Multi-Lot Multi-Timeframe Position trading

I trade similarly to your style but in a similar scenario I take off the closest to the current price (i.e. the latest entry) and leave the original entries to run which I thought was what you said initially. Have you changed your method in this regard or do I have a crap memory?

Isn't this just accounting? There's no bearing on your total P&L which lot you take off.. unless you got different sizes for each lot?

Hi Malloc. I probably wrote that up wrong initially, or at least made it sound like it was an easy decision. It's always a conflict in the markets. in this case, taking the biggest profits off (the oldest and most profitable lot) when price starts to move against your trade so its profit is locked in, or close the most recent lot, probably at a loss, and letting the oldest lot(s) with the biggest profits continue to run for even bigger profits in the future. One way you have profits locked in and face an uncertain future. The other way you are at a loss and facing an uncertain future. Either way, the future is equally uncertain, so I'll usually default to facing it with some pips locked up in the bank rather than empty handed. That might be a "mistake", but it's one I can afford to make over and over. There is a bit of a trick to it though. Once we take a profit, we never let the sum of the remaining lots turn negative. We'll exit all if we have to in order to prevent that from happening.

In theory we want to "buy low and sell high", so the biggest profits should only be taken off when price is establishing a new peak up and new lots should only be placed on when price is just coming out of the deepest point of a retracement. Of course, we only know that it was a new peak up or that the deepest point of a retracement has occurred after the fact. In reality all we can do is just react to what price is doing in real time as it is moving.

Of course, there is also the counter argument that we don't want to let a big win turn into a loss, and just about every win will turn into a loss eventually when a large enough retracement or a reversal finally comes by. Or another way to say it is that, the trend is your friend until it ends, and all trends end, in the end. I try to balance these decisions based on market conditions. This will be difficult to put into words, but I'll try.

If a significant retracement begins after some good price movement in my direction and I still have a chance to "sell high", I will want to make sure I take some profit out of what was a good trade and I'll take profit off the oldest and most profitable lot. All good trades come to an end eventually and I have to be prepared for that. So when I have profit locked up off the oldest and most profitable lot and price is still falling, all I want to do then is make sure the remaining lots don't turn negative as a group. That assures I take a profit off the trade.

Usually the retracement will end and I'll put a new lot on near it's end to replace the oldest that I took off in profit, or "buy low", and continue on trading with the trend. That's how I'm taking profits off in "bites" as I trade. Each bite is usually about twice my average loss for a bad entry or more. That 2:1 ratio seems reasonable. So if my average bad entry is about 30 pips, I'd like to take bites of profit off at about 60 pips or more each. I'll make this "mistake" of taking profits off in bites over and over, taking ever larger bites of profit off the trade over time and putting new lots on as long as the trend continues to run. I'll put more lots on at wider spacing's and taking off ever larger bites of profit, until the whole thing turns on me and I have to exit all and start all over.

Eventually, a retracement will turn into a deep reversal and when I'm in danger of the group of remaining lots turning negative, I'll exit all and start all over again, but the profit(s) from the lot(s) I took off are still in my pocket.

The point is, once you have a good trade going with many lots working for you, you should NEVER take a loss overall on the trade. I wish I had a more mechanical solution to offer, but as I said earlier, as hard as cutting losses short is, and it's very hard, letting profits run is even harder.

Thanks for the good question. It gave me a chance to clarify what I'm really doing here. Happy Trading!

Why should it really matter which lot you take off first? The issue is just about "moving" P&L between unrealized and realized isn't it?

Sorry, just trying to understand why this is a real issue.

Wow! Quite a pop up in my CAD/JPY long. I hope some others got some of that. I made my profit target for the week and then some. Standing aside now for Fed speak and Scottish referendum. Be back later. Happy trading!

It's only an issue if you're human and have the periodic effect of imperfection (that's me!). Mathematically it doesn't matter at all as long as you're balancing the stops of the remaining group to maintain profit as OP describes.

Psychologically though it's easier for me to close the newest order(s) and keep the oldest open as I don't have an issue seeing a bit of 'drawdown' on a deep in the money trade but watching a small profit turn into a small loss on the newest order would bug me.

