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A random trade will have 50% up potential, and 50% down potential. Your loss will be just your trading cost in worst scenario if you do many trades. But about 80-90% private day traders and short term traders lost about 35% a year on average. They are day traders when they see a daily profit at 5%, and they become long term investors when a loss occurs. They won't cut the losses before reaching -40%. Losing 35% every year is as hard as making 35% every year. All you need is to do the opposite.

We'll use UWTI (3x bull crude oil ETN) to show the steps to optimize your trading with our simulation tool. Select a value for strategy, holding period, profit target, and stop limit, then click Evaluate button, you'll see all trading results for selected criteria for UWTI from past year.

  
 Strategy
 Holding Period
 Profit Target
 Stop Limit
  
 
  

Click here to optimize trading strategy for other stocks/ETFs


1. Find the best trading strategies for your stock/ETF
For UWTI, "buy oversold" and "follow uptrend" generated the best results. Understanding the causes of price movement and market psychology will beat the simulator. You can simply follow the recommendation of the simulator if you aren't sure about the direction of the market.

Simulation goal: comparing trading strategies
Ticker UWTI (crude oil 3x bull ETN)
Date range: Aug. 24, 2016 to Aug. 24, 2016
Trading error: 1%
Holding period: 5 days
Profit Target: 10%
Stop Limit: 5%
Trading StrategyReturn# of Trades% of Profitable
Trades
% of Stopped-out
Trades
% of Closed
Trades
Within Range 4.46% 5040%60%0%
Short Over Bought 4.36%2952%48%0%
Buy over sold10.05%2357%43%0%
Follow uptrend8.73%2070%30%0%
Follow downtrend7.63%2966%34%0%

Transaction details: UWTI: all strategies, holding 5 days, 10% profit target, 5% stop limit


2. Choose the best price point to enter a trade
It's actually easier to enter at the best price by knowing the best time to place a trade. For UWTI, see the best time of a day to trade

The ROI in above tables assumes a 1% trading error. A trade is entered at 1% lower than the daily high, or 1% higher than the daily low. The ROIs will be much less if the trading errors are 2%, or 3%. This shows how important it is to enter a trade at the right price point especially if we aren't sure about the market direction.

Simulation goal: comparing trading trading errors
Ticker UWTI (crude oil 3x bull ETN)
Date range: Aug. 24, 2016 to Aug. 24, 2016
Trading error: 2%
Holding period: 5 days
Profit Target: 10%
Stop Limit: 5%
Trading StrategyReturn# of Trades% of Profitable
Trades
% of Stopped-out
Trades
% of Closed
Trades
Within Range 3.57% 4640%58%2%
Short Over Bought 2.44%3139%55%6%
Buy over sold8.7%2556%44%0%
Follow uptrend7.35%1547%53%0%
Follow downtrend3.4%2148%52%0%

Simulation goal: comparing trading errors
Ticker UWTI (crude oil 3x bull ETN)
Date range: Aug. 24, 2016 to Aug. 24, 2016
Trading error: 3%
Holding period: 5 days
Profit Target: 10%
Stop Limit: 5%
Trading StrategyReturn# of Trades% of Profitable
Trades
% of Stopped-out
Trades
% of Closed
Trades
Within Range 1.38% 3730%70%0%
Short Over Bought 1.32%3035%62%3%
Buy over sold5.76%2344%56%0%
Follow uptrend6.71%947%53%0%
Follow downtrend2.92%1943%52%5%


3. Find the optimal holding period
For UWTI, holding the ETN one for one day or 5 days are the best options for "buy oversold" strategy.

Simulation goal: comparing holding periods
Ticker UWTI (crude oil 3x bull ETN)
Date range: Aug. 24, 2016 to Aug. 24, 2016
Strategy: buy over-sold
Trading error: 1%
Profit Target: 10%
Stop Limit: 5%
Holding PeriodReturn# of Trades% of Profitable
Trades
% of Stopped-out
Trades
% of Closed
Trades
1 day 8.42% 2553%35%12%
5 days 10.05%2557%43%0%
10 days10.05%2557%43%0%
20 days10.59%2357%43%0%
60 days10.59%2357%43%0%

Transaction details: UWTI: buy over-sold strategy, all holding periods, 10% profit targe, 5% stop limit


4. Optimize stop limit
Stop limit is a way to stop huge loss in case you're wrong about the market direction. For "buy ove sold", or "short overbought", stop limit won't make a difference. Instead, you should cost average down if the market continues move to the same direction. For "trading within a range", it's a must to setup a stop limit in case the price breaks the support (in case you long), or resistence (in case you short) level.

