Runners Vs. Set Target to exit

[tomorton]

Letting your winners run is the conventional advice but is so hard to do. The reason its so hard is that each "run" winning trade rarely gives an extraordinary individual profit, while the accumulated "run" winners don't give an extraordinary return. If it worked we would see it working and it would be easy.

Extraordinary profits can only come from pyramiding. Although the first and early trades in a pyramid plan are let run, which seems to reinforce the conventional advice, the real gains come from the aggregated size of the position over time, i.e. from staying right, not just from being right once.

 

[Epicurus]

old issue of mine... and I realize it is as much a mental thing as any. I have been TRYING to let me trades work and run. It just hurts to see trades go positive and then when done my trailing stop (I use PSAR) either gets me to break even or a small loss.

I think for now I need to go back to bracket orders that put in both a stop loss order and a preset target limit exit. It just FEELS so good to take profits. Yes, I have to get over the idea that a runner may go and I was not there for the whole ride.

anyone else want to comment on the mental / emotional side of this issue. It would seem like a technical thing , but it is not.

Hi John9999. It's human psychology.

Tversky and Kahneman won a Nobel Prize understanding problems like yours. Suggest you go and read up on "Prospect Theory".

To try and partly explain (as best I can as a non-Nobel prize winner):

1) If given two choices, a 50/50 chance of winning either $1,000 or Nil or a 100% chance of winning $500, which choice would you make?

Most people would probably think a bit but then rationalise and take the certain $500. You would.

That's fine, but the probabilities are the same over multiple trades (if you get enough of them but you may not so I'd just take the certain $).

2) But now reverse the situation.

If given a 50/50 choice of losing $1,000 or Nil or a 100% certainty of a $500 loss, what would you take now?

Not many people would naturally take the certain $500 loss in this case and would tend to hold on to a trade to see if they could get the Nil result.

Although its rational to make the same choice in both cases, most people wouldn't because a loss feels more painful than a win feels positive. I believe experimentation shows a loss is about twice as painful. People skew there decision-making accordingly.

There are lots of angles to Prospect Theory not just the example above and there are also mental frameworks developed to try to deal with these issues. But its a big topic.

The probabilities in trading won't be as simple or known in your decision choices as above, but what we do know is that it will FEEL best to take certain winners early and to !et your losses run! That just wont make you a good trader.

A successful trader has to overcome nature to let winners run and take losses appropriately.

Worth some reading for you.

 

[tommcginnis]

What is the difference between a TP exit with a fresh bracket order, and a "let the runner run" trade with a trailing stop?

$$commissions$$.

Exiting a trade while knowing you're going to re-enter that market with a fresh trade and fresh TP/SL brackets, is just spending money needlessly. "Hello!"

 

[tiddlywinks]

What is the difference between a TP exit with a fresh bracket order, and a "let the runner run" trade with a trailing stop?

$$commissions$$.

Exiting a trade while knowing you're going to re-enter that market with a fresh trade and fresh TP/SL brackets, is just spending money needlessly. "Hello!"

The OP trades futures. NQ in particular.
NQ (and many other futures instruments) carry a less than 1-tic round-trip commission. That's for retail, and is readily available at many futures brokerages that would be worthy of a traders business.

Don't get me wrong... costs are very important and less is certainly better. But allowing 1-tic to be a make-or-break decision on a non-scalping strategy is just stoopid.

 

[tommcginnis]

The OP trades futures. NQ in particular.
NQ (and many other futures instruments) carry a less than 1-tic round-trip commission. That's for retail, and is readily available at many futures brokerages that would be worthy of a traders business.

Don't get me wrong... costs are very important and less is certainly better. But allowing 1-tic to be a make-or-break decision on a non-scalping strategy is just stoopid.

Good point. I've spent years generating lots of commission -- with my own {trend-exploiting} changes, 2019 will be a different animal: EOD signals, once-a-day trades, with spreads (and a VIX>15) in very opportunistic fashion.

 

[John9999]

Hi John9999. It's human psychology.

Tversky and Kahneman won a Nobel Prize understanding problems like yours. Suggest you go and read up on "Prospect Theory".

