I trade with Forex.com (Gain Capital) and have been looking into using some of the advanced platforms they offer. Both NinjaTrader and Strategy Runner allow one to configure how a trade will be managed in advance so that, for example, you can have your stops set to break-even when the trade has moved 50% towards your profit target. I'm trying to work out for myself whether or not this is a desirable thing to incorporate into a trading strategy, and welcome any advice on the topic.
I've read different opinions on whether moving stops and limits once a trade is in play is a good idea. Some books recommend using strict money management principles to set stops and limits in advance (e.g. capital risked on any one trade is 2.5% of total, and profit goal is 5%, so with $2,500 capital you'll place stops at $62.50 and limits at $125), and not interfering with these parameters once the trade has been placed. The benefit of this approach is that you don't start second guessing yourself once you've committed to a position. This mindset also allows you to focus on raising your overall percentage of profitable trades, which, with disciplined money management, is the key to increasing your capital over time, and saves you from obsessing over the execution of any particular trade.
On the other hand, some management of the trade while it's in play seems to make sense. Supposing at the outset of your trade, the stop is at 50 pips and the limit is at 100. When you are half way to your profit goal (i.e. up 50 pips), moving your stop to break-even would mean that your allowance for a down-side movement is the same as it was when the trade was put on (i.e. 50 pips). At this point, a movement of more than 50 pips would almost certainly seem to indicate that the trade was going against you, so it seems better advised to get out at zero than take a loss. By the same logic, once you reach 75% of your goal, one could argue that it would seem to make sense to move the stop to the half-way point (i.e. 50 pips). The main argument against moving the stops is of course that it increases the chance of a good trade being stopped out due to oscillations and noise before it has reached its maximum profit potential.
I'm leaning towards thinking that this style of trade management could be a good thing. Ultimately I'd prefer not to intervene manually in the trade once it's been executed, as the 'human factor' can sabotage the best trades with second-guessing, emotion, etc. But having the trade managed automatically according to a set of rules designed to limit losses and conserve profits seems like it should be a winning strategy over the long term. What are your thoughts?
I've read different opinions on whether moving stops and limits once a trade is in play is a good idea. Some books recommend using strict money management principles to set stops and limits in advance (e.g. capital risked on any one trade is 2.5% of total, and profit goal is 5%, so with $2,500 capital you'll place stops at $62.50 and limits at $125), and not interfering with these parameters once the trade has been placed. The benefit of this approach is that you don't start second guessing yourself once you've committed to a position. This mindset also allows you to focus on raising your overall percentage of profitable trades, which, with disciplined money management, is the key to increasing your capital over time, and saves you from obsessing over the execution of any particular trade.
On the other hand, some management of the trade while it's in play seems to make sense. Supposing at the outset of your trade, the stop is at 50 pips and the limit is at 100. When you are half way to your profit goal (i.e. up 50 pips), moving your stop to break-even would mean that your allowance for a down-side movement is the same as it was when the trade was put on (i.e. 50 pips). At this point, a movement of more than 50 pips would almost certainly seem to indicate that the trade was going against you, so it seems better advised to get out at zero than take a loss. By the same logic, once you reach 75% of your goal, one could argue that it would seem to make sense to move the stop to the half-way point (i.e. 50 pips). The main argument against moving the stops is of course that it increases the chance of a good trade being stopped out due to oscillations and noise before it has reached its maximum profit potential.
I'm leaning towards thinking that this style of trade management could be a good thing. Ultimately I'd prefer not to intervene manually in the trade once it's been executed, as the 'human factor' can sabotage the best trades with second-guessing, emotion, etc. But having the trade managed automatically according to a set of rules designed to limit losses and conserve profits seems like it should be a winning strategy over the long term. What are your thoughts?
