Are you willing to lose a trade if the running profit is at least 1R

[u0362565]

Hi all,

Something i'm struggling with at the moment which i'm sure depends on the individual but interested in other views.  I enter a trade with a stop loss and profit target limit in place.  This is often a large risk/reward ratio, between 5-9 : 1.  As i don't currently trail my stop there are only two outcomes in theory.  However, what i have been liable to do is reduce my take profit target, and in the case of my last trade, my initial ratio was 8:1 but when i reached 6:1, i thought you know what don't be greedy and throw this away because in theory if the market reversed i'd then have a 1R loss.  So what is my question.. I guess the main point is whether anyone should allow a trade to lose if its in profit 1R+?  Logically it doesn't make sense to throw that away given how hard it is to make a profit in the first place and to not protect that might suggest you think you know what the market is doing, but to me i'm not sure you can ever really know that.  To add some context i expect my trades to be open a few days, in this case i got to 6R much sooner so my time frame for the trade shortened as i closed it early and it moved further than expected in the time.  In the end the market did move to 8R where my initial target was but of course i didn't know that with certainty so i didn't mind and that gives me 6R to throw away some other time   Probably the only answer is to keep testing and gather as much data as possible but when you don't automate your trades i'm sure thoughts like this often present themselves.

Thanks for any advice

 

 

[Caseynotes]

2 minutes ago, u0362565 said:

Hi all,

Something i'm struggling with at the moment which i'm sure depends on the individual but interested in other views.  I enter a trade with a stop loss and profit target limit in place.  This is often a large risk/reward ratio, between 5-9 : 1.  As i don't currently trail my stop there are only two outcomes in theory.  However, what i have been liable to do is reduce my take profit target, and in the case of my last trade, my initial ratio was 8:1 but when i reached 6:1, i thought you know what don't be greedy and throw this away because in theory if the market reversed i'd then have a 1R loss.  So what is my question.. I guess the main point is whether anyone should allow a trade to lose if its in profit 1R+?  Logically it doesn't make sense to throw that away given how hard it is to make a profit in the first place and to not protect that might suggest you think you know what the market is doing, but to me i'm not sure you can ever really know that.  To add some context i expect my trades to be open a few days, in this case i got to 6R much sooner so my time frame for the trade shortened as i closed it early and it moved further than expected in the time.  In the end the market did move to 8R where my initial target was but of course i didn't know that with certainty so i didn't mind and that gives me 6R to throw away some other time   Probably the only answer is to keep testing and gather as much data as possible but when you don't automate your trades i'm sure thoughts like this often present themselves.

Thanks for any advice

 

 

it's all dependant on market conditions which you need to monitor and be aware of and able to categorise at any time.

If the market is consolidating, ranging back and forward you must have sensible take profit target orders pending (actually set).

If the market is swinging, zig-zagging upward (or downward) from one support/resistance level to the next again you should have targets based on usual size of each swing as per the asset normal and time frame normal. Buy at the swing low, sell at approx swing high and repeat.

But when the market is ripping, a fast move in one direction, you should have not have a take profit set and instead trail your stop, even behind each single candle if appropriate. 

[THT]

23 minutes ago, u0362565 said:

Hi all,

Something i'm struggling with at the moment which i'm sure depends on the individual but interested in other views.  I enter a trade with a stop loss and profit target limit in place.  This is often a large risk/reward ratio, between 5-9 : 1.  As i don't currently trail my stop there are only two outcomes in theory.  However, what i have been liable to do is reduce my take profit target, and in the case of my last trade, my initial ratio was 8:1 but when i reached 6:1, i thought you know what don't be greedy and throw this away because in theory if the market reversed i'd then have a 1R loss.  So what is my question.. I guess the main point is whether anyone should allow a trade to lose if its in profit 1R+?  Logically it doesn't make sense to throw that away given how hard it is to make a profit in the first place and to not protect that might suggest you think you know what the market is doing, but to me i'm not sure you can ever really know that.  To add some context i expect my trades to be open a few days, in this case i got to 6R much sooner so my time frame for the trade shortened as i closed it early and it moved further than expected in the time.  In the end the market did move to 8R where my initial target was but of course i didn't know that with certainty so i didn't mind and that gives me 6R to throw away some other time   Probably the only answer is to keep testing and gather as much data as possible but when you don't automate your trades i'm sure thoughts like this often present themselves.

