

Today's trading was very smooth. The hardest part for Kiki today was holding her last 1/3 in the last trade. I must admit I had to butt in and make sure she held on.

Click chart to enlarge


  1. So you had a buy stop one tick above the highs going into the most volatile report of the month?

    You got filled without a single tick of slippage when we were 7pts higher within 3 seconds of the release? And only 74 contracts traded at your price?

    Great trade obviously, but how is that possible?

  2. Tom,

    an essential question I have is, how you stay focussed all day. I mean the setup itself seems to be pretty clear from the mechanical side. But for all the rest one has to be concentrated a lot I believe. How do you keep yourself fresh? Do you take breaks or do you avoid special times during the sessions specially?

    All the best

  3. I am really enjoying your blog. I have not yet had the chance to read through everything, but I know I will be setting aside a day next week to distill as much wisdom as I can from it. Looks great. May I ask what exactly each of those indicators are? It makes the trend or lack thereof very transparent.

  4. Hi Brian. There were well over 1,000 contracts traded at 1101.00 and 1101.25 in that move.
    My BUY STOP was not because it was "1 tick above the highs" but at the close of the range bar which I could calculate in advance as I already saw the low.

  5. timokrates, Keeping focus is hard. As soon as I have the urge to fiddle or push buttons, I take the dog for a walk.. In London I live opposite a large park and in my other place I'm almost in the country.I also now have the discipline to stop trading by dinner time.
    Thanks Matt. The equivalent in MarketDelta are the volume breakout and the cumulative volume delta with smoothing. I don't look it as a trend change but it pinpoints most of the major turns in the order flow.