Cutting Losses & Running Winners Trading Journal

[JRP2891]

Nigel, I think this is a refreshing read, and I'd encourage you to further explore this simple concept, which is executed so poorly by the many. You'll be able to apply your beliefs relatively easily to a trend following system which will give you some structure on how to manage your exits, which have to be made at some point if you want to survive.

 

[Hotch]

Wow, it didn't take long for someone to get on their high horse did it? A few posts!

My "pointless drivel" has netted me net 1200 pips since mid last week (I was just logging on to update you on my latest EURCAD trade which I cut this morning at 1.4130). There is absolutely nothing to say that couldn't be double that this time next week (or next month, I'm in no hurry).

You say there is a "good chance" that AUDJPY is going to go up 200 pips this week. With the greatest of respect, Hotch, a "good chance" (based on sound analysis I don't doubt) is not good enough for me to cut my winners. Perhaps you could spend some time reading up on the concept of "opportunity cost".

I did intend to describe here how I will continue to add entries this week and next week and the week after, while all the time cutting losers and running winners. I had hoped that some people might have been surprised by the results and perhaps even seen something that could have applied to their own trading.

Please accept my sincere apologies if my postings offended you Hotch. If I am honest, I thought that this thread would have survived a bit longer than a matter of hours before becoming a willy measuring exercise.

Good trading to all.

Nigel

Nigel,

I really think you took my post in a way I did not intend. I shall try and express it clearer.

I never said what you're doing is pointless drivel, but that the phrase is pointless drivel.

If you think it's going down you're short, if you think it's going up your long, that's pretty much it. Surely you would only run winners if you think it's still going to go down, so how is that any different from just being short when you think it's going down?

As for "good chance", depends what you define a good chance as I guess. I still don't really understand your point there.

I'm quite well read up on opportunity cost actually. If there's a pullback coming, I would think the opportunity cost is staying in short for it, and missing the long.

Your posting hasn't offended me, but clearly mine has offended you. I really don't see what you're going on about dick measuring, you're the one who asked for discussion and started going on about how many pips you make (personally I prefer to look at risk adjusted return). You asked for a discussion, I gave my opinion, which is "running winners", isn't different to "normal trading".

Again, apologies for not making it clear enough, hopefully I've cleared it up.

...and once again, I've got nothing against your method as long as you don't hold short when you (let's say) "know" it's going up, even if you "know" it's going down later, I just don't see how it differs from normal trading.

 

[gerbot]

Hey Nigel,
Why don't you just make your trade with a trailing stop = to the maximum you're willing to lose.
It'll stop out your losses and ride your winners till they correct by the same about?

 

[brettus]

Wow, it didn't take long for someone to get on their high horse did it? A few posts!

My "pointless drivel" has netted me net 1200 pips since mid last week (I was just logging on to update you on my latest EURCAD trade which I cut this morning at 1.4130). There is absolutely nothing to say that couldn't be double that this time next week (or next month, I'm in no hurry).

You say there is a "good chance" that AUDJPY is going to go up 200 pips this week. With the greatest of respect, Hotch, a "good chance" (based on sound analysis I don't doubt) is not good enough for me to cut my winners. Perhaps you could spend some time reading up on the concept of "opportunity cost".

I did intend to describe here how I will continue to add entries this week and next week and the week after, while all the time cutting losers and running winners. I had hoped that some people might have been surprised by the results and perhaps even seen something that could have applied to their own trading.

Please accept my sincere apologies if my postings offended you Hotch. If I am honest, I thought that this thread would have survived a bit longer than a matter of hours before becoming a willy measuring exercise.

Good trading to all.

Nigel

I'm guessing you get out eventually when you get the opposite signal right? or do still run it?

 

[JohnnyH7380]

Nigel,

I have read this whole post and I'm no expert at all. I'm just learning everything I can about trading forex and I see one flaw with this whole thread. Simple, really and I think everyone else has just been trying to ask the question in a complex fashion. Bottom line: What is your exit strategy? When do you decide that you have made enough? If you want to be successful then you have to make profit and actually close the trade. Correct me if I'm wrong.

 

[brettus]

It was certainly interesting for me to read that article. Thanx for it. I like such topics and anything that is connected to this matter. I definitely want to read more on that blog soon.

