The myth of letting your winners run

How do you do it?

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Flowfollower said:
I know this post may come across as blasphemy, but is 'letting your winners run' one of the most deceptive commandments in trading? I say commandment as it seems to be preached as gospel. But is it what it seems?

When we let trades run, it is countered by a drop in win rate. We hope for outliers to keep a positive expectancy.
But we sacrifice important trade frequency.

Let's say I'm putting together a swing trading strategy and I believe it has a 50% win rate if I keep profit targets at 2R reward to risk multiple. Certainly a realistic expectation.

This might not sound special but it would allows me to turnover my account in a shorter time and with fewer positions, so minimal portfolio heat.

Why is 'letting your winners run with a trailing stop' any different to using a short term profit target (eg 2R) and then entering another trade which is moving?

I have come to the conclusion one should trade a robotic statistical mindset above all and should really question trading mantras.

Enter trade.
Enter stop loss.
Enter take profit order.
Aim is to have resolution to trade (win or loss) in as short a time as possible. This allows next trade to be entered as soon as possible.
Repeat.
Repeat.
Repeat.
Trading becomes a matter of just entering orders.
Trading becomes boring.

That is all.

Thoughts appreciated
More...


It's been 6 months and my views haven't changed. I still view trading as a mathematical pursuit.

What is not discussed is that there is a cost of "letting your winners run". That cost is time. It is the enemy of frequency. The longer one is in a trade, the fewer trades that trader can take.

I know the mantra "the money is made by holding for the big swing". But my tiny mind just cannot see this as anything but a hopeful concept.

As an example:

Trader 1 buys AAPL at $120. Stop Loss at $115. Exits at $130. Trader 2 comes along and enters at $130 also with a $5 stop loss.

Trader 1 can now recycle their capital into another setup.

Trader 2 has entered where Trader 1 never would have entered. So why should Trader 1 have held at the point in hope of continuation?

Therefore anybody who believes in "letting your winners" run must also believe that entry is unimportant. Agreed?


Is there anybody out there who has given this some thought?

Thanks
 
depends on who you are

for some , letting winners run might be the best strat, as they have no skill at short term trading

a good short term trader might make 500% on their bankroll a year . or more

there is no one size fits all answer
 
TimMykes said:
depends on who you are

for some , letting winners run might be the best strat, as they have no skill at short term trading

a good short term trader might make 500% on their bankroll a year . or more

there is no one size fits all answer
More...


But those "no skilled" traders would also choose when to enter. eg would they buy after a 500% move in a stock? Highley unlikely

But what if they had bought before the big move? Would they hold at 500% gain? Well they have to if they believe in "letting their winners run".

Every data point is unique. This is why I believe (but happy to be proven otherwise) that "letting your winners run" is a deceptive way of thinking. Maybe the only 2 important things is that one has a trading edge and secondly one can trade enough to exploit it.
 
Here's a famous example of holding for the big move:

Had one bought AMAZON at IPO in 1997, one would have netted a 190,000% return.

So many investors look for the next Amazon with a view to hold it forever for the big return.

Well, 190,000% over 23 years is "only" a 36% pa CAGR.
Doesn't sound nearly as sexy now!

Ignoring the risks back then in identifying Amazon as a future trillion dollar company, as well as the dilution of returns through diversification, isn't this just an example (albeit extreme) of how "letting your winners run" works again oneself?

Time isn't our friend as many believe. It's our enemy. Frequency is our friend. The sweet spot is the holy grail. That sweet spot is the best risk adjust returns for the time involved in the trade.

Just IMO
 
Flowfollower said:
It's been 6 months and my views haven't changed. I still view trading as a mathematical pursuit.

What is not discussed is that there is a cost of "letting your winners run". That cost is time. It is the enemy of frequency. The longer one is in a trade, the fewer trades that trader can take.

I know the mantra "the money is made by holding for the big swing". But my tiny mind just cannot see this as anything but a hopeful concept.

As an example:

Trader 1 buys AAPL at $120. Stop Loss at $115. Exits at $130. Trader 2 comes along and enters at $130 also with a $5 stop loss.

Trader 1 can now recycle their capital into another setup.

Trader 2 has entered where Trader 1 never would have entered. So why should Trader 1 have held at the point in hope of continuation?

Therefore anybody who believes in "letting your winners" run must also believe that entry is unimportant. Agreed?

Is there anybody out there who has given this some thought?

Thanks
More...
There's a couple of ways of looking at this (a) there is a limit to how much the majority of traders can screw money out of the markets. That is whether long or short term trading, there are limitations in place - you'll hit a ceiling.
(b) Time is money, time has a cost. If one short term trades, they will be busy, they will be fully occupied, there's no room for other stuff or distractions. If one long term trades, they have time to taste other life experiences.
(c) The busier you are with short term trading, more room for errors which depletes capital. Long termers can be more careful, do more research, be more efficient.
 
Flowfollower said:
It's been 6 months and my views haven't changed. I still view trading as a mathematical pursuit.

What is not discussed is that there is a cost of "letting your winners run". That cost is time. It is the enemy of frequency. The longer one is in a trade, the fewer trades that trader can take.

I know the mantra "the money is made by holding for the big swing". But my tiny mind just cannot see this as anything but a hopeful concept.

As an example:

Trader 1 buys AAPL at $120. Stop Loss at $115. Exits at $130. Trader 2 comes along and enters at $130 also with a $5 stop loss.

Trader 1 can now recycle their capital into another setup.

Trader 2 has entered where Trader 1 never would have entered. So why should Trader 1 have held at the point in hope of continuation?

Therefore anybody who believes in "letting your winners" run must also believe that entry is unimportant. Agreed?


Is there anybody out there who has given this some thought?

Thanks
More...
Bingo! Finally someone who actually thinks through the matter.
 
Flowfollower said:
But those "no skilled" traders would also choose when to enter. eg would they buy after a 500% move in a stock? Highley unlikely

But what if they had bought before the big move? Would they hold at 500% gain? Well they have to if they believe in "letting their winners run".

Every data point is unique. This is why I believe (but happy to be proven otherwise) that "letting your winners run" is a deceptive way of thinking. Maybe the only 2 important things is that one has a trading edge and secondly one can trade enough to exploit it.
More...
Bingo! Bingo! Bingo!
 
Flowfollower said:
Here's a famous example of holding for the big move:

Had one bought AMAZON at IPO in 1997, one would have netted a 190,000% return.

So many investors look for the next Amazon with a view to hold it forever for the big return.

Well, 190,000% over 23 years is "only" a 36% pa CAGR.
Doesn't sound nearly as sexy now!

Ignoring the risks back then in identifying Amazon as a future trillion dollar company, as well as the dilution of returns through diversification, isn't this just an example (albeit extreme) of how "letting your winners run" works again oneself?

Time isn't our friend as many believe. It's our enemy. Frequency is our friend. The sweet spot is the holy grail. That sweet spot is the best risk adjust returns for the time involved in the trade.

Just IMO
More...
Bingo AGAIN!
 
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