Thanks for any advice

 

 

First its crazy to let a 6R+ profit turn into a loss - this game is hard enough without giving large amounts back - therefore you need to work out some way to protect part of open profits

Secondly you need fathom out what the trade does when it works perfectly - if once its up 1R it continues up and doesn't come back to test entry level then once up 1R move stop to break-even and then trail

You could also consider trading multiple units rather than just 1 unit - i.e. 2 units say £5 a point, trade moves to 1R, sell 1 unit £2.50, move stop to break-even and then trail the remaining unit £2.50 and/or set target - this method banks a small profit if you're wrong, depends whether this is worthwhile or not on your win rate of the method 

I would test, test and test, what the method does - then you will have the stats on it over x trades/years etc

 

[u0362565]

Ok thanks guys, what you say makes sense. I was certainly considering using multiple units and selling off at different points but just not decided exactly where. Also when you trade in the smallest size which I am as a long term way to test what works I don't have that option but I could step it up a unit. Of course trailing the stop will massively affect the expectancy of the method I imagine so I would want to sort this out sooner rather than later otherwise I've done live testing that doesn't count for much if I then change the method.  Not trailing the stop really comes backt to the idea of wanting to be right about the situation which we naturally do but I can see that it's a hard enough game as it is and better to live to fight another day with some profit rather than a loss.

Another factor that comes into play is the psychology of the unit size. I'm much more willing to risk a loss when the monetary value is not big in my view. The hope is after a long trial at small sizes I would step up and hope my psychology doesn't change when more significant amounts of money are at stake. In theory if the method works I should have some confidence to be able to do that eventually.

[JJP]

19 hours ago, u0362565 said:

Hi all,

Something i'm struggling with at the moment which i'm sure depends on the individual but interested in other views.  I enter a trade with a stop loss and profit target limit in place.  This is often a large risk/reward ratio, between 5-9 : 1.  As i don't currently trail my stop there are only two outcomes in theory.  However, what i have been liable to do is reduce my take profit target, and in the case of my last trade, my initial ratio was 8:1 but when i reached 6:1, i thought you know what don't be greedy and throw this away because in theory if the market reversed i'd then have a 1R loss.  So what is my question.. I guess the main point is whether anyone should allow a trade to lose if its in profit 1R+?  Logically it doesn't make sense to throw that away given how hard it is to make a profit in the first place and to not protect that might suggest you think you know what the market is doing, but to me i'm not sure you can ever really know that.  To add some context i expect my trades to be open a few days, in this case i got to 6R much sooner so my time frame for the trade shortened as i closed it early and it moved further than expected in the time.  In the end the market did move to 8R where my initial target was but of course i didn't know that with certainty so i didn't mind and that gives me 6R to throw away some other time   Probably the only answer is to keep testing and gather as much data as possible but when you don't automate your trades i'm sure thoughts like this often present themselves.

Thanks for any advice

 

 

I move to breakeven when I get to 1R profit and then I follow price with a 1R gap. This means that I often get breakeven and also don't often get as much as is available in the market as I can be stopped out at lower profit levels. However, I regularly get 2, 3 R and sometimes much much more. Though I suspect I am more of an intraday trader and scalper than you, and this method protects my capital for another day. One thing I have been experimenting with is following price using the Parabolic SAR. 1H works well for intraday and swing trading I find.  So, for example, when you got to 6R in your trade, you could move your stop closer to the price using either a fixed distance or the PSAR (or other indicator) and then still be in a position, and a profitable one, leaving yourself with the chance for the market to go on and hit your 8R target. By the way, I think 6 R is a very good trade. Congratulations on it.

[JJP]

18 hours ago, u0362565 said:

Ok thanks guys, what you say makes sense. I was certainly considering using multiple units and selling off at different points but just not decided exactly where. Also when you trade in the smallest size which I am as a long term way to test what works I don't have that option but I could step it up a unit. Of course trailing the stop will massively affect the expectancy of the method I imagine so I would want to sort this out sooner rather than later otherwise I've done live testing that doesn't count for much if I then change the method.  Not trailing the stop really comes backt to the idea of wanting to be right about the situation which we naturally do but I can see that it's a hard enough game as it is and better to live to fight another day with some profit rather than a loss.

