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  • #1
  • First Post: Jan 11, 2007 9:12am Jan 11, 2007 9:12am
Hi all
With the help of you folk on this Forum I've arrived at a method that has potential, but I need some experienced trader's help in maximising my returns.
I won't bother to explain my method at the moment as the question I need to ask applies to anyone reading this forum, irrespective of their methodology.
The question I need answering is this. When I have a winning trade I still suffer the 'fear' factor and find myself scaling out of trades too soon, or moving the stop loss to BE too early and leaving pips on the table. I know I shouldn't worry about the latter (there's another trade around the corner) but with the strike rate I have at the moment, and have had for some time, I feel I'm missing out somewhere. So any advice (or criticism) is welcomed.

The basic strategy is this:
(1) All trades are based on sell/buy stops, or limits. I very rarely place market orders these days, if ever.
(2) Initial stop is set to 50 pips.
(3) Basic lot size is 5 lots ie 2% risk - (micro account $140 capital)

Is there any way of calculating an optimum way of scaling out of a winning trade, whilst, at the same time maximising the returns. Having come from a horse-race betting background, where I bet using level-stakes only, I'm used to letting the bet run, win or lose.
As Jim, and many others here, favour taking profit early and moving to BE fairly early on in a trade, I think I'm not getting all I could from my trading.
I've attached the stats from the start of this trading year, hoping the figures will give you guys (and gals) the basis to offer advice.
I guess there may be other questions you may have, and I'll try and answer them as they come up.
As a current example I entered long EURJPY 8th Jan at 154.24 with 5 lots - closed 3 lots at 154.70 and another lot at 155.09. Last lot left running with a trailing stop of 35 pips (stopped out at 155.06 - 9th Jan).
Is this simply 'fear' or something else?
Thanks
Attached Image
  • #2
  • Jan 11, 2007 10:05am Jan 11, 2007 10:05am
When you enter a trade, do you have a target(s) you're aiming for? Many technical systems will have targets, whether it be S/R, Fibs, etc. Many systems will have multiple targets, such as a support level. If it zooms through it, the next support level will be the next target. Is this what you do?

If you're just entering trades without a technical target then how do you know you're getting out early or not? In hindsight we see these things, but it's impossible to know at the moment if you're trading without a target.

According to your example below, why did you close 3 lots at 154.70, only 46 pips? You need to answer that question. No one else can do it for you. Technically, you shouldn't have closed there...155.30 was the first resistance (38 fib) which is where it bounced. If you want to scale out based on just numbers alone, such as 40 pips, 60 pips, etc, then just be consistent about it and accept the fact that you'll never catch big moves. You can't have it all. Either you trade to catch big moves or you don't. I think too many people are confused as hell when it comes to exiting.

If you're a trend follower, then you wouldn't have targets. For exits they use a couple of things that suit a trend system. One would be giving back a percentage of made profit. If you make 500 pips, you close after giving back a set amount, say 40%, so you'd close when it comes back to 300 pips. Using the ATR is another method. Let's say the daily ATR is 100, then when you give back 2x ATR you close the trade. Using a 35 pip stop loss is not going to work...you're going to be taken out by noise more often than not.

How do you know which method to use? First you need a good sized sample of trades. You could use some backtesting, but actual live results are better. Once you have them, you test the hell out of them. There are always going to be trade-offs such as percent win goes down, but equity goes up, etc. You find what you feel comfortable with.

If you do have targets and you're closing your trades before they get hit, you've got to figure out why. Going to BE as soon as possible makes people feel better, but the numbers will prove that you'll get taken out of a number of trades early. Again, it's all about what works for you. For many traders, going to BE asap makes it much easier for them to hang in on the trades that continue going their way.

If you're just closing them out of fear of giving back your gains, then there are a couple of things you can do.

First, and easiest, is to turn the pc off once the trade is in. You may feel like you're not working at it if you do this, but believe me, the fact is you're doing the best thing you can. Let the trade work itself out. Either you lose or win. There's no agonizing over the normal noise. There's no closing out early. The literature bears out this point...see Livermore and so many other successful traders that just let the trade go. They're the ones we all want to be like in terms of success, but so few of us actually do what they do(did).

