Friday, 4 March 2011

How Selective Should You Be In Trades?

Not all pictures are created equal, not all setups are created equal.

I size my trades according to risk - how much can I lose before I know I'm wrong. In this way, I try and make all my trades equal. I don't know how much the reward will be - any number I choose is just a guess, a hope. So my TP is based on my risk and my historical win rate. I also look at the average trade size and try and make that as big as possible. Scaling out helps as sometimes the last 1/3  or 1/4 of my position will give me more ticks than usual.

I have thought about not doing it this way. I have thought about only taking the trades that have the least risk, the trades where I can put on a 100% position. The reason I haven't done this is because there is no way I can tell which trades will make the most money. Often, a trade I take that has the highest risk, makes the most per contract. I have to take a less than best trade location, reducing my size to balance risk, and end up with a monster trade.

So, for me, equalising risk by trade size and scaling out gives me the optimum performance.

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