Another factor that comes into play is the psychology of the unit size. I'm much more willing to risk a loss when the monetary value is not big in my view. The hope is after a long trial at small sizes I would step up and hope my psychology doesn't change when more significant amounts of money are at stake. In theory if the method works I should have some confidence to be able to do that eventually.

BTW, I very much agree that back testing and live demo testing and live small lot testing really helps to develop strategy confidence and sets mental discipline and psychology. It also helps build up the account so that you can take larger position sizes with funds from the market rather than from your bank account. I struggled for years to find a way to back test strategies as it takes a very long time to do that manually. I recently discovered FXDreema. It's a logic tool which takes a little getting used to, but there are many instructions and videos to help. You use it to build your strategy as a set of logic steps and then the tool writes it as a coded EA robot for you which you can then run in either MT4 or MT5 in the strategy tester on historical data or on live data. No coding skills required, and you can get a free MT demo account through IG. This has significantly improved my trading. I highly recommend it. You can even use fxDreema for free for limited robot sizes.

[u0362565]

1 hour ago, JJP said:

I move to breakeven when I get to 1R profit and then I follow price with a 1R gap. This means that I often get breakeven and also don't often get as much as is available in the market as I can be stopped out at lower profit levels. However, I regularly get 2, 3 R and sometimes much much more. Though I suspect I am more of an intraday trader and scalper than you, and this method protects my capital for another day. One thing I have been experimenting with is following price using the Parabolic SAR. 1H works well for intraday and swing trading I find.  So, for example, when you got to 6R in your trade, you could move your stop closer to the price using either a fixed distance or the PSAR (or other indicator) and then still be in a position, and a profitable one, leaving yourself with the chance for the market to go on and hit your 8R target. By the way, I think 6 R is a very good trade. Congratulations on it.

Thanks for the comments, i will think more closely about how to trail a stop.  I did look into a PSAR strategy a while back but i think my problem was i used it to signal entry and exit e.g. trail a stop with it and of course sometimes it worked and sometimes not but i think my error was that its not an entry signal but i can see how sometimes it can work as a stop loss location.

[u0362565]

43 minutes ago, JJP said:

BTW, I very much agree that back testing and live demo testing and live small lot testing really helps to develop strategy confidence and sets mental discipline and psychology. It also helps build up the account so that you can take larger position sizes with funds from the market rather than from your bank account. I struggled for years to find a way to back test strategies as it takes a very long time to do that manually. I recently discovered FXDreema. It's a logic tool which takes a little getting used to, but there are many instructions and videos to help. You use it to build your strategy as a set of logic steps and then the tool writes it as a coded EA robot for you which you can then run in either MT4 or MT5 in the strategy tester on historical data or on live data. No coding skills required, and you can get a free MT demo account through IG. This has significantly improved my trading. I highly recommend it. You can even use fxDreema for free for limited robot sizes.

I will take a look at FXDreema too, thanks for the tip

[Ian_944]

If your strategy is repeatable/algorithmic, i.e. you'll take the same type trade many times, rather than a completely discretionary strategy where each trade is a once off analysis, then understanding the long run expectation of the trade is important.

To use an extreme example to demonstrate the point, say your strategy is successful only 10% of the time, i.e. 1 out of 10 trades wins. So if the size of the loss is -$1, then you need the size of a win to be at least $9 or you will lose money in the long run. In this case, taking profit early (say at $6) on a winning trade will result in a losing strategy overall unless taking profit early significantly improves your win rate from 10% to 15% of trades taken.

Also look at time-based exits which close after a certain time past the signal occurring. In my experience these often product a superior profit factor than setting defined s/l or t/p levels. Time based exits assess how long past your entry signal the trade will have been exhausted and then always exist after that duration. e.g. most of the market reaction to an interest rate change might occur within x minutes/hours/days of the event, so simply closing after x will capture both a massive move and a small move. Similarly, a bounce off a support level will on average take x bars to reach resistance, so just close of x bars. Time-based exits obviously should be backed up with a catastrophic stop loss as well to defend against an extreme outcome.

