The myth of letting your winners run

[Master Pu]

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

To each his own. The way I trade is by having predefined targets and stops. Trading isn't investing, it will never be as profitable as investing. You let your winners run when investing, when trading I see where closest target is and then workout a stop which must be at least 1:3 of target to offset losses.

 

[deaddog]

Trading isn't investing, it will never be as profitable as investing.

If that's the case, why would you trade?

 

[Master Pu]

If that's the case, why would you trade?

That's a great question. I think majority of retail traders, me included, do not commit serious capital to trading, small capital paired with leverage. So you potentially can earn a living out of trading activity, but majority won't be making any sort of fortunes.

 

[taowave]

Your initial statement was a head scratcher,but IMHO this post is spot on and the reality for 90 percent of the people trading..

I am a perfect example...

Was a Managing Director of equity derivatives,since retired,but will commit multiples more capital to real estate than trading. Many of my friends who never made more than 250k are multi millionaires from buy and hold/dollar cost averaging..They have bare minimum 50 percent of their net worth in the market..

That's a great question. I think majority of retail traders, me included, do not commit serious capital to trading, small capital paired with leverage. So you potentially can earn a living out of trading activity, but majority won't be making any sort of fortunes.

 

[murray t turtle]

Your initial statement was a head scratcher,but IMHO this post is spot on and the reality for 90 percent of the people trading..

I am a perfect example...

Was a Managing Director of equity derivatives,since retired,but will commit multiples more capital to real estate than trading. Many of my friends who never made more than 250k are multi millionaires from buy and hold/dollar cost averaging..They have bare minimum 50 percent of their net worth in the market..

%%
Both capital markets can be very profitable................................................
[Edit, the great thing about Real Estate/not very liquid+ profits can pile up + up]
I do like some profit targets;
but trend followers make money with trends/profits running.
Its hard to lose money in RE , but Interstate 75 ruined Col Sanders real estate.

 

[SunTrader]

The more times you trade (when you don't have runners) the more times you have to be right.
I'd rather not.

 

[johnc19822]

Talk to Richard Dennis

Talk to Richard Dennis

Mark Douglas said that 95% of Dennis' trades were losers, but the winners were monsters.

I also have a question of what is a good amount of risk per trade. I have heard from between 1 to 15%. The crazy thing is that the guy I was learning from (on a forum) said to use from 5 to 15% which is way too much IMO. Any advice is appreciated. Also thank you to Buy1Sell2; I have learned a lot from your posts.

 

[GotherL]

Imagine you bought NVDA 290 calls at 0.12 cents and closed it all out at.50 cents. It's now $25 a contract.

 

[longandshort]

Your initial statement was a head scratcher,but IMHO this post is spot on and the reality for 90 percent of the people trading..

I am a perfect example...

Was a Managing Director of equity derivatives,since retired,but will commit multiples more capital to real estate than trading. Many of my friends who never made more than 250k are multi millionaires from buy and hold/dollar cost averaging..They have bare minimum 50 percent of their net worth in the market..

this is the definition of a hobbyist investor. i'm the flipside of that, with close to 90% of net worth in the market and managed actively.

 

[noframe]

what is a good amount of risk per trade.

It is a relative term. Ideally you should be prepared to lose what you think you will be able to recover in subsequent transactions in case the trades do not go in your favor. Though 2% of your trading capital is enough to proceed with.