The myth of letting your winners run

[volpri]

The other side of the equation is cutting losers short.
You can't lose if all you have is winners that are running. Running means moving in your direction.

Sorry but for an intraday scalper on a 5 min TF cutting winners short and averaging into losing positions (if the contexts supports it) is the correct “modus operandi” IMO but I ain’t telling anyone to do it. A trader has to do whatever floats his boat. I often take many trades over the day and I am constantly cutting winners short ....and on about 1/2 of the trades I am averaging down into losing positions. Just look at the two ES trades I posted. The first was averaging down i.e. not cutting losers short. The second was cutting a winner short.

See, you don’t need to capture large movements to make money. A trader only has to get really good at capturing small moves (say 1 to 8 points in an instrument like the ES). Once they are very good at it good $$$ is made simply by upping size. The process is the same on small or large size.

Averaging NETTING 1 point day on 10 ES contracts and that makes $120,000.00 per year. Averaging (Netting) 3 points day on 2 contracts is $72,000.00 year. Netting 2 points day on 20 contracts is.......well you get the idea. Sitting around twiddling one’s thumbs day after day ..month after month..year after year is totally unnecessary. There are 81 bars (5min bars) on the ES. These can easily, most days, render 10 to 30 trades from 1 to 4 points and some will often be 5 to 8 points. So, why sit around checking one’s longterm stock holdings HOPING each week it is going up? Then covid hits and the pundits say “sit tight” it will come back. Of course it will. The question is when? And does one have the capital to keep adding? The adding is really just averaging down but the technique is scrubbed squeaky clean and now called cost averaging..legitimate now!....ROFLMAO.

I just prefer to be flat each day by the session’s close. And have a high win rate. An added benefit of high win rate is it gives a good psychological boost.

 

[volpri]

 

[deaddog]

I just prefer to be flat each day by the session’s close. And have a high win rate. An added benefit of high win rate is it gives a good psychological boost.

Yes a high win rate gives a psychological boost but on the days when averaging down doesn't work, and you have to take a larger loss than planned, it has to be a little depressing.

The one thing about being flat at the end of the day is you protect yourself from yourself.

 

[volpri]

Yes a high win rate gives a psychological boost but on the days when averaging down doesn't work, and you have to take a larger loss than planned, it has to be a little depressing.

The one thing about being flat at the end of the day is you protect yourself from yourself.

Of course there are times averaging down doesn't work. There is a “give up” point on an averaged down trade and that point is when one’s original premise has been proven wrong. But just enduring some adverse excursion does not mean a premise is wrong. Most trades are gonna see some adversity. But yes, there is a point when one’s premise is wrong.

I could get depressed about an averaged down trade not working. I could get angry about it. I could get disgusted about it, OR I could accept that I am on the wrong side of the market, accept that my premise is wrong (and that can happen even 40% of the time) exit, reverse, and double up. In short order, I usually have my loss back and just a little more and I am back in profit.

Discipline is doing WHAT you are supposed to do, WHEN you are supposed to do it, and HOW you are supposed to do it, regardless of how you feel.

And yes, win or lose, I am flat.

 

[Laissez Faire]

Once again, thoughts appreciated!

I feel you're comparing apples and oranges and in some ways stating the obvious. The reason day trading is attractive is because a higher/daily trading frequency allows you to rack up and compound daily gains. Ideally.

Regarding letting your winners run and cutting your profits short:

You're not cutting your profits short if you're a scalper with small profit targets and take those targets.

But you're cutting your profits short if you're a swinger aiming for higher profits and take your full losses while getting out too early on your winners. That's what it really means, IMO. Most traders keep hanging on to their losses and even maximizing them by widening their stops. Then, as soon as they see some green on a trade they're out. The end result is usually a negative expectancy.

It all boils down to your trading style and preference.

I checked my records and found 3 days where my gross profit was similar, but the # of trades to achieve it was widely different.

Day 1: 13,25 points / contract gross - # 1 trade. Total fees = 1,5 % of gross profit => 13,1 points net.

Day 2: 11,25 points / contract gross - # 6 trades. Total fees = 10,9 % of gross profit => 10,0 points net.

Day 3: 11,75 points / contract gross - # 20 trades (yikes!). Total fees = 34,7 % of gross profit => 7,7 points net.