To try and partly explain (as best I can as a non-Nobel prize winner):

1) If given two choices, a 50/50 chance of winning either $1,000 or Nil or a 100% chance of winning $500, which choice would you make?

Most people would probably think a bit but then rationalise and take the certain $500. You would.

That's fine, but the probabilities are the same over multiple trades (if you get enough of them but you may not so I'd just take the certain $).

2) But now reverse the situation.

If given a 50/50 choice of losing $1,000 or Nil or a 100% certainty of a $500 loss, what would you take now?

Not many people would naturally take the certain $500 loss in this case and would tend to hold on to a trade to see if they could get the Nil result.

Although its rational to make the same choice in both cases, most people wouldn't because a loss feels more painful than a win feels positive. I believe experimentation shows a loss is about twice as painful. People skew there decision-making accordingly.

There are lots of angles to Prospect Theory not just the example above and there are also mental frameworks developed to try to deal with these issues. But its a big topic.

The probabilities in trading won't be as simple or known in your decision choices as above, but what we do know is that it will FEEL best to take certain winners early and to !et your losses run! That just wont make you a good trader.

A successful trader has to overcome nature to let winners run and take losses appropriately.

Worth some reading for you.

all great stuff... yes I would prefer to more often book a profit, then hold out for the bigger profit with a smaller chance of success. Just yesterday I had 3, yes 3 trades that all had 20point profits and ended with a 0 for me!

 

[SimpleMeLike]

Just yesterday I had 3, yes 3 trades that all had 20point profits and ended with a 0 for me!

John9999,

1. Why did those 3 trades end in 0 profits?

2. Were you waiting on a predefined profit target price to exit the trade?

3. If yes, How often does this happen where your predefined Target is not hit?

I would hate to see you change something that could lead to bad results that is currently working properly. Maybe the prefined targets work or maybe you not picking good predefined targets.

Need more information on how you selecting the predefined target.

 

[John9999]

John9999,

1. Why did those 3 trades end in 0 profits?

2. Were you waiting on a predefined profit target price to exit the trade?

3. If yes, How often does this happen where your predefined Target is not hit?

I would hate to see you change something that could lead to bad results that is currently working properly. Maybe the prefined targets work or maybe you not picking good predefined targets.

Need more information on how you selecting the predefined target.

I was using PSAR as my trailing stop... the break even was the stop utilizing PSAR (or close to it)... I have looked again at my stats and something just jumps out. My average "in the money" point per trade is 12 points (NQ that's $240), but a rather high percentage end up at break even or a loss when closed out.

Maybe someday I can allow for runners, but not right now

 

[tiddlywinks]

I was using PSAR as my trailing stop... the break even was the stop utilizing PSAR (or close to it)... I have looked again at my stats and something just jumps out. My average "in the money" point per trade is 12 points (NQ that's $240), but a rather high percentage end up at break even or a loss when closed out.

Maybe someday I can allow for runners, but not right now

Something to think about...

In real-time reality, your scenario traveled 24 points ($480). Now IMO, sans the machines, only traders who employ a bar-by-bar methodology, or "lucky" trading, or flat out liars, have any chance to coming close to capturing anything near 24 points net. But the point is that 24 points, in your example, is what was available for the taking.

One of the rudimentary adages is... Never let a (decent) profit turn into a loss.
The issue with that is each trader must determine the definition of "decent". Maybe manual override of your psuedo-psar in favor of say 75% giveback would be decent. That is for you to decide. Obviously, since you complaining of 100% giveback, there is some number that you would feel good, or at least OK with.

As I said, something to think about.

 

[SimpleMeLike]

I was using PSAR as my trailing stop... the break even was the stop utilizing PSAR (or close to it)... I have looked again at my stats and something just jumps out. My average "in the money" point per trade is 12 points (NQ that's $240), but a rather high percentage end up at break even or a loss when closed out.

Maybe someday I can allow for runners, but not right now

John9999,

I understand John. I intraday trade as well. And I keep my finger on the exit trigger. When I see price turning against me, I exit for a profit. Sometimes it's a $60, or $120, or $340, or $250 or even $80 profit. I just close the trade. I do allow for runners, but some time no runners run.

I am sure you will figure it out. This is a journey indeed. But fun one!!