I have a giant gapping hole in my strategy that keeps burning me in such a way that i end up giving back in a couple of big losses, all the profits i accumulate for sometimes the whole week or so!
I have been aware of this hole for quite some time now and I have done much (including paid courses and groups) to try to address it!
But still the hole remains.
Here I will attempt to document said hole in as much detail as possible in hope that the process may illuminate a solution. Or perhaps as an SOS to whom ever may read it and whom may be able to provide a remedy.
I guess I need to start with what my strategy actually is..
I use a discretionary approach to day trading that is focused mostly around Market Structure and volume.
Using volume and market profiles on the Daily, Weekly and Monthly TFs + naked opens & stacked liquidity to find potential levels of inflection where the market may see a reaction. I couple this with fib retracements and use momentum indicators as entry confirmation.
I then find areas of confluence where multiple points of interest converge and if i have confirmation via momentum divergences, I begin to enter the trade. I entry my position in parts, aiming for a total position size that equates to a max of 10% of my trading account. Before I enter the trade I also figure out where the potential invalidation of the trade would be and therefore how much of a stop loss to use aiming always for 10% of the position. From this i can calculate how much leverage i can use, keeping the stop at 10%.
i.e if my invalidation point is 1% away from my entry I can use 10X leverage.
If my invalidation point is 0.5% away then 20X leverage.
Once I am in a trade I take 25% of the position off once it is in 10%+ profit (at the closest logical point of interest to 10%) and move my stop loss to my entry.
I then take another 25% of the initial position off at 20%+ profit.
Another 25% off at 30%+.
and then the last 25% I let ride..
And HERE is where the problem lies!
Over time what I have noticed happening is, despite my relatively high win rate using this strategy, there are many times when I will start to layer in to my position, I open my first 25% and the price reacts and heads in the direction that i'm trading. And I go through the process of taking profits I previous outlined.
But I had only managed to get 25% of my intended position in.
"No problem", I think, "its still profit".. But the trouble is that this can happen a number of times before sooner or later the price does come further 'towards' me and I add a full position, but if the price keeps going towards me and I get stopped out, that stop ends up being bigger than all of the times i only got 25% of my position in and took profits on that.
I know that may be a lot to digest so I will attempt to explain it with pictures too.
In this made up example, lets say I wanted to go long from the bottom group of bright green rectangles. But I only managed to get 25% of my position in on the first rectangle before the price took off higher.
And then I decided I wanted to go short from the area where the higher green rectangles are. And because the price kept rising, I would have managed to get a full position in before ultimately taking a stop loss on the position.
As i mentioned earlier, this becomes a real problem for my pnl over time as this strategy does give me a fairly high win rate (around 80%) but many of those are with only 25% of a full position (or 0.25% acc risk).
And then when I do take losses, it is ALWAYS with a full position (1-2% account risk).
Can anyone give me any advice please?
I have been aware of this hole for quite some time now and I have done much (including paid courses and groups) to try to address it!
But still the hole remains.
Here I will attempt to document said hole in as much detail as possible in hope that the process may illuminate a solution. Or perhaps as an SOS to whom ever may read it and whom may be able to provide a remedy.
I guess I need to start with what my strategy actually is..
I use a discretionary approach to day trading that is focused mostly around Market Structure and volume.
Using volume and market profiles on the Daily, Weekly and Monthly TFs + naked opens & stacked liquidity to find potential levels of inflection where the market may see a reaction. I couple this with fib retracements and use momentum indicators as entry confirmation.
I then find areas of confluence where multiple points of interest converge and if i have confirmation via momentum divergences, I begin to enter the trade. I entry my position in parts, aiming for a total position size that equates to a max of 10% of my trading account. Before I enter the trade I also figure out where the potential invalidation of the trade would be and therefore how much of a stop loss to use aiming always for 10% of the position. From this i can calculate how much leverage i can use, keeping the stop at 10%.
i.e if my invalidation point is 1% away from my entry I can use 10X leverage.
If my invalidation point is 0.5% away then 20X leverage.
Once I am in a trade I take 25% of the position off once it is in 10%+ profit (at the closest logical point of interest to 10%) and move my stop loss to my entry.
I then take another 25% of the initial position off at 20%+ profit.
Another 25% off at 30%+.
and then the last 25% I let ride..
And HERE is where the problem lies!
Over time what I have noticed happening is, despite my relatively high win rate using this strategy, there are many times when I will start to layer in to my position, I open my first 25% and the price reacts and heads in the direction that i'm trading. And I go through the process of taking profits I previous outlined.
But I had only managed to get 25% of my intended position in.
"No problem", I think, "its still profit".. But the trouble is that this can happen a number of times before sooner or later the price does come further 'towards' me and I add a full position, but if the price keeps going towards me and I get stopped out, that stop ends up being bigger than all of the times i only got 25% of my position in and took profits on that.
I know that may be a lot to digest so I will attempt to explain it with pictures too.
In this made up example, lets say I wanted to go long from the bottom group of bright green rectangles. But I only managed to get 25% of my position in on the first rectangle before the price took off higher.
And then I decided I wanted to go short from the area where the higher green rectangles are. And because the price kept rising, I would have managed to get a full position in before ultimately taking a stop loss on the position.
As i mentioned earlier, this becomes a real problem for my pnl over time as this strategy does give me a fairly high win rate (around 80%) but many of those are with only 25% of a full position (or 0.25% acc risk).
And then when I do take losses, it is ALWAYS with a full position (1-2% account risk).
Can anyone give me any advice please?