That's what I thought... as I'm human too, I actually like taking off the newer ones, but that's because I have a "core" position and then trade around it sometimes.

As for the Fed and Scotland, i don't know what to do... close everything? I can't but at the same time I have a feeling I'm just going to get killed.

See you on the other side.

Love the thread btw.

Great question and discussion. I wish I had more time for it. Yes, it is just accounting between realized and unrealized profits, but there is another factor. To profit, you have to take profit sometime, turning unrealized profits into the real thing. That is always done best by "Buy low and sell high". By cashing in the largest lot near a peak, which will usually be near the start of a retracement and you always sell high. And, the future is equally uncertain either way, so why not face it with some pips in your pocket? Admittedly, there are some psychological factors here.

Gotta run, Be back later. Carry on.

Not sure what trades you were in Bidforvol, but my CAD/JPY and UJ longs both made great gains during the Fed announcements, so hopefully yours did well too. I don't usually stand aside for news announcements as they seem to go in my favor more often than against me, but I had some other business to take care of this week, and once I made my target profit, it just seemed the reasonable thing to do.

I have no idea which way the Scottish referendum will go tomorrow. All the polls seem very evenly split. But if you are in England and if you are already long GU and don't want to exit, I know how you can effectively hedge the trade. London bookmakers are offering 4 to 1 odds that the Scotts will stay in the UK. So if you bet with them that the Scotts will leave the UK (which pays 4 to 1) just 1/4th the amount you are risking on the long trade, you would break even if the Scotts leave, and make a bundle on a soaring GU if they stay. Or if you like, bet half your risk on a long GU that the Scotts will leave, and you make money either way. It's an interesting arbitrage. I'm not recommending it, just saying...

Yes I'm still here!

I had a very interesting discussion in my Skype chatroom this morning. The gist of it is that it took me a lot longer than it should have to admit that I am not clairvoyant, at all. I can determine very accurately which direction price is moving at any moment and use that successfully as a basis for trading, but as far as predicting where price will be in the future, I'm not any better than chance, or 50/50. This might seem contradictory, but it's not.

There seems to be something deep inside most people that makes them want to think that they can predict the future. Out of the thousands of people who try to predict the future, probably about half are right and half are wrong. Many of those who predict correctly will claim to have some secret method or paranormal ability, and many people will rush in to believe them. How logical is that belief, that they, or anyone can accurately predict the future?

Of course there are people, many of them, who make a fortune accurately predicting where price will be in the future. They are considered geniuses after the fact, and everybody want's to think they are a genius, right? The few people who predicted the housing bubble bursting in 2008 and 2009 made fortunes and are widely hailed as brilliant investors. What about just as many and perhaps more who got the call wrong and lost hundreds of billions? They are quickly forgotten. Why? Because it makes us happy to do so. We like to believe in an illusion that makes us happy, and when the market presents us with cold hard facts that disagree with that illusion, we will happily ignore those facts and quickly forget their consequences.

In the end, it is logically and scientifically impossible to predict the future over a large number of trials with any better than a 50/50 success rate, and after the cost of trading, that will impose a negative expectation on the accounts of anyone who tries to do so. It may work for a while, and for some it may work for a very long time, even a lifetime, but they aren't special. They have no paranormal abilities or super secret methods. They were just lucky. Even with a negative expectation, a little less than half of all traders can be successful, and a few will be wildly successful. We want to be like those people, but we just can't. We'll hear their stories of great success and be lured into thinking we can do the same. We WANT to believe we can do the same. We are so ready to believe it, that when someone comes along that tells us what we want to hear, we jump at the chance, over and over for many. It's a false hope and one we must abandon if we are to find an edge in our trading and create a positive expectancy in our accounts.

In my own humble opinion, no one can accurately predict the future more than 50% of the time. I can't, you can't, no one on wall street can. If they could, they wouldn't have lost hundreds of billions in the market crashes of the early 1900's or 1987 or the dot com bubble bursting or the housing crisis. This is hard to accept. It's disappointing. It's sickening. But it's the logical truth and until it is accepted, deep in the psyche, most traders will lose due to the negative expectancy in their accounts imposed by the costs of trading.