For UWTI and "buy oversold" strategy, a higher stop-limit actually generated higher return as long as you hold the ETF no more than 5 days, or even 20 days. 5 days are enough to know whether you're right or wrong about the market direction.

Simulation goal: comparing stop limits
Ticker UWTI (crude oil 3x bull ETN)
Date range: Aug. 24, 2016 to Aug. 24, 2016
Holding period: 5 days
Strategy: buy over-sold
Trading error: 1%
Profit Target: 10%

Stop LimitReturn# of Trades% of Profitable
Trades
% of Stopped-out
Trades
% of Closed
Trades
3% 9.67% 2348%52%0%
5% 10.52%2357%43%0%
10%10.45%2365%35%0%
20%12.36%2374%17%9%
50%14.87%2378%022%

Transaction details: UWTI: buy over-sold strategy, holding 5 days, 10% profit target, all stop limits

Simulation goal: comparing stop limits
Ticker UWTI (crude oil 3x bull ETN)
Date range: Aug. 24, 2016 to Aug. 24, 2016
Holding period: 20 days
Strategy: buy over-sold
Trading error: 1%
Profit Target: 10%
Stop LimitReturn# of Trades% of Profitable
Trades
% of Stopped-out
Trades
% of Closed
Trades
3% 10.14% 2148%52%0%
5% 11.16%2157%43%0%
10%10.16%2162%38%0%
20%11.85%2176%24%0%
50%14.87%2190%100%

Transaction details: UWTI: buy over-sold strategy, holding 20 days, 10% profit target, all stop limits

For "trading within a range", the trades will generate less returns or occur a huge loss if you set the stop limit too large (10%) and holding the ETN too long (20 days).

Simulation goal: comparing stop limits
Ticker UWTI (crude oil 3x bull ETN)
Date range: Aug. 24, 2016 to Aug. 24, 2016
Holding period: 5 days
Strategy: buy Within Range
Trading error: 1%
Profit Target: 10%

Stop LimitReturn# of Trades% of Profitable
Trades
% of Stopped-out
Trades
% of Closed
Trades
3% 4.98% 5038%62%0%
5% 4.05%5040%60%0%
10%2.68%5046%50%4%
20%0.84%5046%30%24%
50%0.63%5046%054%

Transaction details: UWTI: trading within a range strategy, holding 5 days, 10% profit target, all stop limits

Simulation goal: comparing stop limits
Ticker UWTI (crude oil 3x bull ETN)
Date range: Aug. 24, 2016 to Aug. 24, 2016
Holding period: 20 days
Strategy: Within Range
Trading error: 1%
Profit Target: 10%
Stop LimitReturn# of Trades% of Profitable
Trades
% of Stopped-out
Trades
% of Closed
Trades
3% 5.15% 4939%61%0%
5% 4.24%4941%59%0%
10%2.83%4947%53%0%
20%-1.85%4949%51%0%
50%-3.68%4959%437%

Transaction details: UWTI: trading within a range strategy, holding 20 days, 10% profit target, all stop limits


5. Trade consistantly
All the above optimal results are just for UWTI, and for the selected trading strategies. The process for optimizing trading are the same for other stocks/ETFs. Stock market does have a probability distribution if we maintain consistency in our trading. It's unlikely we'll get every trade right, but we'll make good profit from many trades if we:

  1. Use the same amount of money for every trade. Always have fund available when opportunity presents.
  2. Use the same profit target and stop-limit percentage for all your trades. Don't regret or change your trading strategy if a stock went up further after taking the profit, or a stopped-out trade turned into profit right after. According to conditional probability, your next trade will have a much higher chance of winning after a losing trade for the same strategy.
  3. Hold the trades for the same period of time regardless the loss or gain.
  4. Use the same strategy for the same price movement pattern for the same stock or ETF.
  5. Make many (about 20+) trades with the same strategy.
Listen to everyone about the possibile price movement (up or down). They're all possibilities that may come true in the market at some point. Don't listen to anyone about when to buy or sell except yourself. That's how you maintain the consistency and make money.
 

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