The myth of letting your winners run

[systematictrader]

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

Your questions is a good one as its a constant struggle for most traders.

But as one of the guys here said its not one size fits all. Both for traders and also on instruments.

Do you let your profits run? Depends on the character of what your trading. Stocks known to be very choppy, Commodities/forex known to have more meaningful trends. But if we spoke of stocks alone lets say within that the same categories exist.

Big blue chips constantly rotate with hardly any of them going to extreme new highs as you would see with TSLA NIO PLTR and a whole bunch of "new" names.

Frequency on blue chips pays off more. Take a look at intc at 44 zone for example its almost like an endless range you can trade where here frequency does pay off. Exit at a xyz percentage you believe is good for you or based on chart resistance. If it breaks out oh well you rotate to the next stock in the same category assuming you gaged the character well.

Stocks that are high fly tsla nio or even small caps probably the opposite would work. But then again raises the question for how long do you hold? This can be mitigated NOT completely fixed with options, particularly verticals where you constantly "roll" them assuming your constantly in the right direction which is typically the case with high fly stocks, super up super down, options though put on the "time" so that at least you dont have to average down or up again to maintain the position, you can use the options expiration as the time frame before entering on another trade, cuz even in large drops (assuming you long the vertical) if it has not expired yet it can turn back to profitable. Verticals more than calls because with high fly stocks premiums are ridiculous specially extrinsic. Verticals where one leg is in the money one is out can offset that extrinsic to give you a break even price at the money, downside limits your upside potential, but if your trading a super liquid stock now they even have the weekly's.

One interesting findings is that verticals in almost ALL months cost the almost the same and make the same P/L when one leg is in the money and the other is out of the money where the premium of the out of the money one is equal to the value of the extrinsic of the in the money one. The catch is, the farther the expiration the longer you have to wait for the full payout.

If your trading (or perhaps investing in the SPY) then you want to run your profits forever

 

[systematictrader]

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

And you are correct the longer the trade the less frequent you trade but keep in mind the goal is to make money not to trade. If and ONLY if your holding one trade forever and making money that isnt any different from the end result of someone who is constantly trading and also making money. End result is to make money. dont confuse that with trading frequent or not. The more instruments you trade though the less you can focus on. How many times did you look at something you used to trade and or viewed its charts and had an opinion only to see that opinion was correct have you stuck around long enough, not just in the trade if you happened to place one but in simply looking at that instrument/stock. That's the curse of trading different things all the time in my opinion. You can make xyz amount end of year trading one thing or few or you can potentially make the same trading so many symbols. Psychology here kicks in heavily and BOREDOM, one of the biggest requirement to successful trading. All my opinions above FYI are based on swing trading

 

[.sigma]

Frequency on blue chips pays off more. Take a look at intc at 44 zone for example its almost like an endless range you can trade where here frequency does pay off.

Interesting you mentioned this, as I traded $INTC on 10/30, 44/47 call spread, max profit, but look at what it did weeks later, sickening. But thats the thing with verticals, limited profit, and I did not look to make much off $INTC but man, I'm thinking maybe instead of weekly verticals, i'll try monthlies and use DITM bull and bear spreads.

 

[systematictrader]

Interesting you mentioned this, as I traded $INTC on 10/30, 44/47 call spread, max profit, but look at what it did weeks later, sickening. But thats the thing with verticals, limited profit, and I did not look to make much off $INTC but man, I'm thinking maybe instead of weekly verticals, i'll try monthlies and use DITM bull and bear spreads.

How long were you in the trade???

The big names stocks in my experience of doing the above are like a carousel. ITS SUPER critical to exit whole position because they take forever to make a move let aside go into a new high/low. I am swing trading so when i enter these positions i am expecting to be in 30 to 90 days. Thats why i do the ITM and offset its extrinsic by OTM options where the total cost of the OTM options is the same as the extrinsic value of the extrinsic of the IMT call

