To bank or .... image

To Bank … or not to Bank?

post intro

First apologies to Shakespeare for blatantly abusing one of his quotes. However, the topic of setting a bank for your trades is one that is widely discussed and I thought it was a nice link!

 

What is a bank point?

When you are running multi-contract trades you obviously have the option to exit each of those contracts whenever you want. A bank point is simply an exit point earlier than you expect the overall trade to run to, so that you know you can take some profit from the market movement; it is effectively a high probability hedge or a ‘banker’.

The diagram below shows a trade where there is a bank point set. A two contract trade is entered at a price of 2992.25 the bank exits at the red 1 (2993.00) on the chart and the the full trade exits at red 2 (2994.75).

ScreenShot

You could argue that if you hadn’t had a bank point then you would have had two contracts exiting at the red 2 and therefore have made more money. However, think of the alternative which could equally have happened: the third candle in the trade goes negative and your second contract exits at your stop point below the entry point.

In this scenario wouldn’t it be great to have already banked one contract at a profit which can then offset the subsequent loss?

 

Should I set a bank?

Whether you set a bank or not should be linked to your personal Trading Strategy and risk profile. At Inteligex we’re conservative guys and think of it as an insurance policy so we always set at least one contract to bank.

In fact we often flex the ratio of bank contracts to overall contracts in the trade. For example on a very choppy day if we are trading 5 contracts we may set 3 contracts on bank. On a day when it looks like the market is going places we’ll drop the number of bank contracts.

 

How to set a bank?

Now there’s the $64,000 question? A bank is only effective if you hit it. So if it’s as far out as your overall target or it’s unlikely to get hit before your trade is stopped out then there is no point having one.

We started by setting manual banks by looking at the historic candlestick moves and then reviewing them on an ongoing basis. In fact we sometimes changed the bank within the day as the market conditions changed.

 

Can you bank settings be automated?

So hopefully now you’re thinking ‘I like the sound of a bank, but I don’t want to be trying to manually calculate that across multiple markets during the day’?

Well that’s exactly where we got to (how spooky!) and so we set up an auto-bank feature in the latest version of Inteligex.

The feature works by using the Average True Range (ATR) of the instrument you are trading and applying some clever maths to ensure that the bank is set neither too high or too low. It’s working hard for your in the background like the rest of Inteligex.

 

Hmmm, should I use it?

Well we think you should try it yes. It’s amazing how having banked some money early on in the trade you can better focus on your overall exit point. And in our mind anything that helps tame Trader Psychology is a good thing, plus it’s a more controlled approach to risk management so a Win-Win!

Share

Add Your Comments

Your email address will not be published. Required fields are marked *