keeping your stop at 1R, if the trade goes in your favor and, for example, you are up 2R (your stop is trailed to to lock in 1R so far) - you can take that 1R amount and "reinvest" it into the trade with its own trailing stop (another trade put on in same direction, the value of which does not exceed the amount of profit you have locked in so far) - that way you've made a decision to press on your winner instead of taking the profit and walk. your downside is that price takes out both positions and the profit you HAD disappears. the positive is that if your trade was setup well and really starts to move in your favor, you can add to it a number of times and squeeze it within reason. from what i READ (coz i havent done this personally) you should consider pressing a good trade up to 3 times - you dont wanna get too greedy in quick and volatile markets - you wanna make money. nice calls by the way. alternatively, why dont you just put the trade on and leave it - either you exit 3R or -1R??
Thanks for the advice. I like the idea of adding positions along the way, but I'd rather enter size from the beginning. Once again, by selling half at 1R, I can keep my initial stop and have no risk whatsoever. I don't mind a couple of b/e trades during a range, because I know that when price finally takes off, I'll be on the right side. About exiting at 3R or -1R... Why do that when some of the trades return 10-20-30R? This is my biggest problem right now. I want to take some off the table along the way, but I don't want to sell all my positions and be stuck with nothing as price continues to move in my favor. I was hoping that some others on ET could share their profit taking methods and trade management...
howzit, it should make more sense to start reasonable, that way when you lose, you lose reasonable....BUT when trade is moving as anticipated, you want to win big - so DON'T take off half the trade when you get to B/E coz how will you ever win big by doing that?? the 10-20-30R - don't be greedy, figure out a way to milk it but dont take half your profit off just when the going gets good - experiment with altering your strategy. do the math on pyramiding your trade. why dont you buy more contracts as time goes on and the trade moves in your 30R direction??
Why don't you find out what delivered the best result? Then decide if that is in line with your risk tolerance and if not then settle for less than the optimal result. In my own trading I find that cutting profits does exactly that so I prefer to let profitable trades run but what is right in your case depends on your method and you can determine that with some number crunching.
Yeah, I guess my best bet would be to backtest and see which strategy works best. I guess I can afford to take small 1R losses during whipsaw, because when that 10-20-30R trade comes, it will more than makeup for the losses. I can also see how adding positions along the way might be a good idea. I'll have to look into that also. Why does a good money management system have to be difficult to figure out? Reduce risk, maximize gains... that's all I'm looking for.
I like the way you put it. My logic behind "taking half the profit when the going gets good", was simply to reduce risk, but I guess it also reduce profit potential. It would then take 20R to equal 10R if I would have kept the entire position.
Clearly, you should backtest to determine the best possible exit methodology. However, I would be very careful attributing a 3000 pip move in the EURUSD, for example, to your signal. How long do you give a trade to still be taking credit for it? Seriously, every chart timeframe has an appropriate move associated with it, based on volatility measures like ATRs. If you trade a 5min ES chart and enter on a moving average crossover, and the market moves 100 points in the next month, are you really gonna say that signal generated 100 points potential profit? That's not being realistic at all. Hopefully you see my point. To take profits properly, you should find a level of profit appropriate to the type of moves your system is trying to catch and the timeframe you are trading.
Van Tharp is supposed to be coming out with a book this summer about position sizing ("the definitive guide to expectancy and position sizing") - i'mna get it and see what i can glean from it - you should look into it - read his "trade your way to financial freedom" book - it's a good read, i really enjoyed it. another one that makes you think is "money management strategies for futures traders" - not so interesting, but it makes you stop and think about a couple things - couple of important things IMO.