The large caps move so slow and in such a range in my opinion its a waste of time to ride it to a new high and or expect something big out of it versus the high fly stocks of today TSLA NIO PLTR, the big names though are consistent in their range. I trade them in a separate account that i do NOT monitor daily because patience wise it wears you out. Simply set an alert on it and forget it. Carousel like mentioned above is PFE at 37 i got into on dec 14th, and its gone no where, if this was in an account that i see daily it would've driven me crazy psychologically speaking how slow it moves. Mean while i got into GILD on dec 21st and exited on jan 7th. Its critical to pick 5-7 i would say to keep the "carousel moving" some on and some off. Besides financial diversification its more psychological diversification to keep your attention split across many and enforce patience for the trade to take its time to make its move which with these blue chips can be forever. I was in WFC from July 2020 all the way to mid December. This also reinforces the importance of making it a vertical to make sure your paying ZERO for time decay. Some other example names are GE WFC XLE PFE ED GILD. Weekly's for large cap stocks in my opinion are useless. Weekly's options and also vertical i would only do it in the high fly stocks like NIO PLTR PLUG TSLA UVXY RIOT MARA. I think its insane that they got weekly's on such stocks where one can perform a vertical and bracket a stock without paying time value/extrinsic. Because keep in mind assuming you hold the option to expiration. the extrinsic nick named the "fee" is always lost whether stock goes down, sideway, or up, Where as in a vertical you pay the "fee" only when the trade goes your way. IF you believe the instrument is going to go higher and higher you can constantly roll the vertical upwards but never downwards and almost virtually get same exposure as the person who has the underlying outright except that you got much more limited risk than him and no stops trigger you as if he had a stop loss and should a big drop take place, the time to expiration keeps you in the trade to protect against the "averaging down" and or "buy more" deadly mind set since you position is technically still on till it expires

 

[tradeking007yahoo]

Interesting you mentioned this, as I traded $INTC on 10/30, 44/47 call spread, max profit, but look at what it did weeks later, sickening. But thats the thing with verticals, limited profit, and I did not look to make much off $INTC but man, I'm thinking maybe instead of weekly verticals, i'll try monthlies and use DITM bull and bear spreads.

here is my intel and i sold some last week. you must let winners run because you must be in the mkt when it makes it extreme moves. It is a postive sum game not a zero sum one!! play accordingly . I am up 76 % on my intel

 

[.sigma]

here is my intel and i sold some last week. you must let winners run because you must be in the mkt when it makes it extreme moves. It is a postive sum game not a zero sum one!! play accordingly . I am up 76 % on my intel

BLOTTER OR IT DIDNT HAPPEN LOLS

 

[systematictrader]

here is my intel and i sold some last week. you must let winners run because you must be in the mkt when it makes it extreme moves. It is a postive sum game not a zero sum one!! play accordingly . I am up 76 % on my intel

The same thing can be viewed at PFE or UNG where the move simply pulled back to where it was, letting your profits run in my opinion these days is more based on what your trading rather than your style. Big blue chips running profits run is useless, they make enough rotation and back to supports endlessly, take a look at VZ, hardly they break out to new highs. Where as trading Z CVNA TSLA OR RIOT then you might consider running your profits run and SPY is a must for letting profits run,

 

[Flowfollower]

Thanks for all of the replies.

My mind still comes back to each data point on a chart is unique and should have it's own risk to reward metric.

No trade is a free trade.

What if I exited a trade at 2R and re-entered that position at the same point with the same risk as the original trade. What we infact have done is just put in a trailing stop loss.

So I don't see any difference between exiting a trade at a profit target or letting that winner run with a trailing stop loss.

So if this is the case, then why not just exit are a pre-determined position and re-enter where one has a greater chance of meeting a trade objective?

Risk 1. Sell 2. Frequency is the sweet spot.

 

[Flowfollower]

Thanks for all of the replies.

My mind still comes back to each data point on a chart is unique and should have it's own risk to reward metric.

No trade is a free trade.

What if I exited a trade at 2R and re-entered that position at the same point with the same risk as the original trade. What we infact have done is just put in a trailing stop loss.

So I don't see any difference between exiting a trade at a profit target or letting that winner run with a trailing stop loss.

So if this is the case, then why not just exit are a pre-determined position and re-enter where one has a greater chance of meeting a trade objective?

Risk 1. Sell 2. Frequency is the sweet spot.

Ok. Here's a test.

You're a trend follower who believes in letting positions run.

A stock you hold jumps 50% in a day. You obviously would hold and trail a stop loss.

Question is, if you were new to that stock, would you buy at the 50% jump? If not, why not?

 

[treeman]

Exit a position, every time you don’t know what is going on. A stock unexpectedly jumping 50% falls in that category for me. Parabolics aren’t part of trend following. You’re chasing if you’re not already in. And if you’re in, see my first sentence.

anytime I feel euphoria, I trim my holdings hard.