A second approach is to start punishing yourself. If your rule is to close out at a certain point and you break that rule (or any other rule of your system for that matter), what's the result? Maybe you win, maybe you lose. But for most people, that's not enough to stop their lack of discipline. We have all grown up in a world where bad behaviour is punished, yet most of us don't, and won't, punish ourselves. That's why we have so many problems in life, the vast majority which we bring upon ourselves. Discipline is not a mystery, it's plain and simple. Punish yourself. Every time you break a rule, stop trading for a day. Do it again? Don't trade for two days. Take away the one thing you want to do, which is trade. If you follow your rules, then great, you get to trade everyday. If you break them, then you have to pay for it.

Think about life. Break rules at work, your ass gets fired. Break rules in society, your ass gets incarcerated. Break rules of plain common sense, your ass gets mangled, fried, beaten, etc. Break rules of your trading plan...what happens? Nothing. This is not rocket science, it's just plain sensical thinking.

Whatever you decide to do, stick with it. It's the best thing any trader can do for themself.
  • #3
  • Jan 11, 2007 10:34am Jan 11, 2007 10:34am
Dopey????? Not sure if the name fits, but thanks. I'll read that a few times and take the lessons on-board. I'm essentially a trend-trader, working off Daily charts at the moment, and I think its probably a lack of confidence in the trend going all the way that my back testing says the method should go.
Like many noobs, I started on 5 & 15 min charts and if I'd made 20 pips on a good trade would get out then.
I appreciate your feedback and will take a closer look at my psychology.
  • #4
  • Jan 11, 2007 11:35am Jan 11, 2007 11:35am
Darn, where are those green dots? I would like to give Dopey a few of them.

That post was great advise...

Another thing you might check into is the way the original Turtles took their profits. It was a 4 fold approach where the previous profits paid for the next tear. I found a PDF on google search. One of the original Turtles published it and said it was for open publication... If you cannot find it and want a copy I can post it up.

I think a modified version of this would suit your approach well...

just a thought, as you can never go broke taking a profit, no matter how small...

BTW, it is good to see your words Peter...
  • #5
  • Jan 11, 2007 1:27pm Jan 11, 2007 1:27pm
I have never understood why anyone would promote the idea of holding their stops to the last pip but scale out of their winners before the move is over. You need to cross the finish line with all your tires on the car, don't start taking a couple off to save on tread wear. It just doens't make sense. You know your stop, you know your risk and worst case scenario, you have a belief about where the market can go, you know your risk:reward, now put the trade on and see what happens. Given the statistics that you posted you are right fairly often, now go out and get what belongs to you. Don't start stacking the odds against you by reducing your position. You are going to need those pips to cover your losing trades.
  • #6
  • Jan 11, 2007 1:46pm Jan 11, 2007 1:46pm
Quoting philmcgrew
I have never understood why anyone would promote the idea of holding their stops to the last pip but scale out of their winners before the move is over. You need to cross the finish line with all your tires on the car, don't start taking a couple off to save on tread wear. It just doens't make sense. You know your stop, you know your risk and worst case scenario, you have a belief about where the market can go, you know your risk:reward, now put the trade on and see what happens. Given the statistics that you posted you are right fairly often, now go out and get what belongs to you. Don't start stacking the odds against you by reducing your position. You are going to need those pips to cover your losing trades.
Whoops firstly I meant to say Dopey that was a post that was worth two reads! Thanks!

I agree so much phil, well said! I used to scale out on my trades thinking I could ride it out for longer profit and bigger winnings, and yet this never sat right with me. So, I went back to all my old trades and redid them all with taking full profit at the first place I scaled out at.

Although I was making profit before when i was scaling out. To make a long story short, I don't scale out of a winning position only a losing one now and it has helped my bottom line. Although, I am sure others scale out with great success, I can only think of it the way phil described it.
  • #7
  • Jan 11, 2007 1:50pm Jan 11, 2007 1:50pm
Quoting mbqb11
So, I went back to all my old trades and redid them all with taking full profit at the first place I scaled out at.
That is great advice (wish i would have said that ) All you need to do is go back and review your trades on a scaling vs. non-scaling basis and see which yields the better results.
  • #8
  • Jan 11, 2007 2:03pm Jan 11, 2007 2:03pm
One more thing: Moving your stop to breakeven too quickly will kill your results. It will feel good, but you will leave a lot of money on the table. I did a study with a strategy below.

