Help! Losers way bigger than Winners!

[George C 0]

So I've been trading almost a year now on the simulator and I'm still struggling a lot. Basically I'm in the red every single month. My median accuracy is 50%.

The most important problem I have is that my losers are way bigger than my winners. When the trade goes my way I'll usually take some profit after 10 cents, then scale out the rest. When the trade goes against me, I will exit my position once the price reaches my stop loss, which most of the times is 20 cents (sometimes 30 cents) away. This way a single loss can wipe out the profit of 2 or 3 winners.

How can I change this situation? I know I should aim for 2:1 profit/loss ratio, but that would mean I let the trade run for 40 to 60 cents, and I seldom come across such a move.

What do you think I'm doing wrong? How do you guys manage your trades? How far away is your stop loss (usually) ? (also what is your accuracy?)

Thanks,

G

[Carlos M. 230]

Hey  George, 

This is something we all starting out struggle with, our Losers being bigger than our Winners. Here is my advice and is only based on what I personally experienced. There is no way to really tell you what you can improve on without seeing the details of your trades over a period of time. This is were a mentor or a trading partner you can be a huge help. 

When I first started I was not getting a good enough entry and was hesitating a lot to get into a move. Sometimes we want firm confirmation that the move is going to happen and we get in too late. Make sure you are trusting your set up and that you are getting in with no hesitation once you spot your signal. Trust your set up and get in as soon as possible.

For me setting stop loss by a set amount can sometimes mess with your judgement, I set my stop loss based on a technical level, meaning the low or the high of the previous candle, daily level, LOD/HOD this puts my trading at ease. Based on how much room I need to get the stop loss I decide if i will take a full position or half position. If my stop loss is .30 away on a very active stock i am not going to take a full size. If is .20 cents then I feel more comfortable taking a full position. 

Once in the trade check out the price action and what is telling you if you see any indication that your is likely not going to happen get out regardless of the stop loss. I used to set a stop loss and sometimes when the price action was not looking favorable I would still stay in the trade to see if it would work out then get out at my stop loss. Instead of losing a .05  I would lose .15 . There is no reason for that, jump out and if the set up becomes active again jump back in. Andrew is great at this, we cannot be afraid to jump out if things don't look good for a small loss and jump back in when the set up is back in play. Easier to make up 5 cents than 15 cents.

There are so many variables and other possible areas of improvement but again without knowing what your specific struggling with it's difficult to hit the nail on the head.  Others might also have a different answer that can fit better to what you are experiencing, so look forward to seeing responses from other members as well, as we all deal with this differently. There is no wrong answer, just what will work best for your trading style. 

 

[George C 0]

Thanks a lot for your reply Carlos. I set my stop loss based on technical levels too, mostly off of the previous candle open or close; do you think I should be using high/low instead?

I think your suggestion to close the position before the price hits my stop loss if the trade doesn't seem to be going my way is good advice. I'll give that a try.

Thanks again for your input.

Regards,

G

[Brendon 146]

Hey George,

I was in your shoes not too long ago...actually worse shoes because I often let the trade run against me until it came back so I could get out. Worked 95% until it doesn't and your loss cripples your account. Anyway you should at least look for 1:1 R/R 2:1 is optimal. I don't so much have a fixed $$ or cent risk per trade but a max loss of 1% of my acct per trade. Say $50 risk out of a 5k acct. That 1% potential loss determines my share size I can take. Carlos is right about working on entries, you can so easily be stopped out on a great setup but your entry is just off, especially in an ABCD pattern, be patient and try to get a solid entry on a pullback so you wont stop out as often. If you miss the pullback, let the trade go. Catch the next one. Pass up other setups that just don't have the reward. Take 2-3 trades but fish for the best setup you can. If it helps post your trades in the chat and some of us can give feedback.

Try that and see how you do after a week. 

[Robert H 453]

@George C My two cents: taking first partial after 10 cents is too soon.

I try to take first partial after 1:1 risk/reward or 0.20-0.30 (depends on ATR and stock price). If the trade goes in my direction but fails to reach that, I then bail out of the trade at break-even or tiny profit.

[Meirlandau10 13]

@Carlos M. do you consider last candle high or low a strong technical level for,say,a stop loss?