This shows how commissions and fees really eats into your bottom line. Because of this - my aim is to reduce my trading frequency and focus on capturing larger profits intraday. Ideal trading frequency for me on most days is <= 5 trades.

If I'm trading a move from 10 to 25 and keep exiting/re-entering instead of holding for the full move I'm not trading like I want to trade.

 

[systematictrader]

It's not too much mental capacity. We should know what we're trading, know if the price action is in a trend, range, chop or whatever within the market context of the day.

If the above is "too much mental capacity"...that's a person that should not be trading.

wrbtrader

or can be systematic, not all traders need to be mental/discretionary

 

[Flowfollower]

I feel you're comparing apples and oranges and in some ways stating the obvious. The reason day trading is attractive is because a higher/daily trading frequency allows you to rack up and compound daily gains. Ideally.

Regarding letting your winners run and cutting your profits short:

You're not cutting your profits short if you're a scalper with small profit targets and take those targets.

But you're cutting your profits short if you're a swinger aiming for higher profits and take your full losses while getting out too early on your winners. That's what it really means, IMO. Most traders keep hanging on to their losses and even maximizing them by widening their stops. Then, as soon as they see some green on a trade they're out. The end result is usually a negative expectancy.

It all boils down to your trading style and preference.

I checked my records and found 3 days where my gross profit was similar, but the # of trades to achieve it was widely different.

Day 1: 13,25 points / contract gross - # 1 trade. Total fees = 1,5 % of gross profit => 13,1 points net.

Day 2: 11,25 points / contract gross - # 6 trades. Total fees = 10,9 % of gross profit => 10,0 points net.

Day 3: 11,75 points / contract gross - # 20 trades (yikes!). Total fees = 34,7 % of gross profit => 7,7 points net.

This shows how commissions and fees really eats into your bottom line. Because of this - my aim is to reduce my trading frequency and focus on capturing larger profits intraday. Ideal trading frequency for me on most days is <= 5 trades.

If I'm trading a move from 10 to 25 and keep exiting/re-entering instead of holding for the full move I'm not trading like I want to trade.

Thanks for you post. Yes commissions could make significant inroads into the bottom line.
However, in my example I presented a $100k account making swing 5 trades on the daily time frame a month.
Through Interactive Brokers, this would mean $10 in monthly commissions which would represent a meagre 0.001% of the $100 account.

I agree with you on day trading, but my example was about swing trading vs trend following using the same time frame.
I'm just trying to establish whether there it is mathematically superior to swing trade vs trend follow. I believe that there must be an answer to this.

 

[Laissez Faire]

I agree with you on day trading, but my example was about swing trading vs trend following using the same time frame.
I'm just trying to establish whether there it is mathematically superior to swing trade vs trend follow. I believe that there must be an answer to this.

Well, the sum of the minor moves within a larger move will always exceed the larger move itself. If the retraces are deep and frequent the sum of the minor moves can greatly exceed the larger move.

Let's keep it simple and say the market moves 100 points from 0 to 100 like this:

1. 0 -> 50 = + 50

2. 50 -> 30 = - 20

3. 30 -> 75 = + 45

4. 75 -> 50 = - 25

5. 50 -> 100 = + 50

The sum total of the minor moves is 190 points. Almost double of the major move.

So, if you could trade all the minor moves profitably and perfectly execute at each top and bottom you'd be better off.

Question is: Can you?

 

[Flowfollower]

So, if you could trade all the minor moves profitably and perfectly execute at each top and bottom you'd be better off.

Question is: Can you?

No I can't. But does one have to be perfect as the example mentioned in the first post operates on a 50% win rate?

There would be no need for perfection. A mechanical system that takes profit at a predefined short term target eg 2R, would be able to be executed with a buy stops, stop loss and profit target order all entered together before the trade has executed.

Even slippage can be negated with a buy stop. Of course the stop loss may prove a different matter from time to time.

 

[_eug_]

Coming from a swing trading perspective I am now training myself to scalp / daytrade ES/MES. Its a struggle to take conservative profit targets in MES instead of looking for runners. The mindset is totally different and you really need to understand the setup on when to take profit vs let it run. I had a 17 point profit come back to b/e yesterday. Had to shut down for the day after that.