The left axis displays accuracy or % winners and refers to the thin line. The right axis refers to overall profit in USD. The X axis, also in USD shows the results associated with various moves to breakeven starting with $100 profit (or +10 pips on some pairs). While your nunbers will vary the shape of the curve should not. Moving to break even at the right point can yeild up to 100% more profit than moving sooner and feeling good about yourself. It is important for you to know where your critical point lies. Below it and your profits and accuracy will suffer. Above it you remain exposed too long for no additional benefit.
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  • #9
  • Jan 11, 2007 2:07pm Jan 11, 2007 2:07pm
Quoting smjones
One of the original Turtles published it and said it was for open publication... If you cannot find it and want a copy I can post it up.
I believe it is already hosted here at FF. http://www.forexfactory.com/turtlerules.pdf
  • #10
  • Jan 11, 2007 2:07pm Jan 11, 2007 2:07pm
Some time ago I made a simulation on various MMs. Assuming you stay in a trade as long as it have more chances to go your way, the best option is to piramide, that is, adding to winning posiotion. Not so bad idea is scaling out of losing position and, surprise surprise, adding to losing position. They both increased profit factor comparing to doing nothing. The worst option is to scale out of losing position. Yes, it's psychologically very nice, but unless you're trading huge posiotions, don't even bother.
Regards
  • #11
  • Jan 11, 2007 6:09pm Jan 11, 2007 6:09pm
This is some information I have on gbpusd. Still needing to tweek it but have come up with some interesting and helpful tips.
When it moves 0-9 pips from the days opening the probability of it reversing the trend is 75%.

When it moves 10-19 pips from the days opening the probability of it reversing the trend is 55%.

When it moves 20-29 pips from the days opening the probability of it reversing the trend is 40 %.

When it moves 30-39 pips from the days opening the probability of it reversing the trend is 25%.

When it moves 40-49 pips from the days opening the probability of it reversing the trend is 13%.

When it moves 50-59 pips from the days opening the probability of it reversing the trend is 8%.

When it moves 60-69 pips from the days opening the probability of it reversing the trend is 4%.

When it moves 70 pips from the days opening the probability of it reversing the trend is less then 1%.
  • #12
  • Jan 11, 2007 8:08pm Jan 11, 2007 8:08pm
Quoting philmcgrew
That is great advice (wish i would have said that) All you need to do is go back and review your trades on a scaling vs. non-scaling basis and see which yields the better results.
Scaling out.

Taking 100% loss target, but 50% at profit target.

...In the end it's like turning your 80% win/loss ratio into %66

Do I have the math right?? LOL

I'll never forget backtesting an MA based system (No. Not crossover )

I spent much time theorising and thought I'd come up with a good system that took the first profit at a fib line, then the second at the next fib line ,and so on. I manually backtested this bar by bar!

It didn't seem to make sense. The profit/loss percentages didn't match my original visual walkthrough. On a simple basis, the number of potential winners to potential loosers was high. The actual profit/loss though, after the bar by bar backtest, was pretty ordinary. :

I went back through it again.
This time taking all profits at the first fib. This brought the results in line with the original expectations.

Other ideas were played with. ...Thinking I was a genius...LOL

This included taking MOST of the position off at the first target (which by this time was the second fib line I was using) and then letting the remaining portion run, just to be "in on the trade".
This was useless too! The small portion that was left over was peanuts! Often that remaining profit, when taken, was smaller than the winnings from the first and larger parcel. Even though that remaining run was much much larger.

I played with all sorts of portion ratios.

But what worked in the end??

Fib projections and existing Support/resistance lines. (which incorperates Pivots and MAs Confluences)

...They are solid areas on the chart that will most likely bring about the main reversal against your trade.

It's contradictory to advice in this thread , and the above story, that my account balance has been moving forward since going breakeven and taking a portion off once the closest possible "hurdle" is hit.

When a target is reached I'll watch to see if it is a strong level. If so I'll take a portion off.
If price breaks through reasonably easy I'll watch for an oppurtunity to add to the position. Depending on how close the next hurdle is, of course.
If I had removed a portion earlier, but the reasoning for it is negated, I'll just re-establish any removed portion. I pay the spread again and maybe a slight pip penalty. (Or else I don't add if it's gone too far)

Is this approach OK?

It's been working for me so far.

It's a long road learning to maximise profits while limiting risk.
This approach is working for me in my current state of trading experience. It works with my nerves and helps overcome my original psychological failings.

