Cutting Losses Before Your Stop

What are your thoughts on cutting a position before a stop loss has been reached? I have been doing this in the past few weeks with good success. I also sometimes cut my position before the target.

My winners are still bigger then my losers and I have a 70% hit rate. Is that good trading or am I doing something that will blow up in the end?

Closing losers before your stop will not cause you to blow an account. There is a good chance though that it may be costing you some winners. If your winning trades are commonly not drawing down fairly close to your stop the stop may be too large. If your losers can be identified sooner than your stop then its probably wider than it needs to be. There is a fine line between giving the market room to breathe and having a stop that is too large. The only way to find out is thoroughly test the method to determine how far a trade should move against the position before you know its a loser. When you have that number simply add the spread on your chosen pair and go with it. If you find that you can reduce your stops by say ten pips without adversely affecting your win rate then you just added profitability by leveraging your winners to higher effect.

I agree with Seneca pilot, if you don't give space forthe market to breath, you can cut your losses early and think you did a great job losing 20 pips for example, but then minutes or hours later you find out that the market went your away and you lost the chance to get 50 pips. So it has pros and cons.

Yesterday I traded eur/jpy and lost 80 pips, if I had cut my losses I might have lost maybe only 20 pips, but I waited for a new opportunity and now I'm up 200 pips, if you have a good risk/reward you should be fine with your trades, just don't overleverage your account, ever. I can tell with confidence that's the not smart way to trade.

I trade with fib number, sup and res levels. So that's how I place my stop and profit targets. From my experience, most of the times that I cut my losses earlier, I ended up getting frusted later because the market went all my way. So it's up to you, maybe demo trading untill you get confident enough and accept that losses will eventually happen.

When I place my stop loss and take profit targets, I leave them as it is. I do not meddle with them, which includes closing the position before stop loss and take profit is hit. Most times there are only 2 outcomes for my trades - stopped out or hot profit target. Sometimes I shift my stop loss to entry price for a risk free trade but I rarely do that as well. I prefer to allow my trades to play it out.

My trading philosophy is very simple - I do not know what is going to happen in the market. Nobody knows. They can guess but they can never really know. So if I do not know what is going to happen, then why would I meddle with my trade position? All my analysis is done BEFORE I place a trade, which includes where to place my stop loss and profit target. Since I have already made my decisions based on my analysis, I will just allow the market to play it out.

The key to success in trading is to be consistent. I can better control my actions and emotions if I consistently trade in the same way, day in day out. That works for me.

If you keep meddling with your trades, then it begs the question - when do you close the trade? You will have that battle in your head each time you have a trade position.

Having said all the above, do what works for you. Just be consistent about it.

I always place my stops above or below a supply or demand area, I'll then just leave it. I believe a properly placed stop is just as important as your entry position.

Cutting your losses too early is a no-no, especially if you have a stop in place. You need to be patient and giving in to that impulse is not the way to trade..

as my number of live trades has grown to a point I can finally realize that if you place a trade and it immediately goes against you (since the market sells when you buy) and the counterparty wants to take you out... then you know you should stay out and get out asap... but if otherwise then you will probably hit your TP with the trade.

Reason for this is simple... there were enough suckers on the other side of the trade to avoid the bank or hedger to go against me and my position... since we are small fish this usually should be the case, but in off hours and the fact that many traders think the same looking at the same chart then the stop hunting is very evident.

It may be a good idea to close half your position when you feel that you have to "meddle" and leave the other half to either hit your SL or TP.
That way your trading history will show whether exiting early has worked for you or not.

I often find myself closing half of the position in case the trade goes against me for a good amount and then comes back for a small loss.
I think this is considered a bad thing. Often enough price will simply continue going in my direction afterwards and I really killed the potential by being unsure. I consider a stop-loss being a tool that is used to invalidate a trade setup; when a stop-loss has been hit your reasons for entering that trade have been invalidated. In case a stop-loss is not hit it simply means your trade remains valid and therefore should not be closed or partially closed, unless some direct external unforeseen forces come into play(like breaking news).

In general, I agree that meddling is negative, especially when your emotions are the driver. Plan your trade and trade your plan, as they say. There are some rare cases where price doesn't behave as I expected it to, though, such as stalling out for an extended period of time where I expected there to be strong supply or demand. At these points I find it acceptable to terminate a trade early, as more often than not my intuition is correct. After all, the underlying rationale for entering the trade is proving to be weak. This is particularly true when executing a countertrend trade.

This is an interesting topic and is something I've been pondering about. Let's think about the adage "cut your losses". Most people abide by this by setting a SL in order to not let their losses run further. But in my experience this should mean exiting out of trades if you feel the trade is no longer valid according to the reason you entered the trade for, and this is done before your hard SL is hit.

After exposing myself to many instances via backtesting and live trading experience, I can 'feel' the probability of the trade working out as it develops. For example, when price stalls for an extended amount of time while forming opposing signals then it most likely means the vast majority of traders aren't on my side and there are excess demand/supply against my desired direction. In this case, should I close out my position or just leave it? In almost every instance I would manually exit and the reason for this is simple: the odds are no longer on my side so if I continue to stay in this position I am just gambling. Killing the trade and waiting for another opportunity is my ideal solution in those cases.

Of course, there are also other cases where we could meddle with our trades, such as closing it before the weekend. This is just personal preference but it illustrates the point that we have to be flexible in our approach to trading. Just because you put on a trade does not mean you can't interfere with it. But where do newbies and amateurs go wrong? They meddle with their trades based on fear and greed. Compare this to the professional trader who evaluates and adjusts their positions in response to market conditions. Personally, I never ever adjust my SL and TP once the trade is on but if the market is showing me very obvious signs indicating that the odds are no longer with me, I will simply close my trade at market price, which is usually at a small loss/gain. In the end it just comes down to your ability to read the market. And no, I do not mean exiting your position just because there's a slight retrace against your position. After the dust settles, you'd be kicking yourself if price does end up going in your direction but if you understand the importance of probabilities and risk management then that shouldn't negatively affect you at all.

Someone mentioned moving their position to breakeven. This definitely has it merits but not what most people believe. If your original SL is placed at a technical level then moving to breakeven (your entry point) makes absolutely no sense. You are actually increasing the risk by placing your SL at an arbitrary level. Think about it. I only move to BE when price is far from my entry point AND is extremely close to my TP, which is the point where I deem the trade to be a failure if it manages to come all the way back to my entry price. I do this for a psychological reason while making sure it does not adversely affect my results.

Again, this is my just my opinion and since everyone's system is different there is definitely no one way to do things in the market. Best thing to do is to keep a detailed journal which will allow you to evaluate the effectiveness of whichever approach you choose.