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Strategies & Market Trends : The Final Frontier - Online Remote Trading
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To: Dan Duchardt who wrote (7150)5/5/1999 9:53:00 AM
From: TraderAlan   of 12617
 
Dan,

Here's a real simplified graph I use in my trading course. It just illustrates three ways to get to a $10,000 profit in a 100 trades:

%WIN----TRADES---AvgWIN---AvgLOSS---PROFIT
75%---------100--------$800-------$2000------$10000
50%---------100--------$800--------$600------$10000
25%---------100--------$800--------$133------$10000

Most strategies have a built-in success range. For example, scalping has a higher %WIN but a lower AvgWIN. Buying breakouts has a lower %WIN and a higher AvgWIN. Regardless of your strategy (or combination of strategies), you can tackle your profitability in only three ways (for a given # of trades):

- Raise your %WIN
- Raise your AvgWIN
- Reduce your AvgLOSS

Day traders generally have less options in handling profitability than position traders since price tends to move away from an entry point as a function of time. So their individual trade gains are generally more limited than position traders. They're also limited when trying to raise their %WIN as a day trader needs to be right "immediately" while a position trader can wade through bigger whipsaws to get to their profit. BUT the day trader is in a BETTER position to control losses than a position trader. Since price tends to move away from an entry point as a function of time, it also means a day trader can exit losses closer to entry points than position traders. IOW losses can taken closer to -0- (on average) than position traders.

So it should be easier to get to the magic profit number for day traders by working the loss side than other methods. I'm a technical analysis trader, not a LII type so my perspective on exits is a little different. The optimal TA reward:risk trade is very simple to explain though. The best trade entries are executed at those points where price must move only a very short distance to prove that you were wrong. This frequently evokes a strategy where you locate an promising entry right at a line of support/resistance. If price goes through the line, you exit with a small loss.

Alan
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