How to cut losses and letting winners run | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

Winners scale winners, losers scale losers 12 replies

Letting winners run 5 replies

Do you believe fixed stop-losses cause losses in the long run? 16 replies

Cutting your risk, letting your profits run 7 replies

Letting profits run 30 replies

Attachments: How to cut losses and letting winners run
Exit Attachments

How to cut losses and letting winners run

  • #1
  • First Post: Aug 26, 2007 7:47am Aug 26, 2007 7:47am
We all hate losses and naturally avoid them; likewise everybody loves a winner. The problem is that this kind of thinking leads to holding onto losers and cutting winners - maybe that's why it's so hard to follow the old trading axiom, "cut your losses and let your winners run". This isn't the only, or even the best way to trade but there is logic behind it. It seems simple enough and makes sense.

The answer could be to change the way you think about losses; more specifically, love your losses. If you see a loss on an open position - take the loss. Love the loss. Be happy that you banked a loss. When you enter a trade expect it to be a loss. Losses are good. Sounds like counter-intuitive advice? Well successful trading is largely counter-intuitive.

Once you've changed the way you view losses the winners will seem to take care of themselves. That said, winners need to be "run". Push the limits of your patience when holding onto a winner. Very often you'll take profits only to see the market surge even further in your direction. Be patient with winners. Hold as long as you can. Give them as much space as you can afford. You could almost say that winners need to be treated the same way poor traders treat losses.

Anyway that's my rant for the weekend, hope it helped someone. Take care.
  • #2
  • Aug 26, 2007 9:31am Aug 26, 2007 9:31am
when visually back testing my system, i would go through each trade, I would get 5 or 6 winning trades in a row and panic when I saw the first loser. i thought one loss I have to change the system! start again! then I realised this was noobish thinking, got some indicators to filter out 70 to 80% of the bad trades and the rest is history. except your losses and let the profits run. There is no 100% loss free system!!
  • #3
  • Aug 26, 2007 9:37am Aug 26, 2007 9:37am
Trading is just like any other business, you can't have a restaurant and not pay any food suppliers, wages, and equipment!!
  • #4
  • Aug 26, 2007 9:38am Aug 26, 2007 9:38am
Quoting ScottH
Trading is just like any other business, you can't have a restaurant and not pay any food suppliers, wages, and equipment!!
that's right and once you REALLY understand this you are on the next rung up the ladder
  • #5
  • Aug 26, 2007 10:18am Aug 26, 2007 10:18am
Quoting cryten
that's right and once you REALLY understand this you are on the next rung up the ladder
can u pls teach me ur 5min chart strategy for gj
THE TREND IS UR FRIEND
  • #6
  • Aug 26, 2007 10:19am Aug 26, 2007 10:19am
pm me your email addy
  • #7
  • Aug 26, 2007 11:39am Aug 26, 2007 11:39am
Most of the time, cutting your winners short is a problem of panic'ing mid-trade through and bank those few pips in "just in case". That's where the importance of having a sound Trade Plan with your exit levels clearly defined comes in place, and then of course having the discipline to stick to that trade plan.
  • #8
  • Aug 26, 2007 11:42am Aug 26, 2007 11:42am
right now i scale into winners and scale out of losers. But watching for market exhaustion to exit
100% of traders are losers. Just that some win more than they lose!
  • #9
  • Aug 26, 2007 11:45am Aug 26, 2007 11:45am
Please explain your 5min trading style.

Cheers
  • #10
  • Aug 26, 2007 11:46am Aug 26, 2007 11:46am
I posted it in trading systems section
  • #11
  • Aug 26, 2007 11:47am Aug 26, 2007 11:47am
Cryten,

Please explain your 5min trading style.

Cheers
  • #12
  • Aug 26, 2007 11:48am Aug 26, 2007 11:48am
Quoting faure
We all hate losses and naturally avoid them; likewise everybody loves a winner. The problem is that this kind of thinking leads to holding onto losers and cutting winners - maybe that's why it's so hard to follow the old trading axiom, "cut your losses and let your winners run". This isn't the only, or even the best way to trade but there is logic behind it. It seems simple enough and makes sense.

The answer could be to change the way you think about losses; more specifically, love your losses. If you see a loss on an open position - take the loss. Love the loss. Be happy that you banked a loss. When you enter a trade expect it to be a loss. Losses are good. Sounds like counter-intuitive advice? Well successful trading is largely counter-intuitive.

Once you've changed the way you view losses the winners will seem to take care of themselves. That said, winners need to be "run". Push the limits of your patience when holding onto a winner. Very often you'll take profits only to see the market surge even further in your direction. Be patient with winners. Hold as long as you can. Give them as much space as you can afford. You could almost say that winners need to be treated the same way poor traders treat losses.

Anyway that's my rant for the weekend, hope it helped someone. Take care.
When you run a business do you have business goals... Well yes... How about trading when you treat it as a business? Do you have business goals? The minimum level where you are profitable or at least break even. Think about this againg? So how about having goals in trading and try not be greedy!!!. You can have a fraction of your goals as "unknown" profit.. Those will make the real difference. So just having simple rules like I exit at the end of the day/week/month or if price start to fall back such and such. Oh yes and how about having a business plan, fancy word for it: trading strategy or methodology. How about to be prepared for various market conditions like in real business? How about having multiple products(strategues) and having a backup plan? Or having a goals like if I lose such and such I close this method and test another one. If you start a business do you do market research (what is the potential.) ? Well yes. So how about backtesting your method?

