Would you stick to your trade even when a loss seems imminent?

[virtusa]

You set a stop loss to keep your losses small. A smaller loss than planned is not going to hurt you.

I don't agree. When you backtest your system you use a stop. The results of the backtest are based on that stop. So it can happen that a trade almost goes to your stop before returning and giving you a decent or even huge profit. In your backtest you have this profit. If you would get out before the stop is reached, you miss that (maybe big) profit.
Always follow the rules of your system if not it makes no sense to do backtesting.

Same for taking profits too early.

 

[virtusa]

say you enter a trade given by a signal/setup and have your profit and stop orders attached, then price action begins to go against you and you believe you are likely to be stopped out of the trade. Would you close your trade or wait for it to hit your stop?

What you THINK is irrelevant. What your system tells you is the only thing that counts.

 

[movingaverage]

Trading Discipline!

This is what differentiates a Pro 100% mechanical system trader from an Amateur wannabe 100% mechanical system trader.

The Pro is on the golf course and doesn't care if the system loses or wins on the current set of trades, even if he had a strong feeling about the current trades being losers. He knows there will long periods when the system doesn't make money and thats all an expected part of the system design.

The Amateur is glued to his screen and ready to interfere with the system because it is on a losing streak and he cant handle the pain of anymore losses.

This interference will just make the losing streak last even longer, in fact he will just end up abandoning the system and start changing its parameters or start playing other 'games', effectively throwing all discipline out the window.

The Pro has developed a discipline hack, he doesn't even look at the trading screen during the day. Although he might need some discipline to not do this. The temptation is to look at the screen if you are bored and have nothing to do. This serves no useful purpose except entertainment to alleviate boredom. But can prove very expensive. Cheaper to find a hobby that keeps you busy.

pro = dude that can afford to lose
newb= dude that trades with rent money

 

[deaddog]

I don't agree. When you backtest your system you use a stop. The results of the backtest are based on that stop. So it can happen that a trade almost goes to your stop before returning and giving you a decent or even huge profit. In your backtest you have this profit. If you would get out before the stop is reached, you miss that (maybe big) profit.
Always follow the rules of your system if not it makes no sense to do backtesting.

Same for taking profits too early.

One thing that has stuck with me through the years is a quote by Ed Seykota in his Market Wizards interview. " Folllow the rules without question. Know when to break the rules."

The OP asked what to do when something unexpected happened.

 

[virtusa]

The OP asked what to do when something unexpected happened.

Just follow the rules. There should be rules for unexpected situations too. If I don't know how to manage an unexpected situation I just get out. That's my rule.

All depends of course of the specifics of your system. I tested by trying to optimize myself the trades by breaking the rules. The result was a loss of profits and a higher drawdowns. Test was on about 1,000 trades. My system was beating my improvisation.

The problem is that you should know when to break the rules. How do you know when to break the rules? You need rules for that. Which becomes in that way part of the system. So in that case you still don't break the rules. You added rules.

There is a contradiction in what Seykota tells:follow the rules without question.
Then he says: Know when to break the rules.
So not follow the rules without question? Follow the rules but also break the rules.

 

[deaddog]

Just follow the rules. There should be rules for unexpected situations too. If I don't know how to manage an unexpected situation I just get out. That's my rule.

So you would get out before you hit your stop. I think that's what I suggested.

All depends of course of the specifics of your system. I tested by trying to optimize myself the trades by breaking the rules. The result was a loss of profits and a higher drawdowns. Test was on about 1,000 trades. My system was beating my improvisation.

The problem is that you should know when to break the rules. How do you know when to break the rules? You need rules for that. Which becomes in that way part of the system. So in that case you still don't break the rules. You added rules.

There is a contradiction in what Seykota tells:follow the rules without question.
Then he says: Know when to break the rules.
So not follow the rules without question? Follow the rules but also break the rules.

Like you said there is probably a rule on when to break the rules.

Trading is simple, not easy!

 

[virtusa]

So you would get out before you hit your stop. I think that's what I suggested.

No. I tried to write down why, but it becomes too complicated to explain, so I give up.

If I am in a trade I quite with a profit or get stopped out. No other options possible.

 

[virtusa]

No. I tried to write down why, but it becomes too complicated to explain, so I give up.

If I am in a trade I quite with a profit or get stopped out. No other options possible.

There is a third option: if a get a signal to reverse my position.

 

[murray t turtle]

You know what's going to happen, right? The moment after you bail out, it will U-turn and move back where you would have been.

Ultimately it sounds like you don't trust your system. Set your stops and trust, or pick a different system.

%%
LOL\ i checked the timing of his post.QQQ + QLD had a much more than average roller coaster week=JAN 16-22-2021 week.
DONT know exactly what he he did so i'll guess. BUY monday tends to be a good short or inverse profit day. BUT that usual down monday/instead gapped up more than normal; so a normal short QLD or sqqq buy\ would lose more than average. A normal time stop on that trade would tend to lose more that day.
I seldom front run my stops, even though i watch PSAR.A couple of exceptions may be wise; i was in FAS + within 24 hours FED made an unexpected announcement, could still be OK, but since it was the underperformer for me\ good to kick it out early, not fast kick/exit out.,

 

[benten]

So you would get out before you hit your stop. I think that's what I suggested.

Like you said there is probably a rule on when to break the rules.

Trading is simple, not easy!

Yes, Trading is simple but not easy.
Traders with "trading is easy" mindset have get rich quick mentality and hence, are unable to stay in the game for a longer run. Instead, understanding that trading is not an easy task will encourage you to be more willing to learn, be more careful and prepare better when trading.