Finally, in my experience, stop losses in general degrade the performance of a strategy, rather than improve it. I'm not saying don't have a stop loss! What I am saying is that stop losses are a risk management tool, not a profitability management tool and most strategies will perform better (but with unacceptable risk parameters) if a stop loss isn't in place and the trade is just left to expire after a certain time period or when it hits it's t/p level.

 Ian

 

 

[Mark333]

I am trading long only no stops strategy on markets in uptrend, mainly USD 500 and Russell, plus GBP/EUR I have been doing this since October, recovered losses I had previously trading with stop losses and am now up 24K, I trade within my account, most important number being the balance and knowing how many trades I can put in and still hold within balance if they go against me. So I might be in trade minutes or 2 months. I save trades for when I get it wrong, for big moves down I add trades further it goes against me and then stopping when I realise I have not got enough balance to add any more trades.

Would not trade gold etc with no stops but for US and currency pair with GBP am happy to do so and have been profitable with no drawdowns, only overnight interest charge which is minimal. My strategy is build bank take out initial funds so trading with markets money, flaw in my system is when trend changes but would hold for most events apart from the most serious and obviously trading this way have to make sure you always leave enough balance for 10 - 15%   down spikes. When trend changes my bank will go down but will still be up. Tried trading with stops lost money, this way makes money for me. Stops works for the professionals but I am not a professional,  for me this is an easier more profitable way to trade and am making 3K a month which I am very happy about and will make more the more my account grows.

[u0362565]

1 hour ago, Ian_944 said:

If your strategy is repeatable/algorithmic, i.e. you'll take the same type trade many times, rather than a completely discretionary strategy where each trade is a once off analysis, then understanding the long run expectation of the trade is important.

To use an extreme example to demonstrate the point, say your strategy is successful only 10% of the time, i.e. 1 out of 10 trades wins. So if the size of the loss is -$1, then you need the size of a win to be at least $9 or you will lose money in the long run. In this case, taking profit early (say at $6) on a winning trade will result in a losing strategy overall unless taking profit early significantly improves your win rate from 10% to 15% of trades taken.

Also look at time-based exits which close after a certain time past the signal occurring. In my experience these often product a superior profit factor than setting defined s/l or t/p levels. Time based exits assess how long past your entry signal the trade will have been exhausted and then always exist after that duration. e.g. most of the market reaction to an interest rate change might occur within x minutes/hours/days of the event, so simply closing after x will capture both a massive move and a small move. Similarly, a bounce off a support level will on average take x bars to reach resistance, so just close of x bars. Time-based exits obviously should be backed up with a catastrophic stop loss as well to defend against an extreme outcome.

Finally, in my experience, stop losses in general degrade the performance of a strategy, rather than improve it. I'm not saying don't have a stop loss! What I am saying is that stop losses are a risk management tool, not a profitability management tool and most strategies will perform better (but with unacceptable risk parameters) if a stop loss isn't in place and the trade is just left to expire after a certain time period or when it hits it's t/p level.

 Ian

 

 

Thanks for your comments. I'll have a think about time based exits, I'm not about to ditch stops but could be used to set a limit. My trades are discretionary so it's diffult to get numbers based on a specific system so I can only go on if I trade for long enough and make money I have to assume that with enough time I will encounter all market conditions. I might be dead by the end of it mind you..I can to some extent look back historically. Yes I realise stop losses can be detrimental from a profitability point of view. 

[u0362565]

1 hour ago, Mark333 said:

I am trading long only no stops strategy on markets in uptrend, mainly USD 500 and Russell, plus GBP/EUR I have been doing this since October, recovered losses I had previously trading with stop losses and am now up 24K, I trade within my account, most important number being the balance and knowing how many trades I can put in and still hold within balance if they go against me. So I might be in trade minutes or 2 months. I save trades for when I get it wrong, for big moves down I add trades further it goes against me and then stopping when I realise I have not got enough balance to add any more trades.

Would not trade gold etc with no stops but for US and currency pair with GBP am happy to do so and have been profitable with no drawdowns, only overnight interest charge which is minimal. My strategy is build bank take out initial funds so trading with markets money, flaw in my system is when trend changes but would hold for most events apart from the most serious and obviously trading this way have to make sure you always leave enough balance for 10 - 15%   down spikes. When trend changes my bank will go down but will still be up. Tried trading with stops lost money, this way makes money for me. Stops works for the professionals but I am not a professional,  for me this is an easier more profitable way to trade and am making 3K a month which I am very happy about and will make more the more my account grows.