If the reader accepts logically that they have no ability to predict the future at all, they should keep reading. If the reader thinks they can successfully predict the future and they want to point to the less than 50% of the times they were successful as proof, or point to the less than 50% of other traders who have done it for a very long time, they should come back later when they have accepted this fundamental fact. Moving forward I'll discuss how to profit from any market without being able to predict the future at all. I'll give examples, show exactly how it's done, post charts and talk about how and why it works. It won't work 100% of the time, nothing does over a large enough number of trials. But if 60 to 80% success rate is good enough for the reader, we can move forward with no illusions of paranormal abilities and no hope of being one of the lucky few who manage to guess right over a lifetime.

First of all, let's discuss the last issue brought up above. If price is beginning to retrace and we want to reduce our risk, should we close the smallest lot we have on, the newest one, perhaps taking a small loss, or the oldest one with the most profit? It was said that it makes no difference from an accounting point of view, but that's only true if you consider unrealized profits and realized profits as the same thing. In fact, they are not. I just bought a nice new house with realized profits. I couldn't have done that with unrealized profits. I humbly submit this as physical proof that these things are not the same. We can argue with this physical fact if you like, but let's move on.

There is a huge methodical difference between these two methods of trading as well. The difference is that the beginning of a retracement is a sell signal. It's where we can reliably take our profits from the oldest and most profitable lot at a point much higher than we bought it. If we sell the oldest and most profitable lot, we are guaranteed that we will always be buying low and selling high, the essence of profitable trading. Selling the newest lot would be buying high and selling lower, a guaranteed method to reduce our account over enough trials. With this method, we will only sell that newest lot when it is the oldest, and then that will complete the cycle of buying low and selling high. We can argue with the old maxim of always "Buy low and sell high" if you like, but lets move on.

So, what do you do if price keeps dropping you might ask? Simple, you do nothing. At least as long as your overall collection of lots on that pair are still positive you just wait and do nothing. One of two things will happen, either price will turn back up, giving you a buy signal to replace the lot you just sold for a profit and a chance to continue the cycle for another round of profits, or price will continue down and you sell all the lots in the pair before they go negative, having realized the profit from the oldest lot you sold at the beginning of this cycle.

If price hits a support and the retracement starts ending, that is a buy low signal and you buy a new lot to replace the one you just cashed in. If price didn't move enough on this retracement to give you the spacing between lots you want, you wait for the next retracement, or the next, as long as you need to get the spacing between lots you want and still be replacing the one you cashed in with a newer one. Then, you wait. As long as you need to let the oldest have a nice fat profit in it and the newest to be nicely ahead, which is to say the spacing between price and the newest lot is about where you would want to put another new lot on. Then on the beginning of the next retracement, you again take profit off the oldest and largest (selling high) and you again wait for the retracement to end to replace the one you just took profit on (buying low).

This method of buying low and selling high is repeated over and over and over and over and over... The spacing between lots is gradually increased, increasing the profits taken off each winner over time and allowing the trader to withstand larger and larger retracements over time without the entire assemblage of lots on that pair ever going negative. The number of lots being traded can also be very gradually increased, pyramiding the profits back into a trade that has already proven to be successful. We can't get greedy here. But if a careful balance is maintained, we can make huge profits off a very small initial risk.

The very small initial risk satisfies the maxim of "cut your losses short". If at anytime the retracement is so deep that our group of lots looks like it will go negative, we exit all and try again later. Take comfort, there will always be more trends. That also complies with "cut your losses short". In theory. if you aren't too greedy, this method will keep you trading the trend with many lots, ever increasing in number and profitability, for as long as the trend lasts. How long is that? Look at the monthly charts. How long can a very good trend last there? Look at the weekly charts, how long can just a pretty good trend last? Look at the daily charts, how long can just a decent trend last? We are talking about steadily banking pips, usually every day and almost always every week for as long as we possibly can, days, weeks, months or years and we are steadily banking those pips, not just watching them build up on an electronic screen somewhere, only to see them all suddenly disappear in a news flash.

It's just a simple profit making machine that we keep turning over and over. A simple cycle that we repeat as long as we possibly can. And when we can't repeat it any longer because we tried to put too many lots on too fast, or the retracement goes to far and it looks like the whole thing will go negative, we exit all, with our pips already taken as profit and go look for another good trend. They pop up every week. I probably missed many already this month. I just don't care! It creates steadily increasing realized income that we can spend on something nice. We can even buy a nice house!

