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Let a trade develop?

  • Post #1
  • Quote
  • First Post: Jun 23, 2006 3:37pm Jun 23, 2006 3:37pm
When I have a position that goes negative, I'm having trouble figuring out when to cut my losses or whether I should let it ride a little to see if the trade develops. It seems like it's a fine line and I get on the wrong side of it too often. So I want to fix this problem. Anyone know of a good source of info on this topic?


I'm trading a 10K demo account. I look for an obvious place to put a stop loss, and if there's not one, then I get out if the trade goes against me $100. Also tried $200. That would be either 20 or 40 pips. I use a trailing stop, but a lot of times the trade just goes negative right away and I don't know whether to get right out or hang on and see if it develops. This is on intraday trading. At most I let a trade go for maybe 2 days if there's a good trend. I'm sticking to 1-2% risk per trade. Are my stops reasonable or too tight?

Seems like every time I let a trade develop I end up with at least a 1% loss. But I'm still keeping my account positive :-)

Squid
One of the biggest challenges of Forex is patience. I too used to just snip these trades off early like there's no tomorrow, and sure enough, four hours later, I would've had a winner. It looks like you're using sound money management, so maybe you should investigate your trading system a bit more? Also, try to maintain a 1:1 risk to reward ratio as a minimum, with a preference towards a greater reward to risk when you can obviously.

BTW - Whatever you do, do NOT get into the idea of "I think/feel I should go long, so I'll short instead". I used to think like that when I was in your situation, and it destroys all self confidence and discipline. Take a closer look at your system and dissect it to find what's upsetting your confidence and trading personality.
I assume that your trading along the guidlines of a certain system....whether it is yours our someone else's...remember to always have a predetermined stop/limit for a trade before entering it...find a system that works for you and stick to it...no matter what.
Before I enter a trade I have already determined an entry, exit and a stop. Once the trade is engaged I will raise the stop only after the trade is in profit mode. I will sometimes exit a trade early if I feel the trade is giving me as many pips as I'm going to get. I do not adjust my stops though if a trade turns sour early. If I get stopped out I study the chart to determine why I made the incorrect decision to be in the trade in the first place.
This is really a very complex & nice issue...In my opinion, it all depends on your strategy & trading style....In my opinion also, placing stops & how & when you trail your stop & where to place your trailing stop is an art & is a real challenge to almost every trader out there...

Once again, in my opinion, if you fully understand your strategy, you will be able to get a great sense of where to place your initial stop, where & when to trail your stops & when to get out...

My strategy is to pick only the trades with the highest reward to risk possible, and setting different scenarios of what will happen next based on my whole analysis of what I see...Then I wait for more information from the price action...If the price action proved one of my pre-determined scenarios, I take the correct action....

I only trade trend continuation or clear trend reversals....I always take into consideration that if I want to go long a certain currency pair, I want to go long at the lowest possible price which does not destroy the whole idea that the trend is up...If after going long, the price action information says out loud that the trend is not up anymore, then I should have been stopped out with a small loss...This happened yesterday with a USD/CHF trade where I was short & the pair trended up strongly...I was out just as the trend started against me...It was true also as I went long the USD/CAD yesterday because I anticipated a reversal of the trend from down to up over the short term, so I went long at 1.1085 & up 160 pips with my trailing stop moved twice...Everytime the pair continued the trend up, I moved my stop with the trend...

I don't know if I have been helpful or not, but I hope I was...


Thanks,

Nader
Something I heard once that had helped me alot is: "Where you place your stop should not be at the point of your maximum allowed financial loss for a particular trade;...but at the point where if the price crosses, your system has failed you."
I disagree with the methods mentioned above, not because they can't work, but because too often they don't. That’s the bottom line; you have to get a trading system that allows you to profit regardless of the direction of immediate price action. A simple example of what I would do in your case:<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><o></o>

<o></o>

Let’s say you think you should go long and the price is 1.7500, so you buy, hoping it will go up. But your hopes are dashed away within a short period of time, maybe just a few minutes, maybe an hour, whatever, but the market is going against you. So let’s say your S/L is 50, based on your MM techniques, when the price gets to 1.7450 you GO SHORT on a trade for at least the same amount as the first trade opened. (It would only be wise to open this second trade for a larger amount if the trend was very strong, fast, or you simply realized you made the wrong trade.) So now if the price drops below 1.7450 then you are up on your short trade, down on the first one, and at least you can’t lose more than your 50 you would have lost anyway, but the advantage to this is you get to see where the market is going for free. If the market retraces a little bit between the two ranges, so now you are losing on both, just wait and see where it goes, you can't lose more than the 50, since that is the spread between the two trades.<o></o>

<o></o>

If the price reverses again, as it almost always seems to, then you can profit on both trades. Place a trailing stop on your second trade opened (the one you went short on) so that you will at least make something the price rises again. If it comes back up close to your first trade and then drops to 50 again, do the same thing. I have done this on some trades 5 or 6 times in a row, making 15-20 pips on each bounce, then finally a big price move happens in the direction that I first thought it would. <o></o>

<o> </o>

This doesn’t work for scalping, but I don’t scalp, I usually go for 80-120 pips on the 4 hour charts, using just a few simple indicators and some MAs. I really don’t know why more people don’t use this type of method but its working for me, interested to hear anyone’s comments on this method….-Teek<o></o>

<o> </o>
Thank you to everyone who was kind enough to reply to my questions. A lot of good info here, and I need to take some time to conisder it carefully.


