Let your profits run?

Erowe

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"Let your profits run" I have picked up from my reasearch prior to starting spread betting on FOREX. I am new to SB, and I am exeriencing difficulty in judging when to take profits / setting the price target.

The annoying thing is that I tend to call the direction of the market correctly (within reasonable probability), however any small initial profits tend to reverse and then hit my initial stops. As a result I am merely breaking even.

I am currently working on a risk reward ratio of 3:1 for my price targets. Should I reduce this to 2:1? There is also the saying "You can't go broke by taking a profit", regardless of size.

I was wondering what anyone's thoughts are on the matter. Many thanks in advance for your help.
 
Letting your profits run is easy to call, but when I first started trading, it wasn't an easy feat. Besides wanting to grab the money and run when there is any, I also encountered the 'stopping out' you mentioned. You probably have to first identify the range of price action in that particular timeframe you're trading in, and come up with some form of realistic stop criteria after as you say, pick the right direction for the market. If there's say, a +1 and -1 movement in a day, then having a -0.3 stop will probably get knocked out easily even if you called the direction right. This doesn't just mean the entry price you get in, but the volatility range of the price.

There's no harm in taking profits off the table for sure, but if you only just get off all the time with small profits, your expectancy is going to be low, low, low. If profits are small, then your losses have to be even tighter right? But you will need room for 'losses' to occur when trading, especially if you're looking to capture a higher reward. I'm just sharing my ideas, I don't spreadbet so maybe someone might be able to give a better insight.
 
If you’re setting your target arbitrarily then there’s something wrong. If you’re calling the direction correctly (better than random) then you’re judging where Support/Resistance are coming into effect.

What’s the difficulty in judging where the next higher/lower Support/Resistance is likely to come into effect? That’s your target.

Letting them run to target is another skill and one you can develop by taking off say 90% of your position when you begin to twitch and then watch the remaining 10% run home. As you increase your confidence in your analyses, you reduce the twitch-amount by say 10% each day/week/month (depending on how much convincing you need) until you’re finally allowing the full position to run.
 
Thanks guys.

I suppose that is the next step for me, to judge the next support/resistance. I believe I am getting caught out on the retracements, particularly on the successful trades as I manually adjust the stops to lock in profits, but often far less than the total movement - maximising profits is the challenge of course!

At the moment my stops are around 0.3 of the trading range +-1. I may increase this to 0.5 or more as my confidence (and risk appetite) increases with more experience.
 
Depends on your win rate.

If you can guess direction right 70%+ of the time then a 1:1 profit/loss ratio is fine.
60% of the time, then a 1.5:1 is fine.
50% of the time: 2:1.
40% of the time 3:1.

These are base case levels. You might be able to do better ie 65% win% with a 2:1 profit/loss ratio.

Having a win rate north of 60% is possible but requires lots of patience and discipline and many years experience of market behaviour. And you might not even get a trade every day if you are very patient and only want the best setups.

Also if you use 0.3 or 0.5 of the daily range as a stop you might not always get a 3:1 winner, or even a 1:1 winner, as the market might not be moving much that day.

If you use 0.15 or 0.2 of the daily range as a stop, you more likely to get a 3:1 movement ... But such a tight stop requires more careful timing.
 
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You should have some basic idea of a high probibility TP before you enter and base a tp on that. Changing your R:R has an effect on expectancy and your win rate will may go up. check out Random Equity Curve Simulator of a trading system. Learn it before you trade to see the relationships on a chart.

If you find yourself getting nervious then you could consider closing a portion of the trade. There are loads of numbers you can do. (if your more comfortable you leave more on etc)
i.e (R=risk)
Price hits profit equal to R, close 1/2 and leave stop. worst case = b/even
Price hits profit = R, close 2/3rds, leave stop worst case +1/3rd
...profit = R, ... , move to b/e, worst case...???
...
profit = R*1.5, ...etc

cheers
 
I am currently working on a risk reward ratio of 3:1 for my price targets. Should I reduce this to 2:1? There is also the saying "You can't go broke by taking a profit", regardless of size.

Hi Erowe

One of the mistakes new traders make in the inital stages is that they change too many parameters in their trading methodology. This prevents them for finding out what will work in the long run. Therefore, I wouldn't start moving your trade plan exits until you have a fair few trades that you can go over. Then you can work out your average win rate and average winning expected value (EV) relative to the average loser and average loser EV. From this you will be able to deduce what it the most efficient exit point relative to your setups.

Consistantly getting in and out of the market at similar setups will allow you to develop a robust and efficient strategy because it takes out some of the randomness. Easier said than done though when you are starting out.

Best of luck

JD
 
"Let your profits run" I have picked up from my reasearch prior to starting spread betting on FOREX. I am new to SB, and I am exeriencing difficulty in judging when to take profits / setting the price target.

The annoying thing is that I tend to call the direction of the market correctly (within reasonable probability), however any small initial profits tend to reverse and then hit my initial stops. As a result I am merely breaking even.

I am currently working on a risk reward ratio of 3:1 for my price targets. Should I reduce this to 2:1? There is also the saying "You can't go broke by taking a profit", regardless of size.

I was wondering what anyone's thoughts are on the matter. Many thanks in advance for your help.

You have been given some good advice. I just think you need more experience. Remember the other important part of the equation is to cut losses early. You are saying that you judge the market direction correctly but if it is reversing after a small profit and taking out your stop then I need to ask you, what makes you say you are judging it correctly? You need to decide whether you are entering for the immediate trend, the intermediate trend or the larger trend. To me, it seems that you are judging the immediate trend correctly but you are holding a trade as if you have judged the intermediate or larger trend correctly.
 