Buy low, sell high, cut your losses short and let your profits run. If you learn to do those simple four things, you can pretend to have psychic powers and no one will be any the wiser. Just four little things.

Questions, comments?

Finally, after 10 pages of rambling to eliminate the weak willed, we are ready to trade. I'm not a signal service, so don't take my trades. I'm trying to show a few people my method of fishing, not to catch the fish for them. These trades are only to illustrate my points. Once you get it, if you want to try it, it's up to you to go find your own.

Let's look at EJ. At this moment, every timeframe except monthly says it's a clear long entry (8 of 9 TF's trending in the same direction). RSI and the ma crosses confirm long on every timeframe except monthly. It was that way 5 hours ago when I first entered this trade. The monthly however is not quite there, it looks like this:

It is solid up on every timeframe except this monthly chart. We don't worry about how long the trend has been running. Sometimes these things run for years. The future is uncertain. Since it's going up on every timeframe except monthly, we can say it meets the minimum criteria for further examination. Note that the 3 ema is pointing up and moving toward the 10 sma and the rsi is pointing up on this chart, so price is definitely going up at this moment.

Lets try for some confirmation. Let's look at the currency strength meter:

Euro is much stronger than Jpy, so a long trade is trading strong against weak. That checks.

Now it's fundamental gut check time. Is it likely that the Jpy will get much stronger quickly? No, the Japanese have made it very clear they want the Yen to fall in value and are already in the process of making that happen.

Is it possible the Euro could get much weaker quickly? Well, maybe sorta. The ECB has been trying to talk down the value of the Euro for quite a while, but they haven't had much luck at it. This month, the Euro has gone up about 130 pips instead of going down as the ECB would like. Some even question if the ECB has the power to bring the Euro down.

In any case, the Japanese have clearly demonstrated they can and will bring down the Yen. Over all, on the Fundamental front, the long Euro vs. Yen makes sense. We call that a check and go for the trade. If it goes up a little, we pile on. If it crashes, we cut our entry losses short and try something else.

So, I took this EJ long trade on that basis. It went in my direction, so I added another lot. It looks like this now on the H1 Chart:

I entered the trade with only 60 pip stops since I've already made my target profit for the week and I have no intention of losing it back. Now that it's going my way, up about 8 and 26 pips on the first two lots, I'll reduce my stop to only about -30 pips, because if this is a really good trade, I probably wouldn't get more retracement than that quickly. Now, I wait.

A very successful trader once said, he made most of his money just waiting. That's what I do most of the time. Just wait to take off a big fat profit, or wait to put another lot on. I do other things while I wait. I walk through my gardens. I chat with my girlfriend. I study the markets with a passion. I will even take a nice nap now and again. At this moment, I'm having a snack of some very good smoked salmon and French Swiss, which sounds like an oxymoron, but that's what it's called.

Price will either come down and I'll bail out with a small win or loss, or it will go up and I'll put another lot on. I put this second lot on very fast, at +20 pips. I'd want to stretch things out a bit for the third, and wait until price is like 30 pips above the second. The next one would probably go on at about 45 pips or so, continuing to put them on with new spacing about 1.5X the previous spacing each time until I get to something like 70 to 100 pips apart. I'll take the oldest lot off once I have a good profit on it of 60 pips or so and a scary reversal starts. then I have pips in my pocket, no matter what happens. If price starts to recover, I'll put a new lot on to replace the one I took off when the spacing is right. If price continues to fall, I'll close all the lots before the remaining ones go negative as a group, and walk away with my profit safely tucked away. I'll try to remember to come back to this trade to update the reader later.

GREAT Stuff.................................................

Here's EJ H1 long ready for the third Lot to be put on:

A tiny retracement begins. I'm taking the bottom lot off here since it's near bedtime. I took LOTS more pips off the GJ long, about 160 pips, but since I was using this one for an example, I'll stay with it.

The bottom lot was taken off just as the retracement began. Now see how the rsi has dropped below the 50% line on the RSI? The next new lot is put back on when it crosses back above the line on this M1, as long as it hasn't crossed below on the M5.