As I get better at this, I'll probabilty go a step backwards and try old ideas and other suggestions, but with wiser eyes and more experience. Not to forget better disapline.

It's all baby steps.

It's all ok suggesting someone do this or that, but I know for me I've had to go throught certain stages of development. What works for me now would have fried me six months ago. Yet I may be doing something even better in a years time.

There I go ranting again!
Bundy's status today: "Waiting..."
  • #13
  • Jan 11, 2007 8:13pm Jan 11, 2007 8:13pm
...And Dopey. Awesome post!
Bundy's status today: "Waiting..."
  • #14
  • Jan 12, 2007 4:10am Jan 12, 2007 4:10am
Thanks all.

Peter, a few of the respondents have shown what you need to do with testing your trade results. As Bundy pointed out, you've got to find what works for you. Good luck.

Nat
  • #15
  • Jan 12, 2007 5:28am Jan 12, 2007 5:28am
I'd like to thank you all for your input. I'll digest the words of wisdom and reply in depth once I have my head sorted, but already I've taken enough from you all to make at least one change.
I feel that most of my mental approach is sound, in that I take no offence if I'm in a losing trade, realising that the market has no personal attitude to me as a trader.
As my account is small, at the moment, I need to get the returns (ie profit) side of this sorted before I convince the 'finance director' that I can be serious enough to warrant some sort of increase in my basic stake.
I look forward to any other input that is offered as the learning curve here is nearly as steep as my (previously) downward equity curve.
It seems the hardest part is striking a balance between 'account preservation' and 'letting profits run'.
Hopefully, with time, this will become less of a problem for me.
  • #16
  • Jan 12, 2007 6:38am Jan 12, 2007 6:38am
Wow, can't really add anything new here, but I wanted to say great job to those that have posted their advice/experiences. We need more threads like this!

andersenws
"Youth is the trustee of prosperity." - Benjamin Disraeli
  • #17
  • Jan 12, 2007 3:22pm Jan 12, 2007 3:22pm
Thanks, Dopey. I needed something like that.
"Its not where your at, but where your coming from"
  • #18
  • Jan 13, 2007 4:34am Jan 13, 2007 4:34am
Ok guys here's the the first heads-up on the comments so far.

I've been back through this week's trades and analysed the P/L for each pair and it has really opened my eyes. I carried out this exercise only on closed trades, since your replies I have only taken some profit on cable, moving SL to BE+10 and left the others running.

Firstly, I've ignored (at this stage) whether the point at which I closed a winning trade was the right time or not, I've simply looked at the difference between scaling out of the trades when I did and if I'd let the full 5 lots run and closed the whole trade at the best price that I achieved for that pair.

Lo and behold.... :surprised ... I would have turned a 40 pip loss, for the week, into a 100 pip profit for the week.

Well kick ma sorry a$$. And thanks again to all of you
  • #19
  • Jan 20, 2007 5:37am Jan 20, 2007 5:37am
I've spent a week taking all this advice on board and felt I should reply to the individual posts that have helped towards my change of outlook.

I have to say how positive I now feel. I no longer look at the charts and think ' oh no not again ', or ' perhaps I should bank some of this gain '.

Now they run, good or bad. Most of the future will revolve around refining the method until both entry and exits have some meaningful structure.

Thanks again
  • #20
  • Jan 20, 2007 5:47am Jan 20, 2007 5:47am
Quoting Dopey
Thanks all.

Peter, a few of the respondents have shown what you need to do with testing your trade results. As Bundy pointed out, you've got to find what works for you. Good luck.

