Exit Strategies with Profit

Discussion in 'Trading' started by white, Apr 25, 2002.

  1. One more thought:

    The main idea is to run the numbers, figure out if what you are doing has a positive expectancy, and then experiment by looking back at your past trades. See what would have happened if you switched your approach to use a trailing stop of 10 cents after a 10 cent profit is reached. There are other variations.

    The object is to let the winning positions have a chance to run and to minimize the losing positions, including giving back profits (which is the same thing as a loss). Set up as many situations where your open trade has a chance to at least break even, or possibly even has a chance to turn into a very large profit. The targets should be based on how far the market typically moves (not based on how much you want to make from the position). There is a point at which it doesn't pay to let a winning position turn into a loss - is it after a 15 cent profit or maybe an 8 cent profit? There is also a time when it is wise not to let the profit run any more because 9 times out of 10 it doesn't keep going, and by not taking the profit at its extreme you risk losing your profit. Only your research can tell you the answers.
    #11     Apr 25, 2002
  2. This is the nuts and bolts of trading at its finest...trade management...I do not think that there are any "hard and fast" answers to this question...Without a doubt, this is the aspect of trading the gives one the most creative freedom within certain limits...

    Depending on your capitalization, there are many ways to either average your cost and/or average your exits, etc...Mainly, the most important part of the plan is the planning stage...For instance, I think one of the most important things to consider at all times is a) your basis cost and b) the success of your entry...You have to be very objective about the latter...Sometimes if you enter following a breakout and you have to much size on, you take the risk of trading into a "hole" and then you have to ask yourself, is this trade worth the risk of letting the market run me over as it runs back to the breakout point...If you are fairly certain you have nailed the short term high or low, then you may have a bit more latitude as far as exits go...

    I think alot of traders take unnecessary losses at certain times that could be managed better if they could objectively assess the success/failure of their entries...Without a very good entry, the trade basically becomes about playing defense really quickly...With a good entry, the trade becomes about managing the profits...Sometimes, if trading in a range and the first entry is not perfect, but the trade is still inside the range and the market still suggests the original direction, adding to the trade is a viable option as well...

    As far as adding to a position as it proves you right, I think TriPack is right...You have to decrease your exposure as the trade moves your way...but again, this relates to your basis cost...How much of a profit do you have and how will the add-on affect the overall profitability of the trade...
    #12     Apr 26, 2002
  3. What about a moving average in conjunction with a dose of discretion?
    #13     Apr 26, 2002
  4. As I understood it, TriPack was suggesting you INCREASE your exposure as a trade moves your way. (At least that's the message of the "Phantom".)
    This is something I've been experimenting with myself. It definitely feels uncomfortable adding to a winner (I add half the original size) but very satisfying when a trade continues your way.
    There a still some things I need to iron out (not the least of which is my own psychology) but overall I think I'm onto something.
    You really need to know what the "normal" size move is for the way you trade to employ a strategy like this. If your average win is only 10-15 cents, however, adding to a winner doesn't seem like such a good idea. Therefore this probably doesn't really apply to the original poster's problem of how to get more 25-30 cent winners. It may make you re-examine the way you think about trading (as it did to me).
    I've heard relationship counsellors advise, "would you prefer to be right, or would you prefer to be happy?". In trading I asked myself, "do I wanna be right, or do I wanna get paid?". As any decent trader knows, "percentage of winners" isn't a really very important performance measure (although it's nice to have), average trade size being the key element. Adding to winners means that you are going to decrease your winning percentage further, but done well, it can REALLY improve the average trade. If taking many small hits is something you can stomach, I would encourage you to explore the idea of adding to winners. (And if you can't stomach taking losers, TRAIN YOURSELF!)

    BTW, I agree with vulture (I think) about determining the quality of entry you have and making decisions about addding size or "holding out for more" based on your assessment of your entry.

    #14     Apr 27, 2002
  5. Actually, there was a typo...I did not intend to say decrease your size, per se, but rather decrease the add-on contract size relative to your initial entry...For instance, if 10 contracts on the first entry, perhaps 3-5 on the add-on entry...This way you do not jeopordize your entire cost on the trade should the market come off and retrace a bit back towards the entry...
    #15     Apr 27, 2002
  6. 1. I would want to look at a weekly chart; say its in a sideways trend. The stock pattern is from .10 to .25 and .30 some.[day or swing]

    2. I use multiple moving averages.Alan Farley calls them moving average rainbows. [M.A.R.] I would write down several profit targets like .19, .24. Assuming .19 doesnt ruin profit or BREAK you even!

    3. Stocks related to ;QQQ , SPY, IJS are in weekly down trends. Wouldn't try for the .30 :) Usually try for longer trends even in a daytrade,but noticed last week ,profits are trigger pulled at the smaller targets.
    #16     Apr 29, 2002