Maybe theres no exit strategy. It's sorta like trading with no stops but completely the opposite. Like trading with no stops, eventually you get completely wiped out, maybe this guy cleans up. He just runs huge profitable positions, long and short the same pairs.

 

[marbig]

Maybe theres no exit strategy. It's sorta like trading with no stops but completely the opposite. Like trading with no stops, eventually you get completely wiped out,

It appears that there is no exit strategy. He lets a successful trade go up and then down until it is only 1 pip above his entry. Then he closes the trade.

But all the small losses from unsuccessful trades will quickly chew up his trading capital.

 

[brettus]

It appears that there is no exit strategy. He lets a successful trade go up and then down until it is only 1 pip above his entry. Then he closes the trade.

But all the small losses from unsuccessful trades will quickly chew up his trading capital.

You don't need trading capital if you have unrealised profits. He might be short gbpusd from 2.1.

 

[tomorton]

I'd like to say we should all giove Nigel the benefit of the doubt and let him run some trades. What trader would not wish to explore ways to maximise wins and minimise losses? But he is making himself hard to believe in, when we don't see real-time trading decisions and we don't see any guiding principles.

Nevertheless, the idea is just fine. Does anyone out there have even a partially successful set of rules for running winners and cutting losers that might give Nigel and the rest of us something to chew on? We've all heard of the trailing stop but I hear of few people using it objectively and regularly. Is that an area where anyone has expertise?

 

[JRP2891]

I'd like to say we should all giove Nigel the benefit of the doubt and let him run some trades. What trader would not wish to explore ways to maximise wins and minimise losses? But he is making himself hard to believe in, when we don't see real-time trading decisions and we don't see any guiding principles.

Nevertheless, the idea is just fine. Does anyone out there have even a partially successful set of rules for running winners and cutting losers that might give Nigel and the rest of us something to chew on? We've all heard of the trailing stop but I hear of few people using it objectively and regularly. Is that an area where anyone has expertise?

Waiting for Nigel to reappear. Nigel......?? Can you hear me?

 

[marbig]

You don't need trading capital if you have unrealised profits. He might be short gbpusd from 2.1.

I agree. But why would you use unrealised profits to backstop a whole series of loss trades. Sooner or later the unrealised profits will revert to the mean and be lost.

 

[marbig]

If you want to be successful then you have to make profit and actually close the trade. Correct me if I'm wrong.

You are NOT wrong

 

[Prestige]

Interesting thread, I would say however that a 1550 pips profit is running your winners. I mean that is a lot of pips as opposed to cutting your losses at say 50 pips. Thats almost risk to reward 1-30. Therefore I think this could all work out but I think Nigel should at some point just take the profit once it reaches a certain point say anything over 1000 pips which would most likely cover any losses. 1000 pips is a lot and I think he is far more likely to get that amount of pips more consistently then aiming for 2000.

my 2 cents

 

[Prestige]

Or move up the Stoploss as someone suggested to +1000 pips so you can still run your winners but your cutting your loss quickly if it reversed up

 

[Nigel-P]

Maybe there's no exit strategy. It's sorta like trading with no stops but completely the opposite.

Hi Brettus, If you see this I would love to hear you elaborate on your point above. Sounds like you are onto something. Do you trade like this?

Prestige - you are absolutely spot on. Risk reward is everything in trading. But if I cut losses and run my winners why should I stop at 1:30? Why not 1:1000? Why not decide what my R:R is going to be?

Traders sometimes run losers, the logic being it will eventually come into profit, all you have to do is wait long enough. Theoretically, with low leverage and a big account, this is possible. Somebody then pricks the balloon and says "What if price never comes back?"

Well, what if I am running a winner and it never comes back? (Credit: Brettus!)

I have to say I didn't intend to revisit this thread, but I received an email with a selection of comments and I was very impressed with the discussion.

The questions in this thread have already all been answered by other posters while I was away.

I also want to extend a handshake to Hotch. I overreacted to your point and I apologise.

For everyone asking where is the exit strategy I am not trying to be cryptic. I am simply saying that perhaps I don't think you need to think too hard about getting out all the time. It is unnecessary stress.

I think we are conditioned by our friendly helpful brokers to always think about getting out of one trade and into another. Trade something stupid like a five second random chart at 400:1 leverage. 50 trades a day. Big juicy spreads for brokers. Empty accounts and a lot of frustration for you and me.

Running winners strikes fear into the heart of brokers.

