Best way to keep losers small? | Forex Factory

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Best way to keep losers small?

  • #1
  • First Post: Feb 2, 2016 8:11am Feb 2, 2016 8:11am
Two popular adages of trading include:
-Cut your losers
-Let your winners run


There is obviously a balance between each which must be achieved, but focusing just on 'cut your losers' with regard of how that affects profit potential, how does one go about ensuring that losses are as small as possible?


I'm torn between two methods:
1- Put your stop in and leave it
2- Move your stop to breakeven

Obviously there is an 3rd option which is to trail your stop, but I have never been a fan of that.

Do any data wizards have an answer to which is the best at controlling losses?

Remember: lets not look at which is the most profitable, but rather which one controls loss the best.
  • #2
  • Feb 2, 2016 8:20am Feb 2, 2016 8:20am
Here is what you should do: Find a pattern or whatever you like to trade. Then ghetto-backtest it to see where your average turning points are on a trade(i.e. where the price would have started reversing). For example if you notice you get scared of a winning trade going bad and you skip out after 20 pips, then mark (after some time has passed) how much more it would have gotten if you kept with it. Then you repeat that for a few (hundred) of your patterns and write it down, then calculate an average.

And by ghetto backtest I mean take a block of paper, measure your pattern on the graph, write it down on a paper and repeat that for as far back as you want. I am not using MT4 so I dont know how far you can backtest by scrolling back (on fxtrade client its 6 months on 1 hour charts). Then calculate the average with a calculator. The important part is the ghetto, you must become one with the paper and graph while you do it. It is tedious as hell, but it should give you a good average on where to put your stops and take-profits. By doing the tedious hard measuring yourself it builds your confidence because you made that idea you have your own. Also helps with the impulse of closing a winning trade too early because you know statistic is probably on your side.


Also about controlling losses. Stick to your stop-losses no matter what. Never-EVER adjust your stop loss deeper into the negative.
Price-Action Extremist
  • #3
  • Feb 2, 2016 9:03am Feb 2, 2016 9:03am
Quoting bagman
Here is what you should do: Find a pattern or whatever you like to trade. Then ghetto-backtest it to see where your average turning points are on a trade(i.e. where the price would have started reversing). For example if you notice you get scared of a winning trade going bad and you skip out after 20 pips, then mark (after some time has passed) how much more it would have gotten if you kept with it. Then you repeat that for a few (hundred) of your patterns and write it down, then calculate an average. And by ghetto backtest I mean take a block of...

Ghetto backtesting is a pain in the ass, how do you think I know this , which is why I am asking in case anyone should have the data to hand.

My back testing days doing it by hand are over, 100 isn't even enough, you need 1000 of trades imo.
  • #4
  • Feb 2, 2016 9:16am Feb 2, 2016 9:16am
If you are entering a trade, you must be having some idea of which way you are expecting the price to go. If it doesn't do what you expected soon after entering (depending upon the timeframe you are using), you have obviously made an error in estimating it correctly. I suppose you should exit right there, rather than waiting for it to hit your stoploss.
  • #5
  • Feb 2, 2016 9:21am Feb 2, 2016 9:21am
But in the ass-pain* lies the key.
Once you write down a few hundred measures you put them into a spreadsheet and then you can calculate your own averages and so forth. You should take pride in it, because you crunched the numbers yourself. And when/if your own data leads you to better take-profits or better stop-losses it will make sense.


*ass-pain is meant metaphorically, not literally. If you start feeling ass-pain go see a doctor.
Price-Action Extremist
  • #6
  • Feb 2, 2016 11:20am Feb 2, 2016 11:20am
Personally I never like to move a stop loss. I set my take profits with a minimum ratio of 3:1 against my stop, if the trade doesn't work out which happens I am prepared to take that hit. In the past I used to move both stops and limits, it may work for the odd trade but over time I got burnt.
  • #7
  • Feb 2, 2016 11:44am Feb 2, 2016 11:44am
Quoting bagman
But in the ass-pain* lies the key. Once you write down a few hundred measures you put them into a spreadsheet and then you can calculate your own averages and so forth. You should take pride in it, because you crunched the numbers yourself. And when/if your own data leads you to better take-profits or better stop-losses it will make sense. *ass-pain is meant metaphorically, not literally. If you start feeling ass-pain go see a doctor.
why do you call your explorer saturn? Are you into astrology? Hope u dont mind me asking.
  • #8
  • Feb 2, 2016 11:59am Feb 2, 2016 11:59am
Quoting verv
Two popular adages of trading include: -Cut your losers -Let your winners run There is obviously a balance between each which must be achieved, but focusing just on 'cut your losers' with regard of how that affects profit potential, how does one go about ensuring that losses are as small as possible? I'm torn between two methods: 1- Put your stop in and leave it 2- Move your stop to breakeven Obviously there is an 3rd option which is to trail your stop, but I have never been a fan of that. Do any data wizards have an answer to which is the best...
verv, i think when/if people discover some edges they come up with popular adages like "cut yr loser-let your winners run " "the trend is your friend" that only applies to their systems. So i dont think its a good idea to follow them by the letter.maybe there are edges or profitable systems out there who just contradict those adages. So maybe its good not to be too rigid in our approach. Now regarding your question, for me the best way to keep losers small is to keep sl small. I trade grids so the only way i can reduce my losers garanteed, is to tighten sl . but as u said doing just this is not the answer. Can i ask you why you asked that question though.
  • #9
  • Feb 2, 2016 12:14pm Feb 2, 2016 12:14pm
Very difficult to take loss when u want win only.
Predefined stop is good but in very strong trend move to breakeven is good.
Trade fearless not careless...
Syed Mohsin Ali Profit This Month: -425
  • #10
  • Feb 2, 2016 12:24pm Feb 2, 2016 12:24pm
Quoting metta87
{quote} why do you call your explorer saturn? Are you into astrology? Hope u dont mind me asking.
I named it after the Saturn 5 rocket. ( https://en.wikipedia.org/wiki/Saturn_V )
I like astronomy, not astrology.

