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How to cut losses and letting winners run

  • #21
  • Aug 26, 2007 3:41pm Aug 26, 2007 3:41pm
Quoting SeekingLight
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.
Quoting faure
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.
If you have a different style we obviously won't agree on everything . But the drawback of hanging onto a trade that's not working straight away (relatively speaking) is the opportunity cost.

Something very important that I want to stress here is that a loss is not being down 10 pips while trading a 4hour eur/usd chart; that's just noise. But if I were still down 10 pips after 12 or 16 hours I would scratch the trade and wait for the market to move before entering again.

The thing is big moves don't retrace very much - they tend to be one way trains. So if the market chops back and forth it obviously hasn't left the station yet.

Besides all of this, what I'm getting at is the problem of taking big hits because of wrong thinking and the psychological discomfort of taking a loss.
  • #22
  • Aug 26, 2007 4:11pm Aug 26, 2007 4:11pm
Quoting faure

Something very important that I want to stress here is that a loss is not being down 10 pips while trading a 4hour eur/usd chart; that's just noise. But if I were still down 10 pips after 12 or 16 hours I would scratch the trade and wait for the market to move before entering again.
Well okay, but even those situations have proven to happen sometimes and that returns to the "if you're right about direction, you will remain so"

Quote
The thing is big moves don't retrace very much - they tend to be one way trains. So if the market chops back and forth it obviously hasn't left the station yet.
I think this month has been one of the first ones of something coming even close to "one way train" and even then there were pullbacks albeit of smaller size along the way.

Quote
Besides all of this, what I'm getting at is the problem of taking big hits because of wrong thinking and the psychological discomfort of taking a loss.
This is more a question of money / risk management than trade management. If you are not comfortable with your position size you are using too much money/risk. Size smaller. Use 1% instead of 2%. If that's too much, use 0.5%.
You can make money just fine with as little as 0.2% still. (1:5 r/r is still +1% with that).

IMHO emotional discomfort comes from lack of faith in a trade / entry / system and that in turn needs sorting out first. Trade plan, rules, etc.
If you have a clear outline, you won't have distress.

Simply boiling things down to "cut losers, let winners run" is a nice saying, but it means different things to different traders, as we both agree on.
It needs to fit your system/style and here the only reason for me to cut or move the stop sooner than usual is the described situation of a changed environment(counter-setup, key levels that have to hold breaking, etc).
Basically the stop exists at the specific price you put it for the sole reason of not needing to be adjusted, ever - hence neither does your position need to be cut since that's the whole POINT of the stop. My stop does the cutting, not me. If it is me, then there's gotta be something wrong.

Just how it works here
Trust price. Know yourself.
  • #23
  • Aug 26, 2007 11:25pm Aug 26, 2007 11:25pm
I'm with SL on this subject.

I trade pin bars off the daily charts and have developed my method to trail along behind the high or low of the previous day.

This allows me to cut my losers short as if the trade goes no where i just keep tightening my stop until it is taken out.

It also keeps my winners running until they run out of steam and go into a sideways pattern or fall back.

I have manually back tested this and it has worked, i forward testing this as well and it working, now i am live testing and its working.
I have found that by mentally preparing myself for the reality that there will be losses involved and accept them as part of the opportunity to profit. I have no trouble stepping up to the plate each time a trade is offered.

I took the USD/JPY pin bar from Thursday at 1% risk, It has gone against me, but i am not worried about it as i have pulled my stop up to its correct position. So my loss, if it comes to it, is now only 0.75% so i have saved .25% for another day, But if it turns around and goes my way then i will still be in the trade and able to profit.

That i believe is the essence of "cutting your losers short and letting your winners run."

Enjoy
Ademac
  • #24
  • Aug 29, 2007 8:32am Aug 29, 2007 8:32am
Quoting ademac
I have found that by mentally preparing myself for the reality that there will be losses involved and accept them as part of the opportunity to profit. I have no trouble stepping up to the plate each time a trade is offered.

That i believe is the essence of "cutting your losers short and letting your winners run."

Enjoy
Ademac
That's my point, you have to accept your losses (a very Mark Douglas thing to say, but it's definetly true) and to take it a step further, you have to learn to love your losses.

Just to make it clear; a loss is what your trading plan says is a loss, ie. 2%, 5% or how ever much your plan takes into account. Losing 20%, 50% or more on a single trade is not a "loss" - that's just stupid. And that's what you should be avoiding at all costs.

Another thing; a "paper" loss (or even profit) is absolutely no different to a "banked" loss. There is no difference. Nip, nada, nothing. But feel free to argue if you like.
  • #25
  • Aug 29, 2007 12:20pm Aug 29, 2007 12:20pm
I too agree that sound trades where the entry was properly timed clearly move in your direction faily quickly (within a handful of bars at most). I sometimes close trades that show a lack of momentum upon entry, even at a small loss.
  • #26
  • Aug 29, 2007 9:51pm Aug 29, 2007 9:51pm
Trying to find where the argument is Faure.

