The myth of letting your winners run

[taowave]

Sounds like you didn't walk foward and there may be a bit of curve fitting going on..I would walk it foward ortakeit with a grain of salt

You should always let winners run and cut losers. But in many cases you only know in hindsight what would have been best. To try to solve that problem I did an extensive test daytrading futures ES.
I did over 1,000 daytrades. For each trade I put in an Excel:

• Entry
• Exit
• Max open profit
• Max open loss
• Stop (that I could change to see the impact of that change)
• Take profit (that I could change to see the impact of that change)

What I learned from this experiment:

• I was able to see where the optimal place was to put a stop as I had the max open loss for each entry.
• I saw the distribution of the profits and losses, and the importance of letting profits run. Letting profits run was important as these profits represented a larger part of the net profits. So putting take profits instead of getting out based on indicators had a negative impact on the net profits.
• Changing the stop resulted in less losses in bad trades, but also in being stopped out in a trade that would have been profitable. For each profitable trade that was stopped out I had to check if I could reenter again and still take some profits. At the optimal stop I did not get stopped out of winning trades.
  
• I had a clear view on the expectancy.

For each system, this test can give a different result as each system has its own characteristics.
My conclusion was to enter and exit based on indicators and a well placed stop. In the long run nothing else that I tried could beat that.

 

[virtusa]

Sounds like you didn't walk foward and there may be a bit of curve fitting going on..I would walk it foward ortakeit with a grain of salt

I build this system in 1995 and still run it every day , with small improvements. Results are consistent and it has good performance. No need to do anything anymore. Time confirmed the solidity.
The 1,000 trades were spread over a 3 years period. For intraday that's enough as there were never any overnight positions. There were also more or less the same numbers of longs as shorts. So no curvefitting. The system was build and tested as it was. Only the stop was adapted to the volatility. The returns the last 2 years are much higher then the years before.

 

[deaddog]

A good example is the cannabis stocks. I had small positions in them a couple of months ago and scaled in during the run-up, but scaled back out as price dropped. I'm still in the initial small positions before the move up and down, and will scale back into them when their prices start to go back up again.

That explains what you did but the question was why?

When you get an exit signal why scale out rather than a full exit. What is the downside if you take a full exit.

Why keep part of a position? FOMO? You are a trader you can always get back in.

 

[rwst]

I have seen this in Stratasearch as well, shorts are a waste of time.
GSB is very good intraday both long and shorts.

I purchased BuildAlpha about a year back....I am using mostly EOD data on Indian and US markets to work out strategies through data mining....Things I like are that it divides the data into test and train sets so the curve fitting problem is eliminated...and edge ratio as I mentioned along with other metrics help a lot.....I have done strategies coding on Ninjatrader7-8 and MT4 before but BuildAlpha saves a lot of time....I am currently making a portfolio of non-correlated strategies...Having said that, its hard to find working strategy on intraday data.....also short signals are very hard to find on indices and ETFs.

 

[KCalhoun]

That explains what you did but the question was why?

When you get an exit signal why scale out rather than a full exit. What is the downside if you take a full exit.

Why keep part of a position? FOMO? You are a trader you can always get back in.

You're right, thx, I used to scale-out just half the position, after your point you made last year asking that, I started closing most of the position, like 80% or more. The reason I leave a little bit verses closing the entire position is mainly to remind me to trade it next time it breaks out, kind of a placeholder. I'm often trading several dozen positions at once and if I don't keep a few shares in play, I may easily forget about it

 

[Fonz]

When trading, letting your winners run is hoping for the best. Hope is no plan.
I mostly do the opposite of so many: I always have a large hard stop only for catastrophic events, unexpected news, market reversal, etc. Targets are placed in advance, on a price where I would not enter anymore. I exit on market order like mental stop, as soon as the behavior change (winner or loser trades).
I day and swing trade that way.

It is another story when investing. Investing is in fact "investing on the future", and then hoping for the best.

 

[virtusa]

When trading, letting your winners run is hoping for the best. Hope is no plan.
I mostly do the opposite of so many: I always have a large hard stop only for catastrophic events, unexpected news, market reversal, etc. Targets are placed in advance, on a price where I would not enter anymore. I exit on market order like mental stop, as soon as the behavior change (winner or loser trades).
I day and swing trade that way.

It is another story when investing. Investing is in fact "investing on the future", and then hoping for the best.

What's the difference with what you do?
Your plan is hope too:

• hope to reach the target.
• hope not to get stopped out
• hope the behavior changes

You can qualify everything that is not for 100% sure as hope. So plans do not exit if I follow your logic.
You confuse hope with probability and expectancy.

 

[deaddog]

When trading, letting your winners run is hoping for the best. Hope is no plan.

The plan is to take the trade with the proper size and risk; to exit with a small loss or an undetermined profit. Letting winners run is the plan. Hope plays no part of it.

I exit on a trend line break. If the trend continues I hold, when it breaks I exit.

Of course I hope the trend continues forever but I plan to exit when it doesn't.

 

[Buy1Sell2]

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

Talk to Richard Dennis

 

[murray t turtle]

When trading, letting your winners run is hoping for the best. Hope is no plan.
I mostly do the opposite of so many: I always have a large hard stop only for catastrophic events, unexpected news, market reversal, etc. Targets are placed in advance, on a price where I would not enter anymore. I exit on market order like mental stop, as soon as the behavior change (winner or loser trades).
I day and swing trade that way.

It is another story when investing. Investing is in fact "investing on the future", and then hoping for the best.

%%
Actually if one did plenty of chart study, on qqq for example;
letting profits /winners ride can work real well.
So few traders make profits compared to investors\but then\ they confuse the 2.
And taking profits sometimes does not disprove good trends/it can compliment it.
But speaking of hope\ i hope you can admit a loss much better than the FONZ/LOL I sometimes use limit exits, but trade mostly liquid enough to use market orders