Astrology is savage medieval stupidity. DO NOT ever use astrology for trading decisions or any other decision ever.
Price-Action Extremist
  • #11
  • Feb 2, 2016 1:42pm Feb 2, 2016 1:42pm
Quoting bagman
{quote} I named it after the Saturn 5 rocket. ( https://en.wikipedia.org/wiki/Saturn_V ) I like astronomy, not astrology. Astrology is savage medieval stupidity. DO NOT ever use astrology for trading decisions or any other decision ever.
no i will never use astrology to trade ever. However i do find astrology interesting especially vedic astrology /jyotish.Oh and saturn is my favorite planet. Im a capricorn hehe
  • #12
  • Edited 5:19pm Feb 2, 2016 2:24pm | Edited 5:19pm
Quoting metta87
{quote} verv, i think when/if people discover some edges they come up with popular adages like "cut yr loser-let your winners run " "the trend is your friend" that only applies to their systems. So i dont think its a...

That is a good point you make. I should therefore clarify I am a trend trader if that matter at all.

Reason for asking is simple, making money is relatively straight forward. However there are several times when I look at my equity curve and think if I just controlled by losses better my equity would be considerably higher.

For example, 50% drawdown requires a subsequent 100% gain to make up for it.

There is a follow on question here, which is has anyone found that controlling losses is more important than running winners, even at the expense of missing some hugely winning trades?
  • #13
  • Feb 2, 2016 5:51pm Feb 2, 2016 5:51pm
First, it's impossible for anyone to tell you how you can minimize losses, since none of us know how you trade. The topic of minimizing losses is just one part of a bigger topic of knowing when to get in and get out of trades. How do you decide when to enter? How do you know when it's time to take profits? How do you identify maximum profit points? My guess is, if you can do any of that, you should be able to figure out when to cut you loss. Second, as for the last question about controlling losses being more important, my guess is, if you don't trade with stops, the answer is likely yes. However, if, prior to entering a trade, you know where to make your second and third, and know the price level that indicates your trade has fallen apart, then the real issue is executing your trade and less about managing a loss.
  • #14
  • Feb 3, 2016 12:54am Feb 3, 2016 12:54am
The best way to keep losers small is to stop taking crap trades.
Why trade to lose ?
It makes no sense to lose in order to win.
To win in order to win is better, IMHO.
A win IMO is any trade that has a risk of zero (no risk)
"keep what you have and get what you can"
  • #15
  • Feb 3, 2016 1:34am Feb 3, 2016 1:34am
Quoting Mingary
The best way to keep losers small is to stop taking crap trades. Why trade to lose ? It makes no sense to lose in order to win. To win in order to win is better, IMHO. A win IMO is any trade that has a risk of zero (no risk) "keep what you have and get what you can"
Please show to me an example of a trade that is legal and without risk.

The key here is to manage risk effectively and to put the odds statistically in your favor like a casino does.

Trading is just like any other business and it needs to be treated that way.
  • #16
  • Feb 3, 2016 2:47am Feb 3, 2016 2:47am
Quoting HummingbirdC
{quote} Please show to me an example of a trade that is legal and without risk. The key here is to manage risk effectively and to put the odds statistically in your favor like a casino does. Trading is just like any other business and it needs to be treated that way.
The odds are not in your favor; therefore they cannot be treated "statistically in your favor like a casino does"
Trading is not like "any other business". Or rather, it's a gambling business, and must be treated in the same way if you were to sit at the black jack table.

What do you mean "legal trade" ?

True, risk cannot be eliminated. There is no such thing as a risk free trade.
However; it's always possible to reduce risk (but it can never be controlled. i.e shit happens)
  • #17
  • Feb 3, 2016 3:17am Feb 3, 2016 3:17am
If you pick the right trades, the odds are in your favor.
Price-Action Extremist
  • #18
  • Feb 3, 2016 4:05am Feb 3, 2016 4:05am
Quoting bagman
If you pick the right trades, the odds are in your favor.
Right means according to trade plan not emotionally?
Trade fearless not careless...
Syed Mohsin Ali Profit This Month: -425
  • #19
  • Feb 3, 2016 4:12am Feb 3, 2016 4:12am
Quoting mohsinali
{quote} Right means according to trade plan not emotionally?
Whether your trade was a right decision or not is something you will know after you got stopped out or hit the take-profit. And if you keep repeating profitable decisions it means, statistically, that the odds are in your favor.
Price-Action Extremist
  • #20
  • Feb 3, 2016 7:45am Feb 3, 2016 7:45am
Obviously this is to do with using good money management and tight stop loss.
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