Take a loss in a losing position or wait for it to turn around?

The context is a losing position, probably a big one. Whether the right thing to do is to exit with the current loss, or let it continue to run in the hope that the market will turn around.

The following extract from Larry Hite, a prolific Future trader, inspired the question.

I once worked for a firm where the company president, a very nice guy, hired an option trader who was brilliant, but not very stable. One day the option trader disappeared, leaving the firm stuck with a losing position. The president was not a trader, and he sought my advice.

'Larry, what do you think I should do?'

I told him, 'just get out of the position.'

Instead, he decided to hold on to the trade. The loss got a little worse, but then the market came back, and he liquidated the position at a small profit.

After the incident, I told a friend who worked at the same firm. 'Bob, we are going to have to find another job.'

'Why?' he asked.

I answered, 'We worked for a man who has just found himself in the middle of a mine field, and what he did was close his eyes and walk through it. He now thinks that whenever you are in the middle of a mine field, the proper technique is to close your eyes and go forward.'

Less than one year later... this same man had gone through all of the firm's capital.

The ideas from the above extract makes me rethink over what many traders are tempted to do in a losing position: wait for the market to turn around to exit a losing position at break even price or a small profit, but at the same time risking running into a bigger losing position. What is your opinion on this matter as a trader?

Hello. Nice post and excerpt AlastorFate.

I strongly believe in cutting out losses when threshold is met (or before). When it doesn't work I get out and look for the next opportunity. For me it's as simple as that.

if youre second guessing your position and are in drawdown already.. Get out.

there will always be another oppurtunity.

cut loss and wait for another entry.

I have a feeling this is going to end up like the SL vs NO SL thread.

Hey look who it is? The one and only starter of the most heated thread on this site... SL no SL thread. Hello man.

Oooh yea. Beagles! Get in here and attack!

Haha, just joking.

This should be the shortest thread in FF history.

Take. The. Loss.

Most of you won't agree but I actually do not always take my losses imidiately. Only when scalping though. I did away with hard stops when scalping a long time ago. Depends on the situation, but normally I will wait for a retrace once I am proven wrong. Price generally moves in waves - impulse then retrace. When entering I will generally wait for a retrace, why should I do anything different when exiting. I will not use this strategy if we are entering a zone that will contain many stops and a cascade is likely though, in that case I will use a hard or get out straight away. There are other times I will not wait for a retrace based on PA. The strategy has definately served me well not only to limit my losses, there are also times when I will not be taken out and exit a good trade on a faulse spike using this method. Each to their own I guess, it depends on the strategy you employ.

I actually personally don't side with either side of the question.

What I am against
- Big Losses

I will never allow my trade to run into huge losses because I always have a protective stop loss.

In my actual trading, once I have gotten confirmation that my trades isn't going to work out, I will be seeking to exit the trade asap even before they hit my SL, but not at once. Slight risk, but I do appreciate the loss I cut down from exiting selectively.

Before entering any trade you should always know your exit.



Sl, TP, flip positions etc - - any exit will do so long as it's part of your plan. If you have to second guess your trade, then your method is not yet ready for live trading.

best of pips all - know where your going before you leave.

Nah don't plan a trade, just wing it! Average and martingale.....and if you're getting close to a margin call just add more cash to your account. Easy peasy japanesey!

Stops are for pussies, trade like a real man!


SURGEON GENERAL'S WARNING: Quitting Trading Now Greatly Reduces Serious Risks to Your Wealth

Your decision to exit a trade should have been made before you enter a trade, that is what a trading plan is for. No strategy is 100% profitable, so you should expect losses. Back testing your strategy will tell you what your strategy expectancy is.

http://shrani.si/f/1A/42/3m8ZTmLV/untitled.png


Taking a stop loss would have been a better idea today

I place my trade, set my SL & TP and let it run. I know that on average 25% of my trades will fail. That's just the way my trading plan goes. If the stop gets hit then just move on because chances are the next 3 trades will be winners.

It's all a numbers game at the end of the day

Waiting for a losing position to come back & close it near breakeven point could work few times, however it would then turn to be a dangerous "habit" & in one of those trades you'll get caught in a strong trend, the more the price move against you the more psychological burden to act properly & close it, a sure way to blow the trading account, never allow small loss to turn to a big one!!

Holy crap dude... I hope that's a demo.

I wrote a little bit on not averaging losers here:
Losers Average Losers

Also, maybe you should get a broker who will liquidate you well before only having 48% of required margin in available capital left. That's kinda harsh.

You're also WAY over-leveraged if you trade like this an a 150 pip drop can more than half your account.


:/

Hang on Muttster....the pussies err the kitty's don't use stops....the beagles do !

Is this bloody trading or gambling ?

If your a gambler go visit nanningboob or fish n "CHIPS" aka Brijon...

If your a trader then ya cut your loss. Very simple.

Oh yeah that's right....must've been my suppressed feline side coming out!