[Kasper 13]

I enjoy VWAP cross overs later doing the day. I exit half on target risked plus 5c.

i exit rest of my position when the price closes below or above EMA 9.

these trades are slow and can last hours. However, I feel like I get a better risk to reward with minimal losses.

regards 

kasper Jensen 

Edited October 5, 2018 by kaffemann

[BrianS 5]

Many traders I have met seem to struggle with taking too big a loss on a trade.  I have done it a few times, well actually more than a few times, myself.  A few weeks ago, I even watched Andrew do it live in the chat room and it sparked a lot of great discussion.  Your situation seems a bit different on the losses bigger than winners though.  I think the typical experience on large losses is to keep moving your stop to the next technical level, maybe averaging down a bit because you just cannot be wrong this time, or something like that.  Your strategy could be skewed to taking losses because you take profits so quickly.  As a matter of preference, I would never take a trade that only had $.10 of first profit target unless it was a very low price stock, say under $1.50.  If there isn't more volume and movement than that, then maybe the stock isn't really in play.  This is just speculation on my part though.

Have you considered looking at your winners where you took first scale out at $.10 or $.15 profit to see if those exits were at a good technical level like support/resistance, prior day close, or one of the moving averages or if you were just getting out to make sure you didn't lose?  Also, on your winners how many losses would you have had if you would have played for a little more profit?  The answers to these questions might point out whether you exit too quickly or aren't finding the right entry on a moving stock.  Both good to know.

[George C 0]

Thank you all for your suggestions people! I really appreciate it!

[Carlos M. 230]

On 10/4/2018 at 11:50 PM, Meirlandau10 said:

@Carlos M. do you consider last candle high or low a strong technical level for,say,a stop loss?

Yes I do take it into consideration for a stop loss, but I look at the entire picture of the chart as well. Depending on how the chart looks I can better determine if it is a strong stop loss level. 

[KyleK29 257]

On 10/3/2018 at 3:40 AM, George C said:

How do you guys manage your trades? How far away is your stop loss (usually) ? (also what is your accuracy?)

Thanks,

G

When you scale out at a .10c move, are you moving your stop (physical or mental) to break even? I ask because I changed scale-out strategies in August (SIM based) and took a huge hit (30% winrate, -$4000 on the month). I wanted to "let the runners run" and wait until it got near my price target. I was able to review the data at the end of August and noticed what was going on (what wasn't working). Like you, my numbers showed that my avg loser was way bigger than my avg winner, per trade expectancy was negative. I think the biggest (good) changes were the scale-out and the risk-based share sizing.

Obviously, each person needs to develop their own strategy, but my current strategy is this:

1) Risk Based Share Sizing (see dynamic calculator in DAS area of forum) factored for confidence (e.g. if I'm not confident, I use smaller size than my max-risk allowable). My share size is based upon the stop distance.
2) When the stock reaches 1R (if my stop distance is $0.13 away, it'd need to move in my favor $0.13), I sell 25% and move my mental stop to break-even. I repurposed the Fibonacci tool (since I don't use it) to be a 1R, 2R, 3R levels indicator.
3) During the trade, I scale out some more where I see resistance forming or near known resistance levels (moving averages, half dollar, whole dollar), or at 2R, 3R, or the price target. Using my sell 25% hotkey.
4) My mental stop tends to float, so if a moving average that has been respected recently (bounced off of) is above my break-even point, I'll watch it as an indication for a change of direction (it can go past it a little bit to allow variance) and use that as a trailing stop.
5) Once my shares get down below 100, I usually measure the last two pullback distances, add a few cents to it (as long as it doesn't place it below the break-even point), and set it as a trailing stop order. Move on to the next trade.

What really helped me refine this to my personality was a few data points that I record with every trade:
- Highest Price in Trade (this is price related, not direction related, so highest price seen for either long or short)
- Lowest Price in Trade

Those aren't prices you executed at, but prices that the stock reached while your trade was open. From there, I can calculate the average R-movement, updraw%, and downdraw% for every trade. When I reviewed August's losses, the data told me that: 78% of my picks moved in my favor. I was simply not scaling appropriately and letting winners run against me. My position sizing and $risk was all over the place.

For September, I implemented the new strategy listed above. Winrate is 76%. It has a lot of "small" wins.

 

I'm working on releasing a few custom tools to the community to help people narrow down their strategy and refine their edge. One is a data-focused journal (does most of the work for you) and the other is a backtester (allowing you to automatically replay all of your trades with different scale out approaches you want to test).

 

Edited October 11, 2018 by KyleK29

[Abiel 474]

On 10/11/2018 at 12:04 PM, KyleK29 said:

I'm working on releasing a few custom tools to the community to help people narrow down their strategy and refine their edge. One is a data-focused journal (does most of the work for you) and the other is a backtester (allowing you to automatically replay all of your trades with different scale out approaches you want to test).

Nice @KyleK29... I´d love to try this tools, thx!