The myth of letting your winners run

[Tradex]

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.

Only a backtest can reveal if your strategy makes MORE money with LESS drawdown, versus letting profits run.

NEVER trade a strategy because it "makes sense", backtest your trading ideas and trade the most profitable one (on a risk-adjusted basis), period.

Over the years I have noticed that my most profitable trading systems are counterintuitive.

(Very interesting topic by the way! )

 

[taowave]

There was a backtester/optimizer called Stratasearch which is no longer around...You could throw in as many rules as you liked with money management,and it would run thru hundreds of thousands of permutations and of course curve fit...More often than not,the exact opposite of what I believed backtested better than the holy grails...And of course,when I walked it forward,it all fell to shit

 

[Tradex]

More often than not, the exact opposite of what I believed backtested better than the holy grails..

There we go.

 

[SimpleMeLike]

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

Flowfollower,

Great post.

I have struggle with use Profit Target vs Trailing Winners day to day for nearly a year now.

Let me tell you something. Easier said then done day to day.

The only way to know what works best for you is to test it.

Test 1 : Trade management for 2RR
Test 2: Trade management for trailing.

Do this for 200 trades or 6 months.

Afterwards you will know what works best.

 

[volpri]

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

Bingo...bingo...bingo. Congratulations you have escaped the pundits and guru’s malarkey. Grab them profits. Keep that high win rate up.

 

[Tradex]

Do this for 200 trades or 6 months.

6 months? Why not test it immediately with historical data?

 

[Tradex]

you have escaped the pundits and guru’s malarkey

Right, so let's all keep our profits short and let our losses run then!
Just kidding.

 

[volpri]

There was a backtester/optimizer called Stratasearch which is no longer around...You could throw in as many rules as you liked with money management,and it would run thru hundreds of thousands of permutations and of course curve fit...More often than not,the exact opposite of what I believed backtested better than the holy grails...And of course,when I walked it forward,it all fell to shit

ROFLMAO

 

[volpri]

Right, so let's all keep our profits short and let our losses run then!
Just kidding.

No no no Eastwood I grab them profits and average down them losses if the larger and immediate dynamic context supports averaging down. Then exit the averaged down with a profit. Like Doc Holiday...I say to the market “I’ll be your huckleberry”

 

[Tradex]

I average down them losses

Well, see, my mule does not like it when I average down...