Position Management in trend-following strategies

options-george

Well-known member
483 92
The last few months I have been working with a trend-following strategy in trading FX & indices on 1M/5M/15M timeframes. I am fairly comfortable with my entry setup and position sizing. However I am having some difficulty in figuring out how to best manage my positions once I have entered a trade.

Could any trend-following traders basis talk about how they manage their positions- how they move their stops, how they set their target (if any), how they decide when to exit manually, how they add to their positions etc; and what they consider the main issues/difficulties to overcome?

Many thanks in advance,
G
 

options-george

Well-known member
483 92
Hmmm, shame that there were no responses. Anyways I worked on this a bit today (in between chasing points on the DAX around the 9,000 level). Here's what i came up with (maybe somebody else will find it useful). It's divided into two sections - one of principals and one of practicalities. Happy reading!

Position Management
General Rules & Principles

• Don’t make up the trade management rules whilst in a trade. It’s going to be easy to justify the creation of new rules and adjusting of existing rules. But, as with trading rules elsewhere, there should not be a “just this time” excuse. Instead rules should be developed on the basis of reviewing my completed trades and learning from various sources.
• Less stress is good. More stress is bad. Less stress will allow me to observe the market more objectively.
• Less time in the trade is probably preferable to more time in the trade – assuming that the final result is the same.
• Not being in front of the screen lowers my edge in managing the trade. This is based on my observations and experiences when I trade using the lower timeframes (15M and below).
• Having a documented trade management plan and rules is better than not having it
• It’s very bad if I let my emotions handle the decisions regarding trade management. That’s equally as based as entering a trade on the basis of my emotions.
• The trading rules need to be applied consistently.
• The trade management plan needs to cover the following points:
o Movement of stop loss
o Setting of targets
o Manual closing of trades
o Handling of scheduled news announcements (e.g. UK data at 9.30)
o Handling of unscheduled news (e.g. news on development on geo-political events such as the Ukraine crisis)
o Re-entry of a trade after initial position was closed
o Adding to a winning position

Technical Aspects (the actual rules)
• I need to identify potential support & resistance levels when entering the trade.
• I need to be aware of any scheduled news events that are relevant to the trade. An open position must be closed at minimum 2 minutes prior to any Tier-1 news announcement.
• On the release of unscheduled news, I have the option of closing the trade manually immediately.
• Based on the identified support & resistance levels, I will set the level for the 1st target (“T1”) and will enter a limit order to close half the position at that price.
• Except for situations where the XTF is the 1M timeframe, I will close the position if a wrong XO occurs on the XTF. For trades off the 1M timeframe, I will close the position if there is a wrong XO on the 5M timeframe.
• I will close if the trend ceases to be in place. The trend ceases to be in place if, on the basis of completed candles, HHLH rule is violated. I will move the stop loss accordingly.
• If price moves into the favourable direction very quickly, then I need to be alert to be ready to close the trade on the basis of appropriate price action (as discussed with my trading coach)
• Handling of positions that have not really “moved a lot” in “x” minutes – I need to quantify the italic terms.
• I will not risk more than 1R in a single trade.
• I will always enter the trade risking 1R. If I don’t feel confident enough to risk 1R then the trade is not worth taking.
• Make some rules for trades that are not working – do this by looking at recent trades that have been partial losers. With trades that are not working, the quicker I get out the better
• Document how to handle adding to winning positions
 

timsk

Legendary member
7,385 2,167
Hi options-George,
Your rules look fine - logical and clear. However, I've 'designed' numerous sets of rules in the past about which you - or someone else - might say the same. The proof of course, is in the eating of the pudding. So, you need to test them to decide whether they merely read well and look impressive - or actually work.
Good luck!
Tim.
 

options-george

Well-known member
483 92
Hi options-George,
Your rules look fine - logical and clear. However, I've 'designed' numerous sets of rules in the past about which you - or someone else - might say the same. The proof of course, is in the eating of the pudding. So, you need to test them to decide whether they merely read well and look impressive - or actually work.
Good luck!
Tim.

Thanks for your comment Tim. That's very appreciated.

The majority of what I have written is largely based on how I have been trading this particular strategy the past few months - though I have not always applied it consistently and this has led to a lot of frustration. I am hoping that documenting it down like that will make it easier for me to apply it consistently and to identify more easily when a refinement is required.

Anyhow, thanks again!
 
 
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