Nat
Quote
Dopey
When you enter a trade, do you have a target(s) you're aiming for? Many technical systems will have targets, whether it be S/R, Fibs, etc. Many systems will have multiple targets, such as a support level. If it zooms through it, the next support level will be the next target. Is this what you do?
No this isn't what I do, yet. Up to my initial post I was more concerned in finding a safer entry strategy for the Daily method I am developing, so no fixed target, in terms of pips, account percentages, etc, was really on my radar. As of this moment, it seems to have a reasonable strike rate, but it was becoming obvious that the returns should be greater than they were, hence the question.
Quote
If you're just entering trades without a technical target then how do you know you're getting out early or not? In hindsight we see these things, but it's impossible to know at the moment if you're trading without a target.
This is great comment and I suppose in the back of my mind I was simply looking at where price HAD been, where it was NOW,and where I thought it might GO to after the trade was activated. So the target was very much theoretical (hopeful?) but, in terms of pips, outside my limited experience. Hence the fear factor once the trade had run into any sort of profit.
Quote
According to your example below, why did you close 3 lots at 154.70, only 46 pips? You need to answer that question. No one else can do it for you. Technically, you shouldn't have closed there...155.30 was the first resistance (38 fib) which is where it bounced. If you want to scale out based on just numbers alone, such as 40 pips, 60 pips, etc, then just be consistent about it and accept the fact that you'll never catch big moves. You can't have it all. Either you trade to catch big moves or you don't. I think too many people are confused as hell when it comes to exiting.
Fear, quite simply! And your comments re exits is something often raised on the Forum but never fully developed. It seems there are plenty of folk making 20 pips and shutting their computers off, but this, I suspect, only relates to short-term traders, and is the sort of trading I wanted to move away from.
Quote
If you're a trend follower, then you wouldn't have targets. For exits they use a couple of things that suit a trend system. One would be giving back a percentage of made profit. If you make 500 pips, you close after giving back a set amount, say 40%, so you'd close when it comes back to 300 pips. Using the ATR is another method. Let's say the daily ATR is 100, then when you give back 2x ATR you close the trade. Using a 35 pip stop loss is not going to work...you're going to be taken out by noise more often than not.
Yes, trend trading is where I am heading and thought that trailing stops would be the answer, but, as you rightly say, unless it matches the volatility of the pair you're trading, they can do more harm than good. I really haven't studied ATR, so perhaps that's the next step.
Quote
How do you know which method to use? First you need a good sized sample of trades. You could use some backtesting, but actual live results are better. Once you have them, you test the hell out of them. There are always going to be trade-offs such as percent win goes down, but equity goes up, etc. You find what you feel comfortable with.
As I'm on a miro-mini, this is what I've now decided to do. For the next 6 months, I'll trade it strictly by the entry rules, ignoring any other factor before setting entry points. As time goes by, I'll look to keep an eye on recurring factors that may inhibit winning trades, but primarily I want to know that the core of the method has potential. By that time I'll have a feel for the sort of length of trade I can expect, and, coupled with some of the points raised here, will have a clearer idea of where exits should be targeted.
Quote
If you do have targets and you're closing your trades before they get hit, you've got to figure out why. Going to BE as soon as possible makes people feel better, but the numbers will prove that you'll get taken out of a number of trades early. Again, it's all about what works for you. For many traders, going to BE asap makes it much easier for them to hang in on the trades that continue going their way.
Not an issue now!!!
Quote
If you're just closing them out of fear of giving back your gains, then there are a couple of things you can do. First, and easiest, is to turn the pc off once the trade is in. You may feel like you're not working at it if you do this, but believe me, the fact is you're doing the best thing you can. Let the trade work itself out. Either you lose or win. There's no agonizing over the normal noise. There's no closing out early. The literature bears out this point...see Livermore and so many other successful traders that just let the trade go. They're the ones we all want to be like in terms of success, but so few of us actually do what they
do(did).
I've really tried hard on this this week. Just checking the computer a couple of times a day to check for fresh entries and look for (to my mind) obvious signs of trend exhaustion. It's very liberating.
Quote
A second approach is to start punishing yourself. If your rule is to close out at a certain point and you break that rule (or any other rule of your system for that matter), what's the result? Maybe you win, maybe you lose. But for most people, that's not enough to stop their lack of discipline. We have all grown up in a world where bad behaviour is punished, yet most of us don't, and won't, punish ourselves. That's why we have so many problems in life, the vast majority which we bring upon ourselves.
Discipline is not a mystery, it's plain and simple. Punish yourself. Every time you break a rule, stop trading for a day. Do it again? Don't trade for two days. Take away the one thing you want to do, which is trade. If you follow your rules, then great, you get to trade everyday. If you break them, then you have to pay for it.
Think about life. Break rules at work, your ass gets fired. Break rules in society, your ass gets incarcerated. Break rules of plain common sense, your ass gets mangled, fried, beaten, etc. Break rules of your trading plan...what happens? Nothing. This is not rocket science, it's just plain sensical thinking.
Point taken
Quote
Whatever you decide to do, stick with it. It's the best thing any trader can do for themself.
Thanks
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