Just a couple of thoughts...
.
  • #13
  • Aug 26, 2007 11:54am Aug 26, 2007 11:54am
oh, how can i forget, read my sig. The Words in red should be helpful
100% of traders are losers. Just that some win more than they lose!
  • #14
  • Aug 26, 2007 2:37pm Aug 26, 2007 2:37pm
The only way to cut losses and let profits run is to first prepare yourself mentally. If you don't have the will power to do it, no system in the world will help you. This is why trading isn't for everyone. Not everyone has the will power to deal with that situation. It's no different with people who smoke but want to quit and can't. They simply don't have the will power to do it. They know it's bad for their health, but mentally they can't seem to push themselves to quit. No different with trading, the only help is from yourself. It's either you have the will power or you don't.
  • #15
  • Aug 26, 2007 2:55pm Aug 26, 2007 2:55pm
Quoting faure
love your losses .
THAT IS THE SOLUTION ..
WE MUST LOVE THE LOSSES ....BUT AS APART OF TRADE
& MAKE YOUR PROFIT MORE THAN YOUR LOSS....
REGARDS FUARE
  • #16
  • Aug 26, 2007 2:56pm Aug 26, 2007 2:56pm
Quoting Mr demark
oh, how can i forget, read my sig. The Words in red should be helpful:
A good trade hardly ever retraces back to entry, therefore let your profit run and trail it
That's why I also use time stops - if a trade isn't moving in my direction quickly* then I get rid of it. Most of the time it would have turned into a loser.

* Quickly is a subjective term and is relative to your timeframe and trading plan. As a rough guide I use 2-4 bars on the chart.
  • #17
  • Aug 26, 2007 3:01pm Aug 26, 2007 3:01pm
Quoting PrivateFX
The only way to cut losses and let profits run is to first prepare yourself mentally. If you don't have the will power to do it, no system in the world will help you. This is why trading isn't for everyone. Not everyone has the will power to deal with that situation. It's no different with people who smoke but want to quit and can't. They simply don't have the will power to do it. They know it's bad for their health, but mentally they can't seem to push themselves to quit. No different with trading, the only help is from yourself. It's either you have the will power or you don't.
Discipline is super important - in the Market Wizards series it is referred to as the most important thing by many of the traders interviewed. You need to think differently to be disciplined about disciplined.
  • #18
  • Aug 26, 2007 3:11pm Aug 26, 2007 3:11pm
Quoting faure
Discipline is super important - in the Market Wizards series it is referred to as the most important thing by many of the traders interviewed. You need to think differently to be disciplined about disciplined.
Yes I agree. It doesn't matter how you think about things such as taking losses, etc. As long as the will power is there, you can program your brain to think any way you like. This again goes back to the point that not everyone is capable of doing this. The ones that are able to have this mindset are the only ones that stand a chance in making money in this market.
  • #19
  • Aug 26, 2007 3:17pm Aug 26, 2007 3:17pm
There are no set guidelines for this stuff since it is highly dependent on your timeframe.

Sure the trade should move "in your direction" ASAP, but what's ASAP?
For 4h, is that 1-4 hours? 8 hours?

For daily is it the next daily bar? Also sometimes there's a period of "winding up" first.

As for cutting - not a good idea. Only if the situation you entered from changes radically intervene, otherwise have a reason for the entry, a reason for the stop and then STEP AWAY!!!!!!!!!!!!!!
Don't interfere. If you do, you WILL ruin a perfectly fine trade a lot of times off of emotion - at least in my experience.

Also that "a good trade never(hardly ever) retraces" logic is completely false imho.
Tons of moves go: trendline break, trendline retest, sometimes double retest, kickoff. Bar break, move out, bar high/low retest, actual move.

It's the market's way of saying "nyer, that's what you get for moving stops to break even after 5 minutes". A lot of the money a lot of times waits until the market commits, then looks for a retest to join the real move imho. Not that I KNOW, but it's what I see a lot.

Think about it...if you're right about the REAL direction of the market and you are not in a range...there are only 2 directions: for you and against you.
If you have a good reason and a stop linked to it, how can you be stopped?
If your trade is to work, it will. If not, it won't.
Being too rash with stops is just being afraid to be wrong.

In my experience - this is with MY style of trading(i.e. not a 5 minute chart) - you won't get far if you don't even allow your trades a chance to actually "go somewhere" first.


Just some random thoughts on the subject from me, doesn't mean this would work for everyone. A lot of it is more biased towards "longer" trades as opposed to "run and grab" style. Different logic applies for a different style.
Trust price. Know yourself.
  • #20
  • Aug 26, 2007 3:24pm Aug 26, 2007 3:24pm
Quoting PrivateFX
It doesn't matter how you think about things such as taking losses, etc. .
That's the point of this thread; it does matter how you think about things like taking losses.

Quoting PrivateFX
...program your brain to think any way you like.
0 traders viewing now