Losing Positions and How To Best Manage Them
Some people prefer to make use of stop loss to manage their losing positions. Some people (such as myself) prefer to instead rely on hedging and martingale (or reverse martingale) systems to turn a losing day into a profitable day.
How about you? Can you give a detailed description of your loss management strategy?
I usually pray a lot so that the markets turns in my direction
Based on my experience and study,
Losing Positions and How To Best Manage Them: Close Them
Each position/ group of positions; should have a loss limit where you admit that you were wrong. The goal is to survive the market in order to trade another day.
These lessons I have learned the hard way, via trying fake hedging (on same instrument) which is just like closing a losing trade if you think about it if you place a buy trade while you have a sell. If you think you can close 1 side and then let the other run back into profit, think again. If hedging with another cross, you are just adding risk and maybe should just trade that cross as a new trade instead.
Martingale is by far the worst thing you can do unless your technical entries have a consistent accuracy of ~90% and with an average 1: ~1.2 RR, which there is very very few. While reverse martingale is very difficult to pull off in times of increased volatility and in most cases will close out in break even before it takes off, otherwise you are adding further risk to the position. The more risk that is added, the more that there will be to lose if sh1t hits the fan.
Also, while you have an open trade, you are taking market risk of black-swan like events and the losing trade will prevent you from exiting the position even if you see warnings. As retail traders, we do not posses funds to trade like how you describe and MUST use Stops so that we can limit losses to survive with what little funds we have as we use Leverage...
Earlier last year I had the exact same plans, heavily researched, created complicated algo's for all the calculations and tried out the loss management techniques live.
I hope you can take away something from my post, otherwise I would imagine you are in for a few expensive lessons down the line if you continue on your trading journey with that way of managing loosing positions. And remember that if you lose 50% of your trading funds, you will need to gain 100% just to get back to Break-Even... Is one trading position worth that type of risk?
Most people while back-testing focus on the entries and putting an SL and TP at an area and thats it.
But .. we can do some much more than that while doing these back tests. We can closely observe the successful trades on the back tests and create several areas of interest to note along the way to hit the targets.
For an example : how has price being reacting within the first hour of the entry and making a detailed comparison between the successful trades and the failed trades.
and most often you will find such a filter helping you "Mitigate the losses"
My point being, if you have these key timing areas in mind (as you have done the backtests focusing on these) you would know when a trade is to be cut off even before the position hits SL or TP.
So to answer the original question of the post, Understand the timing element and consider how price (or indicator data .. etc) reacts in the the timings for successful setups and make a comparison with the failed setups. and when it doesn't start behaving the exact same way you want it to behave, remmeber that it is not your setup anymore and just cut the trade off with a small loss or a profit.
As for hedging and martingale, i just gotta say its a waste of your money and time.
Just my opinions.
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