Going For Bigger Profit Targets

July 10, 2019

I love small profit targets.

Maybe that’s because I come from an athletic background where winning is important.

Or maybe it’s because I’ve always thought trading-for-a-living means booking wins every day.

And how do we book wins? Small targets.

Whatever the reason, most of my systems have ended up going for small wins and high win percentages.

The advantages of small targets?

One, you get to see a lot of wins, and that’s good for our mental well-being. Seeing wins is a very important element to staying in the game.

Two, small targets can yield consistent results. By not asking a lot on each trade, there is a strong likelihood that we’ll be able to get that small win in all sorts of different market environments.

The disadvantages?

The biggest one is execution costs. Even if we put accurate trade costs into our testing, the live market can still screw around with our results. A big spread can change the game very quickly. A lot of big spreads can throw off a small-target system quite a bit.

Another is that the losers outweigh the wins. One loss can negate many winning trades. A couple of losses can be depressing. As good as we feel getting a lot of small wins, it still feels terrible to take a big loss. And we will take big losses at some point with this type of system.

A third disadvantage is that it’s harder to grow a small account into a big one quickly. If we go for big wins, one trade can make a big difference. A couple of big wins can be life-changing. And a trader or an educator or a coach can live the rest of their lives basking in the glow of just one big win.

So this week we’re going to look at a high percentage system with small targets and see if it gets better when we go for more.

I’ve recently tested the Weekly Pivot robot over 16 different currency pairs and over 6,000 trades, so that seems like a good measuring stick.

When we only go for a small profit target of 20 pips, this is what that system can do (with no compounding):

It made over $195k and had an average drawdown of 27%.

What would happen if we went for more profit?

I kept the system parameters the same but this time I went for 50 pips of profit.

What do you think happened?

Here are the results:

Going for more did increase our overall profit, but it also increased drawdown.

And if you look at the profit to drawdown ratio, going for 50 pips actually was a little bit worse.

So, while bigger profit targets have their advantages, it didn’t play out that way in this system over thousands of trades.

But maybe we just didn’t go big enough?

We’ll investigate further by taking a look at an even bigger profit target in our next email, and then we’ll put on some aggressive money management after that.

Talk to you soon.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.