Quoting faure
That's my point, you have to accept your losses (a very Mark Douglas thing to say, but it's definetly true) and to take it a step further, you have to learn to love your losses.
We agree.

Quoting faure
Just to make it clear; a loss is what your trading plan says is a loss, ie. 2%, 5% or how ever much your plan takes into account. Losing 20%, 50% or more on a single trade is not a "loss" - that's just stupid. And that's what you should be avoiding at all costs.
Couldn't agree more.

Quoting faure
Another thing; a "paper" loss (or even profit) is absolutely no different to a "banked" loss. There is no difference. Nip, nada, nothing. But feel free to argue if you like.
No argument here either

Went back and re-read your opening post and realized my mistake. You started a thread "How to cut your losers short and let your winners run" but went on to espouse the virtue of "loving losers" this is where I got confused. As i realize now, that it was a more theoretical argument rather than a practical discussion on how one can actual go about doing it.

My Bad
Ademac
  • #27
  • Aug 30, 2007 12:36am Aug 30, 2007 12:36am
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.

Anyway that's my rant for the weekend, hope it helped someone. Take care.[/quote]

Ok that is a weird outlook. I personally dont know any successful business owner who loves losses.....or loves banking a loss...or expect to loose money...but hey whateva rocks ur boat...
  • #28
  • Aug 30, 2007 12:39am Aug 30, 2007 12:39am
Quoting ScottH
Trading is just like any other business, you can't have a restaurant and not pay any food suppliers, wages, and equipment!!
As a business owner i can tell you that no business will survive if you constantly keep making losses. However there is a difference between working capital and loosing capital. You use your working capital to pay for stock and wages etc....BUT your working capital eventually makes you more money.
  • #29
  • Aug 31, 2007 5:23am Aug 31, 2007 5:23am
Well agreed!
I think that's the way to cut ur loss short!
Make yourself used to do it everytime you see a counter movement against the direction you trade, I think 3 bars on a M15 chart is enuff. Just cut your loss, you can always enter another trade later with either a better price or the right direction.
If you force yourself to do it often, you'll also develop a sense to catch the best entry point, if you let ur loss run long, the next time u'll still enter at a bad price.
There's a way to train it actually, I mean train you to cut ur loss short and let ur winners grow.
1. Find a cp with the most volatility, I personally prefer gbp/jpy and eur/jpy 'coz if they started to move, they'll move more than 50 pips for sure.
2. Open M15, open a buy trade and a short trade, observe the movement. If you see 3 consecutive bull bars, close ur sell trade, the buy power usually continues. When the buy trade covers ur loss from the sell trade, set ur Sl to BE. Do the opposite with 3 bear bars.
When you are used to cut ur loss short with the above method, the next time u trade, check the trend first, I usually look at the H1 chart with the alligator indicator, the pivot, and ichimoku. Buy if it's an upward trend and u find 3 bull bars, if it follows by 3 bear bars, close ur trade. Buy again when u see 3 consecutive bull bars.
Now when u have finally developed the sense of enter at the best price, i.e. when u buy, price moves up quickly, and v.v., you dun need to worry about cut ur loss short.
And last but not least, dun be emotionally attached to ur trade, it's just one of millions of trades u'll make, never marry it, it's not ur wife or hubby, but just one of the girls/boys u happen to whatever...met on the street

Quoting faure
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.
make some money, have some fun, leave some footprints
  • #30
  • Aug 31, 2007 8:15am Aug 31, 2007 8:15am
there was a chinese story about Confucious and one of his students. one day the student asked the master, "if someone did me a disservice and I repayed him with generosity, shouldn't I be praised?"

the master thought about it and asked, "if you repay a disservice with generosity, then how should you repay other people's generoisty?"

the master then concluded, "repay a disservice with a justifiable and righteous manner, repay generosity with generosity."

I think the morale of the story applied to trading is - a trading loss is like being robbed in public, and in daylight, it's asking too much to learn to love this experience. the proper way to behave when next time you meet your robber, is to look at him straight in the eyes and cover your wallet with both of your hands.
  • #31
  • Aug 31, 2007 8:27am Aug 31, 2007 8:27am
Quoting iandekoker
Ok that is a weird outlook. I personally dont know any successful business owner who loves losses.....or loves banking a loss...or expect to loose money...but hey whateva rocks ur boat...
I agree it is a very weird outlook. I'm just try to change the whole "I bet if I hold onto this trade a bit longer it will turn around and become profitable" mentality.