You are making profit and they aren't. Heaven forbid, they might even have to hedge your position in the interbank market instead of patiently waiting for you to empty your account into their marketing budget to go get the next sucker.

As far as exit strategy is concerned I think Prestige said it above.

In summary this is what I am doing and it is working well. I intend to continue.

1. I make entries, long and short, dips and rallies, as many pairs as I want. I think they call it diversity. An old wooden ship according to some.

2. I cut losers. I want to be a professional loss taker. No emotion. I can always get in again.

3. I run winners.

4. I put a stop on the winners at breakeven to stop them becoming losers that I have to cut.

5. Repeat.

6. I keep a record on how many pips I spend on losers. I think of these pips as business expenses. No one likes paying the electricity bill or wages when running a shop. Some months I will have higher expenses than others. Bills all land at once. Typical. These are usually ranging markets. I will put the head down and keep the shop open. Trade conservatively, no point in having a gun if I have no ammo. Then some months I will have next to no expenses and I will sell a huge amount of fizzy cola bottles. These are usually trending markets. Big profits.

6. When I have a few winners, I will close one or two to pay off my business expenses (the losers that I cut). Maybe put a little profit in my account too, it's my business. Remember, 1 * 800 pip winner pays for a lot of cut losers.

7. Finally, I will run some of my big winners just in case price never comes back. I wasn't trading AUS/USD in 2001. I wish I was. Price never came back. These are Hollywood trades, potentially thousands of pips for doing nothing.

Examples of this abound in financial markets. Oil, Apple, Gold, whatever.

As far as entries are concerned I am a crap trader. But I know if my head is right, I professionally and diligently cut losers and run winners, I will make good profits. Maybe some traders here will give it a go with me.

The ultimate exit strategy? Maybe I'll put my running winners in my will.

Chart 1 - Aud/Usd Weekly chart in 2001. Lots of opportunities to buy dips. Of course you'll be selling as well, but these will be cut losers or breakeven.

Chart 2 - Aud/Usd current weekly chart. Price never came back. Lots of places to buy. Some buys will be knocked out at breakeven (2008) , some will stay the course. Sells will be either cut at small losses or breakeven. There are insane profits to be had in that chart that are still growing today.

As I said I wasn't trading to take advantage of this Aud trend. I have only started this recently, with a few longs from earlier this year. What if price does go back down though? It might, who knows. Did I mention that I have a few AUD/JPY shorts?

Good trading to all.

Nigel

 

[Nigel-P]

Eur/Cad this afternoon. 1 hour chart. Could be the end of the daily uptrend. Who knows?

I lost 59 pips getting these trades on today. Now I have three positions with 57, 43 and 7 pips respectively.

If price goes up tomorrow I will probably lose about 20 on the 7 pip trade plus the 59 = 79 pips (the larger two will be at breakeven)

If price goes down tomorrow I will make money.

If price goes down for the next week. Well, you get the picture.

If price goes up, knocks out my stops and then goes down for a week I will be very cheesed off but that's trading. I will grow a pair and get over it.

Good trading to all.

Nigel

 

[JRP2891]

By using some kind of long term trailing stop you could be in trades for 1000 pip+ moves, as well as being forced to take profits when the trend changes. You'd then also experience the benefit of increased position size for your next trades. Just a thought Nigel, good luck.

 

[tomorton]

Thanks for the details Nigel, this is a worthwhile direction to follow, though I still don't see your guidance as much more than very generalised - run winners and cut losers is more an aspirational thing, such as 'make profit and don't lose money'.

Being more specific, how would you advise treating two trades, both trend-following and of similar sizes, one of which reaches halfway to target and the other reaching halfway to the stop? This happens to every trader as soon as trading gets started.

 

[advfntrader]

as mentioned I think you need a trailing stop how else do you know WHEN to close the winner out ? you could be 1000 pips up and it comes back and stops you out breakeven - thats not good trading. this also takes away the discretionary element, just let the market take you out

 

[Nigel-P]

Good morning. Has anyone read any of the Jack D Schwager books? They are very good. I remember a chapter on a psychologist that works for Steve A Cohen, who runs a multi billion dollar hedge fund, SAC Capital.

5% of his trades are winners.

Thanks for the latest replies, I am glad some of you take the time to comment. I will answer questions as best as I can later today. I will update my thoughts on the EUR/CAD trade too.

Good trading to all.

Nigel