From Tech's outliner post I promised to show how I grab my odd outliner days without actually aiming for outliner trades. That is how I pull the odd outsize winning days without changing the way I trade or trying to catch the +20 R winners.
You often see trading "plans" with a heap of "rules" - entry, exit, MM, pyramiding and on and on. I have no such rules. Like someone has said I just go about swinging punches.
Here are my trading rules,
1. I never want to lose more than 0.5% of my account per day. NEVER (again). If my losses for the day hit anymore than half a percent of capital I stop. Or mostly go onto sim, just to keep practicing.
2. I want to have as few down days as possible. Or put another way I want to trade in a way that reduces the likely outcome of negative days.
3. I want to be very aggressive with my capital.
I believe rule number 1 is the most important rule for intraday traders. You simply canít go about risking 2% of capital per trade and trade actively. 5 bad trades in a row and you are down 10%. If you are active, like me, that could be in the first 10 min of the day!! Simply if you are intraday forget the big winners. My focus starts on not losing capital. When I look back through draw-downís its obvious that excluding the largest down days makes a huge diff to where my account balance would be. Losses are unavoidable thatís just the game we are in but most definitely large losses can be avoided and thatís my main focus when the day starts. I know my ďsystemĒ has positive expectancy but I also know that some days I just trade crap. So I have a drop dead level to stop the crap days having an effect on my capital.
Rule two is important to me. My income comes from trading. I trade to pay the bills firstly then to increase my capital base. So like anyone who goes to work each day itís important to actually take home some $$ for your effort. A couple of years ago I noticed that one of the benefits of very short term trading is that if you can cover cost(brokerage, spread) you will have a very smooth equity curve. You would expect, as a simple example, out of any positive expectancy system after 50 trades you would be ahead. If itís a swing system that could take a month, if itís a 5 trades a day intraday system that would be two weeks. With my system itís an hour. From these two rules I can approach each day fresh knowing that yesterday I didnít dig a huge hole that will take 3 days to get back to square and that more than likely I am going to have a day that will comfortable cover my daily ďwageĒ. This is a very nice position to start each day. Believe me you trade very nicely if the next 10 trades donít mean the diff between making the rent or not. Or are not a hit to the ideal ďgun traderĒ vision you have for yourself, that the next trade is just going to happen and it in the scheme of things doesnít matter one way or the other to your success.
Rule 3 is where my system rules really turn from paying the rent to hitting the home runs and last year it was often. Now this rule would seem completely counter to the first 2. But this is how I approach trading. Start of the day focus is on not losing too much, not digging a hole (rule 1). As I build profit the target becomes getting towards making enough for the wage (rule 2). But as the day progress from time to time things just go your way. That is the benefit of being in the market each day. If for example I have worked out that 50 ticks is plenty to cover me as I pass that profit target I will start increasing position size. The further I move into profit the bigger my position sizing gets. To the point where I could be trading 10 times the size I started with. This has resulted in some truly outliner days without any one or even group of trades actually being large winners. Itís a way of milking big winners while still only risking 0.5% of capital per day. Itís a way of making your own outliners. F... what the market wants to give you I say, go get what you want. Yes sometimes it doesnít work and I give back profit but then I just scale back and build again. I find this works even better the more big days I have. The more profit I have over previous days the more aggressive I build size during the day.
This is not going to suit a lot of people as they will not be comfortable with trading 5 times their normal size but when you make 100s of trades a day you soon get over the next couple of trades having to prove you right. In a sense I donít give a toss about the next couple of trades. Iím very comfortable with the way I trade and thatís the difference. When for what ever reason (large range day, couple of lucky trades, random falling of numbers) i'm seeing the ball well I will swing harder.