HI Erowe,

To address your initial post on this thread;

1st I would forget about the reward to risk ratio. Unless you can predict the future this ratio has no practical value in my opinion. Yes it is important to have targets, but these targets and projections must be based on objective data, from identification of the set up, through the completion of the trade.

2nd I always let the market take me out, usually scaling me out. Again this is based on objective data like a 1 or 2 bar trailing stop, trend line break, etc, not subjective targets. Sometimes the market takes me out early, on occasion I have a nice run lasting much longer than expected, which also goes to my opinion about the reward/risk ratio; you never know how a trade will develop. You will make more money in the long run letting the market take you out. It is difficult to make up for losses taking small or quick profits, and disheartening when you could have made so much more. Adhere to your trading plan.

3rd it is important to identify the move you are trying to get on board in advance. As an example, using Elliott Wave, are you trying to capture waves 1 through 5, or wave 3 of 5, or wave 1 of wave 3? This decision will have a major impact on your exit point, which is a problem for you. Even though the same strategy may be employed for managing each of these example moves, the game plan; the parameters used and your exit strategy may be quite different. The same basic strategy will need to be adjusted differently to allow you to ride out the larger corrections, if you are attempting to capture the majority of a large trend, verses exiting a smaller pullback of a wave of minor degree.

4th it is important identify technically significant areas on which to enter and exit. A moving average cross or crossover may be an indication to enter or exit a trade. The problem is these signals occur all the time, especially with the shorter moving averages. Taking or exiting a trade every time you get one of these signals is going to lead to failure rapidly. The key is to identify a technically significant area where the signal now becomes valid.

5th if you are getting stopped out a lot I suspect you are placing your stops at technically significant areas. When I enter a trade I never move my stops to the breakeven point. The reason is, in my trading plan, my entry point is a technically significant area, and the price is likely to test this area as the trade develops. I try to keep my stops close if possible and away from technically significant areas. Again it depends on what I am trying to accomplish.

6th It sounds like you may need a filtering system in place. Filters are objective parameters, reasons to keep you from taking a trade, based on your trading plan. At a minimum, you must be able to specifically define before entering a trade; what is it I am I trying to accomplish, why, and how. Many traders do not apply the same diligence as to why they should not take a so called “good” trade set up, a major mistake. Filtering will cost you some great trades, but if done correctly will keep you out of many more bad trades. It is not a perfect world. All you can do is try to make the best decision based on the information you have.

All this is easier said than done, but necessary to be successful.
 
Eur/Usd behavior on thid weak?

I would like to ask the pro traders,:cheesy: what is gona be the EUR/USD behavior on this weak.
Thak You very much, for sharing your knowledge!
Best regard to all of You,
Suba.
 
"Let your profits run" I have picked up from my reasearch prior to starting spread betting on FOREX. I am new to SB, and I am exeriencing difficulty in judging when to take profits / setting the price target.

The annoying thing is that I tend to call the direction of the market correctly (within reasonable probability), however any small initial profits tend to reverse and then hit my initial stops. As a result I am merely breaking even.

I am currently working on a risk reward ratio of 3:1 for my price targets. Should I reduce this to 2:1? There is also the saying "You can't go broke by taking a profit", regardless of size.

I was wondering what anyone's thoughts are on the matter. Many thanks in advance for your help.


Look the next day!

You will know the answer then.

Keep doing this,

One day:idea:
 
I would like to ask the pro traders,:cheesy: what is gona be the EUR/USD behavior on this weak.
Thak You very much, for sharing your knowledge!
Best regard to all of You,
Suba.

It will zig-zag up and down in a largely random fashion. Hope this helps.


;)
 
What you guys said is ok and reasonable, but all of you neglect an very important factor, the mental control. How to control your greed, fear, trusting to luck, laziness, expectation,etc. Maybe your judgement and prediction are good, but you cannot overcome the bad human nature, and go with fake movement.
 
What you guys said is ok and reasonable, but all of you neglect an very important factor, the mental control. How to control your greed, fear, trusting to luck, laziness, expectation,etc. Maybe your judgement and prediction are good, but you cannot overcome the bad human nature, and go with fake movement.

Well ithink you can....work out why you feel like this and deal with it. Are you losing sleep over the size of the stakes, or the fact that, horror of horrors you may be wrong>??
 
What you guys said is ok and reasonable, but all of you neglect an very important factor, the mental control. How to control your greed, fear, trusting to luck, laziness, expectation,etc. Maybe your judgement and prediction are good, but you cannot overcome the bad human nature, and go with fake movement.

I don't, always, follow my own advice but I do use limit and stop orders often. Have you thought of trading with them ? It is one way of planning your trades beforehand and helps with the self discipline aspect and you do not have to watch the computer so much.

I entered a trade like that this morning, Euro/$, and had an original stop 40 points away, which I moved up to 10 points behind, afterwards. It netted me +25.

I had other things to do and this was a quite peaceful way of trading.

Be careful with the original stop, though. You must be able to afford the possible loss and be able to come back into the game.
 
Achieving my daily/weekly trading targets is more important than letting profits run. I target a certain pip count, set my leverage and trade away aiming for 3 - 5 trades a day of +10 / -10. It provides my income in a structured manner, every trade entry is a mirror image, thus enabling me to acquire meaningful and accurate statistical data upon which I base my trading.

There is no magic formula which will identify whether the trade I am entering will go on an extended run of profit, so I prefer a statistically proven system that allows me to consistently deliver my living.
 
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