Does this mean you use a large % of your account at any one time. For example if we ignore unit size you could have 8 trades open all with no stops, at any point in time some might be in profit others at a loss and you just wait for them to come back to profit? I just don't understand at what point do you close trades if the market falls too far or you don't?

[Mark333]

I am never closing a trade until it is in profit been trading this way since October.

Made back my losses of when I was trading with stops and now in profit up 24K taken out my money I initially put in and trading with markets money.

As a retail customer we are protected as to what's in the account, which is why I feel safe trading no stops. Am not having any drawdowns and building bank.

As said in previous message wouldn't trade gold etc this way only certain markets which are in log term uptrend that I feel comfortable, that they will bounce back if they have a correction. Only trading US 500, Russell and GBP / EUR sometimes FTSE 100 but feel safer with US.

Would hold for most events  more than happy to wait out 10 - 15% market corrections, plus I will get better price points on the way down, as saving trades for when I am wrong.

Need to have discipline to stop when you have just up all your ammo / trades and know you are pushing your balance.

Then to not trade until corrected and you are able to do again, longest I haven't traded so far is about 2 months.

Name of the game I am playing is to leave this as a bet you have enough balance that when it goes wrong you can hold and not take a drawdown and leave until back in profit, so trading within your account and saving ammo/trades when it goes down, don't want to put on too soon, so need to be down minimum -£200 plus before I use up my next trade. 

Am using under half of my trades when market going up and saving the rest as back up when going down. 

Which was on GBP / EUR then it swung back the other way and ended up making profit, but obviously not as much as not been able to trade for that period but ended up with profit but didn't take a drawdown. Trading this way I am taking no drawdowns.

Yes when I have got it wrong, like at the moment on GBP /EUR I have 5 trades on 3 are losing and 2 I have made profit on today, wont be taking other 3 off until in profit, happy to trade GBP / EUR long only whilst it is below GBP price before the Brexit vote. Happy to trade US 500 and Russell long only which will be the main one once GBP gets too high and think too risky.

Demo it if its something you think may be of help to you.   

7 hours ago, u0362565 said:

Does this mean you use a large % of your account at any one time. For example if we ignore unit size you could have 8 trades open all with no stops, at any point in time some might be in profit others at a loss and you just wait for them to come back to profit? I just don't understand at what point do you close trades if the market falls too far or you don't?

 

7 hours ago, u0362565 said:

Does this mean you use a large % of your account at any one time. For example if we ignore unit size you could have 8 trades open all with no stops, at any point in time some might be in profit others at a loss and you just wait for them to come back to profit? I just don't understand at what point do you close trades if the market falls too far or you don't?

 

7 hours ago, u0362565 said:

Does this mean you use a large % of your account at any one time. For example if we ignore unit size you could have 8 trades open all with no stops, at any point in time some might be in profit others at a loss and you just wait for them to come back to profit? I just don't understand at what point do you close trades if the market falls too far or you don't?

 

7 hours ago, u0362565 said:

Does this mean you use a large % of your account at any one time. For example if we ignore unit size you could have 8 trades open all with no stops, at any point in time some might be in profit others at a loss and you just wait for them to come back to profit? I just don't understand at what point do you close trades if the market falls too far or you don't?

 

7 hours ago, u0362565 said:

Does this mean you use a large % of your account at any one time. For example if we ignore unit size you could have 8 trades open all with no stops, at any point in time some might be in profit others at a loss and you just wait for them to come back to profit? I just don't understand at what point do you close trades if the market falls too far or you don't?

 

[u0362565]

This is basically a position trading, buy and hold strategy which i didn't think was really viable with spread bets.  I did consider a no stop strategy but it didn't sit too well with me.  There's always the thought in the back of my mind that you have to prepare for the worse case scenario and for me that was a market potentially losing 50% of its value possibly more in a big crash, so your account would have to be able to weather that, especially when you consider the margin requirement for multiple positions plus the cost to trade.  I assume you're using futures not daily funded bets?  What do you do if you future expires?  Have IG always rolled it over? 

