Monday, September 20, 2010

Emini: Why 10 ES points as a weekly target?

Many people ask me why I have decided to have a 10 point weekly target, well, the number by itself is already a very good target because if one can make 10 points a week that's 40 points a month, if played with only 2 cars for instance, that would give an annual return of almost US$ 50,000.00 and may be scaled up according to the account size, not bad at all!

I have my risk management set to a max drawdown in any trade of 6 ES points, which is equivalent to 3% on my entire account, so by knowing this I know how many cars I can play on any trade, I like to play with multiples of 5 cars so that according to the type of day, I may play from 1/4 to full position.

I have more or less around 20 good setups that I use to enter trades, but I actually use only 10 of them, I use the ones that have the highest odds of success, I mean I look for a 65-75% rate of success, I have lost quite a bit to understand this business, although I have to confess I was more like a gambler in the beginning years, so I know that if I want to be consistently successful in the markets I have to follow the rules day in and day out, otherwise it's just a waste of time and money.

Below I try to show how I use risk management and how I came to the 10 point weekly target:

These 10 setups that I take without hesitation when they show up, allow me to make around 10 trades a week, but "only" 70% of them will work, so, in a typical week, the trades go more or less like this:

70% of the trades are winners and I make an average of 3 points in each of them.

15% of the trades are half losers or b/e (break even) - I usually scale out and take 2 or 3 points profit depending on what market is willing to give me, I'm not greedy at all, I'll take whatever it gives me, so I'll lose only half, we'll put 6 points loss on half, then I have an average loss of say 3 points on entire position.

The rest 15% of the trades I make are losers, my losers range from 2.5 to a 6 points loss, so let's put an average of 4 points loss and let's see how these numbers work on those 10 trades:

7 x (+3) = 21 points
1.5x(-3)= -4.5 points
1.5x(-4)= -6 points

You don't have to be very good in math to know that the total here will give me 10.5 ES points for the week, got it? So now you know why 10 points a week.

Now it's just a matter of choosing how many cars to play according to the size of the account, I'll talk more about this in the next post.

Be well and happy trading!

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