I see alerady that one problem I have is not being consistent in the system I'm using. I jump around and sometimes trade without one. So I need to change that and I will. I want to systematically find the errors I'm making and eliminate them until I get profitable, and my system (or lack of consistent system) is hurting me. I can see that now.

Teek, I tried something similar to what you're suggesting with reversing the trade although I wasn't quite as systematic with it as you are. It actually worked out pretty well on a trade this morning. I'd hope others will chime in on this as I'd like to hear some more opinions. It struck me as a little risky when I did it this morning, but I'll have to give it some more thought.

Squid
This seems risky to me too. I just might not understand it fully. Will try to figure it out a bit better too. That is one thing I hate to do. If I don't understand something, I son't walk away from it. I try to "disect" it so to speak. I would like to see what others think about this. Or see more explinations.
JOHN 3:16
Quoting americanteek
I disagree with the methods mentioned above, not because they can't work, but because too often they don't. That’s the bottom line; you have to get a trading system that allows you to profit regardless of the direction of immediate price action. A simple example of what I would do in your case:<o></o>

<o></o>

Let’s say you think you should go long and the price is 1.7500, so you buy, hoping it will go up. But your hopes are dashed away within a short period of time, maybe just a few minutes, maybe an hour, whatever, but the market is going against you. So let’s say your S/L is 50, based on your MM techniques, when the price gets to 1.7450 you GO SHORT on a trade for at least the same amount as the first trade opened. (It would only be wise to open this second trade for a larger amount if the trend was very strong, fast, or you simply realized you made the wrong trade.) So now if the price drops below 1.7450 then you are up on your short trade, down on the first one, and at least you can’t lose more than your 50 you would have lost anyway, but the advantage to this is you get to see where the market is going for free. If the market retraces a little bit between the two ranges, so now you are losing on both, just wait and see where it goes, you can't lose more than the 50, since that is the spread between the two trades.<o></o>

<o></o>

If the price reverses again, as it almost always seems to, then you can profit on both trades. Place a trailing stop on your second trade opened (the one you went short on) so that you will at least make something the price rises again. If it comes back up close to your first trade and then drops to 50 again, do the same thing. I have done this on some trades 5 or 6 times in a row, making 15-20 pips on each bounce, then finally a big price move happens in the direction that I first thought it would. <o></o>

<o> </o>

This doesn’t work for scalping, but I don’t scalp, I usually go for 80-120 pips on the 4 hour charts, using just a few simple indicators and some MAs. I really don’t know why more people don’t use this type of method but its working for me, interested to hear anyone’s comments on this method….-Teek<o></o>

<o></o>
what you mentioned above sounds very interesting. the only problem i see in such a strategy is HOW DO YOU KNOW WHEN TO CLOSE LONG/SHORT POSITIONS?

such a strategy would be ideal if you knew the exact points where the market finally will be taking a direction for a decent amount of pips. you should know the exact point where to close off your short position and let the long position run, as well as the exact point where to close off your long position and let your short position run.

if you are mistaken in picking those points, you may find yourself accumulating losers over losers over losers.

i tried to apply this strategy in ranging markets looking up historical charts and, albeit very interesting, i found myself caught in the middle of too many reversals.

perhaps you should provide all of us with a chart and a clear numeric example as to where you open long/short positions as well as where you close them.

i would like to read more about this as its something i myself thought of a few times when i get caught up in the middle of ranging days.
I appreciate the interest, and indeed this method is 1. Very dangerous if you let it get out of control (like anything in forex) 2. Probably the only method I have ever seen that takes advantages of times when the market moves against your trade.

Like you said, the magic is knowing when to get OUT on this method. Like I said in my first post on here, I usually take 80-120 on one trade. This means a minimum of 80, if it doesn't reach 80 then I wait until it goes back to -50 and switch, or if its my second trade then just close it at 15-20 if I can and let it go where it will. If it goes past 80 and then past 120 without going below 80 I set my trailing stop pretty high, like 30 and leave it alone. Very infrequently can I safely assume that the market will continue past the, but since I'm mainly on the 4h charts, my trades past that range are usually monsters. There is nothing like making 500 pips in a week. When the market spikes like it did from the middle of april to the middle of may this year(on GBPUSD) and you have had a trade open for 2 weeks you can get pretty cocky pretty fast. I got the 80/120 range from an admittedly imprecise visual backtesting of the last 2 years of data.

The downside of this method is that you really have to watch the charts, I'm trying to switch to mobile metatrader so that I can trade completely on the go.

I get hit with reversals all the time, sometimes (like the last week on GBPUSD, which is all I trade) it reverses several times around what I call my trigger points, where I open and close trades. I do have a system for this, it is not comprehensive and I am still developing and fine tuning it, but its looking good so far. My main rules are never have more than 2 trades open at the same time, never open 2 trades in the same direction at the same time, never let one trade lose more than 50 pips, follow the rules exactly and don't close early or get greedy past those ranges unless you are prepared for it to go to zero.