In business if things go wrong, working harder and more capital will usually be the fix for things. But that doesn't work in trading.
  • #32
  • Aug 31, 2007 10:31am Aug 31, 2007 10:31am
If you cut your loss once you would have been down appr. 30 pips; cutting your losses a couple more times you'll make a big dent on your daily profits... I think trading is like surfing, you would want to wait for right time for entry and exit and try to eliminate bad entries as much as possible. Just my two cents.

scalpt
  • #33
  • Aug 31, 2007 11:41am Aug 31, 2007 11:41am
Quoting SeekingLight



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 not completetly false, u just didn't get what i was saying. Surely the market moves in waves but a Good setup and entry should not fake you. I'm not talking market noise here, because if my setup is based on the daily then ~30 pip retracement shouldn't shake me

Also, it is relative to your strategy and setup.

Quoting Faure
Something very important that I want to stress here is that a loss is not being down 10 pips while trading a 4hour eur/usd chart; that's just noise. But if I were still down 10 pips after 12 or 16 hours I would scratch the trade and wait for the market to move before entering again.

The thing is big moves don't retrace very much - they tend to be one way trains. So if the market chops back and forth it obviously hasn't left the station yet.
I've been able to cut my losses since i understood this. Before, i used to hang unto a loser. But now, because i'm using price action as a part of my entry i now know that a good trade should not retrace too much if the breakout is correct.

Tried, proven, tested
100% of traders are losers. Just that some win more than they lose!
  • #34
  • Aug 31, 2007 3:29pm Aug 31, 2007 3:29pm
I don't like to lose. On the track or in the market. When I started trading, I would let losers go too far "hoping" they would at least come back to break even so I wouldn't have a losing trade. After years of listening and reading, I have a different mindset.
I think of cutting my loss quickly as "saving money" or "buying market information".
  • #35
  • Edited 12:32pm Sep 2, 2007 12:00am | Edited 12:32pm
This whole topic is so subjective.
In the end I think it depends on weather you are a trader or a gambler.
A trader has a system which he knows and trusts.This makes his decision making easy.He`s possibly seen the position he is in, a hundred or more times before.
A gambler see`s something that looks somewhat like a head and shoulders pattern approching some trendline he has built, nearing a fib line he has put there. He jumps in, and if it dosn`t respond the way Rob Bookers free ebook told him it would he`s confused as heck.(No offence intended towards Rob ,Just an example)
Then all the neat clichés like "cut your losses" and "give your trade some room" start to contradict, reducing him to an emotional wreck.

How`s this,
Don`t put your money on the table untill you have a winning system you trust that provides a well defined entry/exit and you know how to trade it..
  • #36
  • Sep 2, 2007 9:05am Sep 2, 2007 9:05am
I have an EA I am testing on live last week. It saved me almost 300 pip / or given me back 300 pips.

It detects my stop and once stopped out it opens a pending xx pips from the stopped out point. But still in the direction of my stopped out trade. If price continues against me, the pending order won't be triggered. But if it reverses and go my direction again, I will be picked up again.
The second EA, not in perfect funtion yet, saved me 200 pips last week on Gbp-JPY. I am using it anyway.
I initially place a stop/TP at a point where I believe price will reverse. That will close and book the profit. The EA upon taking the profit will open a pending order to be triggered if price, at anytime, continues over to the otherside where it has TPed previously.
All I have to do is to have an existing trade that is opened and with a stop loss or TP.
I just have to drag the lines to where I want the pending order to be and the stop loss that the pending order should have.
You can easily do the same without an EA. Just manually. See if this could be a solution that could fit to your system. Be assured, that there is no one unique answer to all your systems.
Attached Image
  • #37
  • Sep 2, 2007 12:27pm Sep 2, 2007 12:27pm
Highway ,you must be a fan of Jacko`s Forex House of Pleasure and Pain.
I am pretty sure those guys would love your indicator.
It is a very good idea,how many pips must the action against you go before the return position is triggered on the way back?
  • #38
  • Sep 2, 2007 12:52pm Sep 2, 2007 12:52pm
Entries and exits in my opinion are the same thing. In and out as soon as a signal is given and the only time this is violated is when my s/l or t/p is hit.
  • #39
  • Sep 2, 2007 1:09pm Sep 2, 2007 1:09pm
Quoting randomlight
Highway ,you must be a fan of Jacko`s Forex House of Pleasure and Pain.
I am pretty sure those guys would love your indicator.
It is a very good idea,how many pips must the action against you go before the return position is triggered on the way back?
It depends on the pair. For Gbp-USD, I use 30-40 but it often depends also on fib's/s/r/MA confluence.

On the way forward, it is about 15-20 pips after the confluence.
  • #40
  • Feb 7, 2010 10:48am Feb 7, 2010 10:48am
Quoting highway
I have an EA I am testing on live last week. It saved me almost 300 pip / or given me back 300 pips.

It detects my stop and once stopped out it opens a pending xx pips from the stopped out point. But still in the direction of my stopped out trade. If price continues against me, the pending order won't be triggered. But if it reverses and go my direction again, I will be picked up again.
The second EA, not in perfect funtion yet, saved me 200 pips last week on Gbp-JPY. I am using it anyway.
I initially place a stop/TP at a point where I believe...
Looks like you found a winner.
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