Glenn
Experienced member
- Messages
- 1,040
- Likes
- 118
When I started out in this business years ago, I read a few things.
Most experienced traders seemed to say the same thing - Run Profits, Cut losses.
Fair enough. Good advice.
But that's as far as it went. No explanation.
As time went by I could see that I had got out of positions too early and that I could have earned more by staying in longer. But how long to stay in ? Minutes, hours, days, weeks ? etc
The main variable for this seemed to be ones own tolerance to being in the market - i.e. timeframe, plus the ability to allow retracements and consolidations on the way to better prices. The usual greed and fear thing.
Everyone will take a different view on this. Some will try to trade the retracements, some will sit for the longer ride. Some will just exit at some point and wait for their next 'signal' to enter, depending on what they use.
What I have learned is the the one thing I must concentrate on (and which many people who post around the net don't seem to) is having a target price in mind. I have spent years developing and refining various methods of calculating (maths) targets based on chart formations. Others are commonly known and well publicised. If I can't calculate a target then I don't take a position.
Once you have a target and enter, then in theory you will either hit it or get stopped out. The success rate depends on your skill in calculating targets and managing the position along the way. This can only come from practice.
When you arrive at/near a target, you can review the position as if it was a new trade and decide whether there is another target to go for. If so, you can set another stop and manage the position again. By doing this you can stay in the position for several targets in a row.
This is what I interpret as the meaning of running a profit. It's a series of managed steps within a position.
If at any time you can't calculate another target, then exit.
If you can see a target in the opposite direction to your trade, and that target eats away a lot of your profit, and the chart signals that it is moving that way, then you can decide whether to exit and wait for another entry.
What is missing from this is a diatribe on the various methods of calculating targets. I don't propose to go into that in detail because I could write a book on it. Frankly I don't have the time, which is also why I don't post much.
But what I would say to any newbie is that imho targets are very important and if you can't identify them before you enter, then you shouldn't enter.
You need to have a reward/risk ratio of at least 2:1 in your favour before you take a position.
As a simple example, without taking account of dealing costs, if your target is 20 points away from your entry and your stop is 10 points away, then you have a 2:1 ratio of reward to risk. Anything better than 2:1 is good - anything less is not recommended because there is not enough potential reward to justify the risk you are taking. If you don't have a target, then you can't calculate the ratio.
In my experience, if you are hoping to hold for longer periods, then you also need to look beyond the individual chart for your chosen instrument, and look at the state of the main markets.
If they are consolidating, then you can expect smaller moves up and down while things get sorted out. If they are trending, then you can expect bigger moves. The main markets are like a tide flowing, and they tend to take most things with them, even on an intraday basis.
One other thing. I only use naked ohlc bar charts and price quotes. No indicators at all. For me they take my eye off the ball and only serve to confirm what has already happened in the bars.
They tell me nothing about the future. They went in the bin years ago. If there's holy grail, for me it was the bin.
When I'm driving I prefer to look through the windscreen, not the rear-view mirror....and I don't get in the car in the first place if I don't know where I'm going.
I'm sure other traders will have other methods of running a profit which work. There is no one solution. Just thought that the above might be of interest. Certainly I wish I'd known it years ago
Glenn
Most experienced traders seemed to say the same thing - Run Profits, Cut losses.
Fair enough. Good advice.
But that's as far as it went. No explanation.
As time went by I could see that I had got out of positions too early and that I could have earned more by staying in longer. But how long to stay in ? Minutes, hours, days, weeks ? etc
The main variable for this seemed to be ones own tolerance to being in the market - i.e. timeframe, plus the ability to allow retracements and consolidations on the way to better prices. The usual greed and fear thing.
Everyone will take a different view on this. Some will try to trade the retracements, some will sit for the longer ride. Some will just exit at some point and wait for their next 'signal' to enter, depending on what they use.
What I have learned is the the one thing I must concentrate on (and which many people who post around the net don't seem to) is having a target price in mind. I have spent years developing and refining various methods of calculating (maths) targets based on chart formations. Others are commonly known and well publicised. If I can't calculate a target then I don't take a position.
Once you have a target and enter, then in theory you will either hit it or get stopped out. The success rate depends on your skill in calculating targets and managing the position along the way. This can only come from practice.
When you arrive at/near a target, you can review the position as if it was a new trade and decide whether there is another target to go for. If so, you can set another stop and manage the position again. By doing this you can stay in the position for several targets in a row.
This is what I interpret as the meaning of running a profit. It's a series of managed steps within a position.
If at any time you can't calculate another target, then exit.
If you can see a target in the opposite direction to your trade, and that target eats away a lot of your profit, and the chart signals that it is moving that way, then you can decide whether to exit and wait for another entry.
What is missing from this is a diatribe on the various methods of calculating targets. I don't propose to go into that in detail because I could write a book on it. Frankly I don't have the time, which is also why I don't post much.
But what I would say to any newbie is that imho targets are very important and if you can't identify them before you enter, then you shouldn't enter.
You need to have a reward/risk ratio of at least 2:1 in your favour before you take a position.
As a simple example, without taking account of dealing costs, if your target is 20 points away from your entry and your stop is 10 points away, then you have a 2:1 ratio of reward to risk. Anything better than 2:1 is good - anything less is not recommended because there is not enough potential reward to justify the risk you are taking. If you don't have a target, then you can't calculate the ratio.
In my experience, if you are hoping to hold for longer periods, then you also need to look beyond the individual chart for your chosen instrument, and look at the state of the main markets.
If they are consolidating, then you can expect smaller moves up and down while things get sorted out. If they are trending, then you can expect bigger moves. The main markets are like a tide flowing, and they tend to take most things with them, even on an intraday basis.
One other thing. I only use naked ohlc bar charts and price quotes. No indicators at all. For me they take my eye off the ball and only serve to confirm what has already happened in the bars.
They tell me nothing about the future. They went in the bin years ago. If there's holy grail, for me it was the bin.
When I'm driving I prefer to look through the windscreen, not the rear-view mirror....and I don't get in the car in the first place if I don't know where I'm going.
I'm sure other traders will have other methods of running a profit which work. There is no one solution. Just thought that the above might be of interest. Certainly I wish I'd known it years ago
Glenn