I am a firm believer that it is just as important to manage a trade as it is to open a trade at the right time. I actually think that it might be more important, since in a demo account sometimes I make more by opening a trade randomly out of boredom and then following these rules.
I will have some screenshots soon to come and I would love to get anyone's ideas on this subject.
  •  Guest
  • | IP
Quoting americanteek
...you can't lose more than the 50, since that is the spread between the two trades...<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><o></o>
Don't you mean 30 (75-45 = 30)?
I dont know where you got 75 or 45, or 30. But you are correct in that 75-45=30 -> congrats.

If you opened the two trades in seperate directions, one short one long, the maximum you could lose total is the spread between the two trades, thats what i mean when i say the spread, not the spread between bid and ask prices. This is of course, assuming that the two trades are for the same amount, which I dont usually do unless I'm totally unsure of the market direction and I think its just going to whipsaw a bunch. If there is a trend that you are following it makes no sense two open a second trade for the same amount because no matter where it goes you will have the same balance between the two.
  • Post #14
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  • Edited 12:55am Jun 26, 2006 12:32am | Edited 12:55am
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Soz, went dyslexic there for a second!

So basically you are creating a synthetic strangle? Your upside potential is unlimited regardless of the direction, but your downside risk is limited to the spread?
No.

Your upside potential is only "unlimited" if it price moves in the direction that you have placed a majority of your lots.

For example, if you are short in one position at 1.8500 with 1.0 lot and long in another at 1.8550 also at 1.0 lot then it doesnt matter where the price goes, you are down 50 pips, period. However if the general trend is going down and thats why you opened up the first trade, the short one at 1.8500 then it retraced 50 pips up, to your SL then you opened another trade you could wait for this 2nd trade to max out or just put a trailing stop on it, make some money and capture a bit of the market you might have missed.
What i really love about this type of trend following is that it allows you to capture relatively smaller retracements in the trend while maintaining your free margin in your account (since you are only 50 pips while it rides). In very strong trends this is hopefully not needed, but it is proving to be indespensible to me in making up for missed opportunities.
I have read an opinion that traders shouldn't use stops, they should watch the price, and if it isn't going their way, close it as soon as it's apparant.

I would never advise trading without stops, as I don't want to see anyone here blow their balance because of one bad day. But you can use a stop larger than what you intend to lose and close manually if what you see doesn't confirm your predictions. This means you can hold it you see an indication of likely reversal (back to a profitable direction).

Trailing stops are important as a way of 'locking in' profits, and allowing a move to continue in case it becomes a larger (and hence more profitable) move.

If you close a position and, after a brief bit of choppiness see it doing what you predicted, you can always reopen the position. Generally you should be prepared to lose less than you are expecting to take, as either one might or might not happen.
One thing I'd like to add to this if I may. When a person figures out where they want to place a stop according to S/R, and they place it at a certain price, IMO, do not close the position manually when the trade is going against you. There was a reason to place the SL where you had. I have had a few trades that went against me and got 5 pips away from my SL and I thought geeze, its gonna get hit and I might as well close the trade and save a little. Well, guess what, price never went any closer to where I had my SL, reversed and never looked back to see that trade would have made a good profit. There was a reason that I had put the SL where I had so, I should trust myself a bit more and let the trade do what it is gonna do. Just my 2 pips



Quoting binary
I have read an opinion that traders shouldn't use stops, they should watch the price, and if it isn't going their way, close it as soon as it's apparant.

I would never advise trading without stops, as I don't want to see anyone here blow their balance because of one bad day. But you can use a stop larger than what you intend to lose and close manually if what you see doesn't confirm your predictions. This means you can hold it you see an indication of likely reversal (back to a profitable direction).

Trailing stops are important as a way of 'locking in' profits, and allowing a move to continue in case it becomes a larger (and hence more profitable) move.

If you close a position and, after a brief bit of choppiness see it doing what you predicted, you can always reopen the position. Generally you should be prepared to lose less than you are expecting to take, as either one might or might not happen.
JOHN 3:16
  • Post #18
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  • Last Post: Jun 29, 2006 1:58am Jun 29, 2006 1:58am
Quoting renasdad
There was a reason that I had put the SL where I had so, I should trust myself a bit more and let the trade do what it is gonna do. Just my 2 pips
I hear ya. I have an amazing knack for second guessing myself and turning all trades into losers lately. I'm glad I'm still demo trading because I ran my account down 10% today - but I practiced good money management and didn't lose any more than 2% on any one trade That's discipline right?

I really am recognizing in myself that I'm stubborn and when I'm in a trade going against me it's very hard to get myself out. Il'l move stop losses or not even place them and sit there and watch the trade go against me thinking "this will turn around - I should put some more on the table so I'll really make some money." OK, I've read 3 gazillion times this is absolutely wrong thinking but I still do it? Huh??? I think I haven't fully accepted that some (many) trades will be losers. I know that intellectually but don't really know it in my heart yet. But I'll get there!

Squid
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