I usually have a trailing stop that is 2.5 the ATR.
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Never let a profit turn into a loss. (Good or bad advice)?
- Thread starter gifropan
- Start date
Quote from AAAintheBeltway:
I tend to agree with your side of this debate, although I will sometimes scale into a position that I see as a longer term holding. Why not let market volatility help your basis?
Because your making the fallacy of the predetermined gain. You assume "Ok this stock is going to $100, I should lower my cost basis to maximize my profits." But there is no predetermined gain. You're looking back from the future.
A better way to approach it is, "These are 10 stocks about to break out . . . I'll buy higher if one of them breaks out." By buying higher, you're letting the stock pick itself.
Quote from TheGoonior:
So you've entered at 37, it moves to 42, you go to about BE and it stops you out. What prevents you from re-entering when it hits 37 with your same stop? You liked it before at 37, so unless your analysis has changed, why not jump back in? You're basically back at square one and out 2 commissions, which is peanuts if your desired move materializes. If it happens a couple times, then perhaps you might want to wait for the next setup, but taking one or two extra shots might well be worth it.
I hear what you say but very often the stop it taken out and the market immediately snaps back and makes a new high. That is why I keep, with great discipline, buying the new highs see a few ticks of profit and then get stopped out at break even again and again. In a market like the UK FTSE my last purchase may be as much as 35 or 40 points above my initial entry. This means that if I had left the original stop of 7 to ten ticks where it was I would have had a good trade. Reading what people are writing here I think I was wait until the market turns rather to come out rather than arbitrary break even after a few ticks. It seems I get stopped out with the normal oscillations that a trending market makes
i agree here , i f u sell 35 and 45, your avg is 40 , if you sell 40 ,your avg is 40, if u didnt go all in than the 35 and 45 to avg 40 are the same thing, whereas if you waited to sell 40 and it turned at 38, u have nothing, u just have to use larger stops or smaller positioningQuote from billyjoerob:
If you scale in 5 times into one stock, imagine that you have five positions instead of one. If sell each position, are you selling out of five positions or scaling out of one? If your total account has adequate diversification, it doesn't matter. Think about it.
Quote from VoodooMMI:
How did you decide on 2.5 times the ATR? Which types of markets do you trade (equities, futures, forex, etc)? Which time frames do you trade (1 minute, 5 minutes, daytrading, swing trading)?
I trade small cap stocks . . . My time frame is determined by the stop. I suppose I would have a time stop if the stock went nowhere, but haven't had that problem yet. I prefer the least volatile stocks because they are less likely to hit the stop, obviously. My last two (successful) trades were breakouts of TIE and AER, if that gives you an idea how I trade.
Quote from Gabfly1:
"...And freezing is the opposite of burning. Neither extreme is necessarily comfortable or ideal....."
Au contraire Gabbie ! One of the extremes, from a day-trading perspective is the only place to be!
Regarding the OP's question, my answer [from a day-trading perspective] is never let a statistical bias turn into the opposite.
Example, one market I trade [futures]has the following current probabilities:
1) 89.8% probability that one extreme of the pit session will be made in the "D" print.
2) 98.5% probability that the "E" print will not trade both sides of the "D" print.
3) 7.9% probability that one extreme holding all day will be the "E" print.
4) 96.7% probability that the current pit session will not trade through both ends of the previous pit session extremes.
5) 79% probability that the close of "D" print, relative to the previous days close will be equal or better at the close of the current pit session.
6) 84% probability that one extreme from the overnight will hold as an extreme in the pit session.
My bias is achieved by reconciling the open of the pit with the above probabilities. Once my bias is confirmed, I will not change direction until the probabilities tell me to do so. So, since I have no idea that my trade entry will be a short term pleasantry, I will defend my bias by entering multiples up to the point where the statistics tell me to cease, in which case I promptly puke them all.
So, in closing, and to answer the OP's question directly.."It depends on how strong your faith in your bias is..."
BillyJoe is wise man...
Quote from billyjoerob:
Over thousands of trades, it doesn't matter what happens in one trade, so trying to maximize your win rate is irrelevant. The same for scaling in and out -- that's about maximizing win rate, which doesn't matter. Scaling out of a position between 30 and 40 is the same as selling at 35, even if it appeals to your psychological weakness for winning trades.
The real issue is not wins or losses, but selling losers and holding onto winners. That's why scaling out makes no sense - instead you should be pyramiding into winners and selling when the trend changes or your stop is hit.
Quote from gifropan:
Never let a profit turn into a loss. On the face of it, this looks like very sound advice. However I find quite often adhering to this rule costs me money although I am right about the direction of the market. Here is a scenario as an example.
Go long at 37 stop at 31 profit target 47
market gets to 42 move stop to 37
Market comes back stopped out at break even
market makes new high, buy at 43 stop at 37 profit target 53
market makes 48, move stop to 43, get stopped out then market continues to make another new high.
This can happen a number of times so that I end up buying the market higher and higher. The market moves way beyond my original profit target but never the less I close trades at break even a number of times until the last one gets stopped out with a loss.
Is there something wrong with this supposedly golden rule of trading or am I doing something very wrong. I, obviously, am since I find myself very often on the right side of the market and still end up loosing money.
Can anyone tell me where I am going wrong
Thanks
Most of the responses miss the point. Having an opinion on stops, profit targets, B/E, trailing stops, scaling, etc. has no meaning
Now, if you take YOUR past trades, and pump them all into a spreadsheet/whatever, adjust sizes of each, you will see how various money management methods affected YOUR trading strategy (in the past).
Then, you can make some judgments. But whether you are a scalper, longterm holder, day trader, which instruments you trade, etc. etc. have major impacts on the "right thing to do." Everyone trades somewhat differently, and their money management methods should be based on THEIR OWN trading strategies...
What do you mean by "D" and "E" prints?
Quote from Barth Vader:
Au contraire Gabbie ! One of the extremes, from a day-trading perspective is the only place to be!
Regarding the OP's question, my answer [from a day-trading perspective] is never let a statistical bias turn into the opposite.
Example, one market I trade [futures]has the following current probabilities:
1) 89.8% probability that one extreme of the pit session will be made in the "D" print.
2) 98.5% probability that the "E" print will not trade both sides of the "D" print.
3) 7.9% probability that one extreme holding all day will be the "E" print.
4) 96.7% probability that the current pit session will not trade through both ends of the previous pit session extremes.
5) 79% probability that the close of "D" print, relative to the previous days close will be equal or better at the close of the current pit session.
6) 84% probability that one extreme from the overnight will hold as an extreme in the pit session.
My bias is achieved by reconciling the open of the pit with the above probabilities. Once my bias is confirmed, I will not change direction until the probabilities tell me to do so. So, since I have no idea that my trade entry will be a short term pleasantry, I will defend my bias by entering multiples up to the point where the statistics tell me to cease, in which case I promptly puke them all.
So, in closing, and to answer the OP's question directly.."It depends on how strong your faith in your bias is..."