You say your account is protected but only from negative balance, IG will happily close positions if your margin out weights you balance and that's when the losses would come.  You must have some sense of what you would do if the market made a massive move down.  Then there's the assumption that the market a, will spring back and b, spring back relatively quickly.  I once thought about having buy orders at % prices e.g. 2% fall, 5%, 10%, 20%, 50% of the market value but by account could only cope with this if the position size was very small because the margin would quickly become pretty large assuming all these were opened and kept falling. 

I think most people want to find what they'd consider a low risk strategy that makes money, if you never have to close positions and you never drawdown then i guess you may consider that low risk.Takes a strong constitution i bet! Once you're using the markets money i guess you care a bit less but i think once you gain the money you really consider it yours and dont really want to hand it back. 

[Mark333]

Am spread betting not futures and you can on the settings select for automatic roll overs so am never take out, unless in a negative position. 

Yes your right position trading is a better description and knowing when yoiu have used all your ammo / trades and stopping so you carry enough balance to keep bet on if it goes the other way.  So sometimes I could have an unrealised loss of -2 on a 5 point trade on US 500 when big correction I hold don't realise the loss and end up taking eg £100 - £250 profit in the end.

When market going up may make £150 - £250 a day. Professionals would say I am risking too much for a smaller gain but point I make in return is I am not realising that loss so as long as I hold within balance I dont / havent had any drawdowns so far and building bank.

Yes that's exactly right IG will automatically take me out of trades if I go minus, name of the game is always to stay within your balance, which obviously is an incorrect science but would say if you have 5 points on the US 500 and have £2,500 left as balance you will be okay for most scenarios apart from eg another financial crash. Would hold for most scenarios apart from a tier 1 financial crash but that would hit my profits, so would still be up.

Personally I do think another crash is coming, either a) Recover falters at some point and we are not as strong as people think, plus US and the World has debt levels never seen before they cant keep printing money to solve it they have used that trick too much already or b) ecovery is real and we are all guns blazing then we will get a crash as well not as big as in a but still another crash as inflation, which market already worried about will take hold. 

When either a or b happens I have no idea they tend to either happen a lot earlier than you expect or you give up waiting for it to happen, think you are missing out, load up and then it happens. I might be lucky and not in many trades so can profit from it or may be in lots of trades in which case will hit profit / bank built up.

Lots of different ways to Trade, just know for me tried the other way and lost money, this way works for me have to pick right markets that why I like US as historically no other market recovers after a financial crash etc quicker than US.

Am confident to trade FTSE like this as well for now if I see some big red lines then will want to get in but FTSE still below their record highs so if I had bought wrong time few years ago would have to take a loss or still be in it now, which would be too long. 

I built my account up from 5K trading 5 points on US, so only 1 trade as don't trade less than 5 points Is till try and guess where market will go up to or take off near support, pivot  points. Or when happy with profit or gut feeling thats enough profit happy with it take it.

Then was happy making £50 or plus a day building bank when I though I had enough then traded 2 lots of 5 points or save one for when I was wrong.

Build bank then bigger your account gets then you can put on more trades. Started small if you made £50 a day with 1 trade of 5 points  5 days a week that's 1K a month. Apart from when market goes against you then you wait until your trade is back in profit.

Doesn't take a strong constitution am more relaxed trading this way, was more nervous when I had a stop loss and getting taken out, am only nervous if near balance.

Obviously you have to find out what resonates with you and what works for you, find out what way you want to trade.

You can always Demo different strategy's see what you like and works.

[u0362565]

yeah i mean with such a low target e..g 5 points and no stop you're going to have a high win rate.  Your risk/reward ratio is mental of course and as you say so flies in the face of every trading book/article you read.  I also don't know what i'd do if the market fell a lot i felt like i had used all the available trades based on the balance and then you're stuck really until if/when the market recovers.  Ideally you want to move with the market if you can find a way.  Anyway, good luck to you, certainly building a buffer to trade with that isn't your original capital is nice to have.

[Mark333]

Good luck in your trading journey and you always have the IG demo to use risk free, for any strategy you are thinking of implementing,

[u0362565]

Yeah demo was very useful for me, wish i'd used it more when i first started trading! before jumping in.  Managed a 5.6R trade today! Super happy with that.  If only i could keep this up 😄