The ideal trading scenario would be this: We enter a trade, it immediately shoots in our direction and hits our first target. then, after moving our stops to breakeven it continues to move in our favor as we trail profits in a risk free trade. However, if you've been trading for a while you surely know that this is often not the case. It seems that many traders often remember the big winners but it's the accumulation of the average and "boring" winners that will make you a successful trader in the long-term.
I am mainly a counter-trend swing trader that uses ratio's and patterns to identify buying and selling opportunities. However earlier this year I added a day-trading system to my repertoire (Todd Browns Big Mo System). For those familiar with the system you're probably asking yourself why would he add a trend following system, if he's a counter trend trader? I won't get into that now I'll probably explain my rational in a post later on this week (or you can ask me directly. Anyway, I trade this system on a low timeframe and my goal is to catch small moves in the market, grab some profit, protect my active balance by moving my stops to breakeven and then continue to trail stops. I hate to use the word hope in trading but, after my first target is taken out which may be as little as single digit pips, I'm hoping for the market to continue in my favor and have my 2nd target be a much larger winner just as in the example above. This strategy has worked fine and although it seems as if I'm not earning too much per trade, after adding up all of the small winners it does create a pretty good and more importantly consistent profit per month. As with anything I'm never content and this weekend I asked myself (as always) "How can I improve" (Kaizen, for those who read my last post).
At first I was wondering if I could add another filter to the system than would make things better but then the little moderator in my head that stops me from making bad choices (lol) slapped me in the face and said "Why fix something that's not broken?" After my reality check I decided to go through some of my data from back-testing and was able to find a really simple way to increase my profits without changing the system and sacrificing something else. All I had to do was adjust my profit targets. After doing some math, I discovered that taking all of my profits out at target 1 was more profitable than trailing them and waiting for the big pop, because even though I caught some really big winners, most of the time price action would come down and stop me out for breakeven. Although it didn't change things by a life-changing amount it was more efficient and after all that's what Kaizen is all about.
This seems like a very simple change to make, but I assure you that many people have trouble sacrificing the small battle for the big war. Meaning, you have to ask yourself this question, "How will I react the first time I close out my full position for 20pips only to watch the market rally 100 more?" Most people would wine and moan saying "man I knew I should have stuck with how I used to trade, now I missed that big winner." This is why you have to trust your numbers and trust the boring big picture over the exciting moment.
In no way am I encouraging you to switch your targets or anything like that, I'm simple stating that for this specific situation this was something that worked. The point is, if you're looking to improve it doesn't always mean an overhaul of your entire trading strategy. Maybe there is something very small and very simple that can be tweaked in order to improve your trading. If you keep good records and are detailed then it may only take a look through them to find a pattern.
I am mainly a counter-trend swing trader that uses ratio's and patterns to identify buying and selling opportunities. However earlier this year I added a day-trading system to my repertoire (Todd Browns Big Mo System). For those familiar with the system you're probably asking yourself why would he add a trend following system, if he's a counter trend trader? I won't get into that now I'll probably explain my rational in a post later on this week (or you can ask me directly. Anyway, I trade this system on a low timeframe and my goal is to catch small moves in the market, grab some profit, protect my active balance by moving my stops to breakeven and then continue to trail stops. I hate to use the word hope in trading but, after my first target is taken out which may be as little as single digit pips, I'm hoping for the market to continue in my favor and have my 2nd target be a much larger winner just as in the example above. This strategy has worked fine and although it seems as if I'm not earning too much per trade, after adding up all of the small winners it does create a pretty good and more importantly consistent profit per month. As with anything I'm never content and this weekend I asked myself (as always) "How can I improve" (Kaizen, for those who read my last post).
At first I was wondering if I could add another filter to the system than would make things better but then the little moderator in my head that stops me from making bad choices (lol) slapped me in the face and said "Why fix something that's not broken?" After my reality check I decided to go through some of my data from back-testing and was able to find a really simple way to increase my profits without changing the system and sacrificing something else. All I had to do was adjust my profit targets. After doing some math, I discovered that taking all of my profits out at target 1 was more profitable than trailing them and waiting for the big pop, because even though I caught some really big winners, most of the time price action would come down and stop me out for breakeven. Although it didn't change things by a life-changing amount it was more efficient and after all that's what Kaizen is all about.
This seems like a very simple change to make, but I assure you that many people have trouble sacrificing the small battle for the big war. Meaning, you have to ask yourself this question, "How will I react the first time I close out my full position for 20pips only to watch the market rally 100 more?" Most people would wine and moan saying "man I knew I should have stuck with how I used to trade, now I missed that big winner." This is why you have to trust your numbers and trust the boring big picture over the exciting moment.
In no way am I encouraging you to switch your targets or anything like that, I'm simple stating that for this specific situation this was something that worked. The point is, if you're looking to improve it doesn't always mean an overhaul of your entire trading strategy. Maybe there is something very small and very simple that can be tweaked in order to improve your trading. If you keep good records and are detailed then it may only take a look through them to find a pattern.
For a more in depth view of my trading check out my daily trading journal at http://iambusiness.tumblr.com/
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