holding winners longer, while keeping losses tight

Discussion in 'Psychology' started by dchang0, Mar 19, 2007.

  1. dchang0


    Hi, all--

    In analyzing my weaknesses, I have determined that failing to hold my winners longer is one of my greatest--if not the greatest--challenges.

    By "holding winners longer," I don't mean trying to "pick the top" when going long. It's not that I've already got 90% of the overall move and I'm trying to catch the last 10%--it's that I am catching only about 10% of the total move for the day in a given trade. This happens very often--at least two to three times a day.

    I noticed amongst the traders at my firm that there are those who hold their winners far too short (scalper-types--1% to 5% of the move) and there are those that hold winners just about to the middle (25% to 60% of the move). There don't seem to be any that are consistently able to get most/all of the move (80% to 95%).

    But then there are those rare traders that tend to hold winners way too long--they usually hold all the way up to 100% of the move and then eventually exit while giving back some or most of their profits (back down to 50% to 75% of the move). What's strange is that these rare guys happen to be our best-performing traders by far. We have one that makes $10K to $50K/day, with just a handful of trades each day. We had another who was hired away to be a fund manager who made $80K/month using only 500 or 1000 share lots. He would say about himself that his number one weakness is that he'll hold far too long, often letting a huge winner go back into negative territory.

    Now, some of you might say: "just do what those guys are doing--hang on all the way to 100% and sell on the way back down." Well, we know 100% of "the move" only in hindsight. While actually trading, how are we to know that a 20-cent move is only 10% or 100% of the nascent move? How are we to know that when we see the price go up 20-cents and turn around down and go negative, that we aren't holding on to what will turn out to turn back up or go down further?

    That's the reason I can't just ape these top-performers in our firm. All of them also happen to experience HUGE losers too, sometimes walking out with $10K losing days. I can't imitate these guys because I simply don't have the psychological profile to handle losses that large (dollar-wise OR percentage-wise).

    A more real example of the downfall of simply holding longer is another trader in the firm that is actually trying to copy these hugely successful traders. He trades off of the chart, disdaining the Level 2, Market Maker, and Open Book screens and other "micro" indicators. This has the fortunate effect of producing huge winners for him--trading off of significant points on the chart often involves 1-stick winners or larger. While I'm catching 20-cent moves, he's catching 80-centers. Unfortunately, trading off of the charts alone often results in having to take a huge loser before he finds out he was wrong on a trade, and more often than not, he'll walk out with a huge losing day. He's wiped out his account a couple of times already, and this is not obviously what I want to train into myself.


    If you can imagine two sliding scales--one for losses and one for wins--I'm trying to keep my losses tight (less than 2% of the total move of the losing trade) while gradually increasing the size of my winners (sliding from 10% towards about 50%-75% of the total winning move).

    For a primarily-defensive trader, what do you guys recommend in terms of a training routine or process to gradually improve my offensive game while maintaining my otherwise excellent defense?

    No, I'm not trying to "have my cake and eat it too," meaning that I want nothing but huge winners with tiny losses. I understand that losses are an unavoidable part of trading. What I'm trying to do is gradually shift my psych profile towards offense. If a baseball analogy helps, I'm not trying to hit home runs on every at-bat (and thereby strike out more often than getting a hit); I'm trying to step up to singles to doubles from bunting on every swing.

    What did you guys do? Start with 100-lots and practice holding past your threshold of pain? Work for weeks in simulation mode? How do you blend the use of "micro" indicators to protect against loss with "macro" indicators to get larger wins?

    Any tips are greatly appreciated! Thanks in advance!

  2. Consider scaling out.
  3. After you have some profit on a trade going long, you might try holding as long as price is inside the grid and don't sell until the price breaks the grid line to the down side. Vice versa for a short.

    There is a book that I read about a classical trader that advocated this type of holding strategy.
  4. Pita


    Cut your positionsize to the half while doubling your stop, then sit back and watch. Predetermine your targets (1,2,3,...) and always keep a little rest. When you are in the market but not really under pressure you will see things that you didnt see before. You will learn how it feels having a runner under your fingers. Of course all this takes a working strategy first.

  5. Hi dchang0,

    If you set a profit target and your reaching your targets...

    Your doing exactly as your trading plan dictates and that's good.

    However, if your doing a lot of hindsight analysis and saying hey I could have gotten more than my profit target...

    Consider scaling out especially if this is a chronic issue for you in which your exit strategy is under-performing.

    However, once you determine (statistically and not gut feel) that your now capturing more profits via scaling out in comparison to past results...

    That's when you need to adjust your trading plan so that your profit targets are bigger than they were in the past.

    Yet, if your talking about something that happens in a blue moon (not a chronic problem)...

    Don't worry about it and try to limit this type of hindsight analysis.

    As to advice about improving your offensive game...

    Can't give that type of advice considering we do not know what your trading nor do we know what your strategy is.

  6. jsmooth


    I had a similar problem - closing my winners too soon. The problem is you're trading "price" and not "order flow". I actually had the same problem, and after some mentorship, i learned that i was trading the "price"and not the "order flow". Your exiting positions simply because of a price/target is getting printed, and not because the order flow is changing. Try to focus on the order flow (example: if its a bull market, try to find signals that tell you that the order flow is starting to go bid, then exit, dont just exit because its hitting a certain price number).
  7. You cannot do both.

    Playing for big winners... will also result in larger losses.
    Scalping for small profits... one will usually absorb only small losses.

    The optimal holding time frame depends entirely on:

    (1) what you trade
    (2) strategy
    (3) transaction costs
    (4) capitalization
    (5) technology
    (6) personal psychological risk tolerance

    For ** my configuration ** of the above six...
    Short-term scalping is optimal by far.
  8. Say you're looking at a weekly chart and a daily, and price on both charts seems to be at a support level.. how do you determine how long the trade should last?

  9. If that is your only criteria for entering the trade the answer is simple...

    When the perceived support level is invalidated, or your profit target is hit. Could take a single day, many months, or not at all.

    Since you see the same support level on daily and weekly, the pure technician would wait for the weekly to invalidate before closing for a loss. As someone else eluded to, playing longer time frames usually requires larger risk tolerance.

    Whats all the hubbub around here regarding "optimal" time frames anyway? A little two-way action has everyone retooling? LOL

    Good trading to all
    Osorico :)
  10. DRchango;
    do some daytrading ,
    but the only way i know to get 100% of the move is by swingtrading it, And that doesnt get 100% of the move, only gets 100% of the move some days.

    And sometimes swing/position traders get gapped against;
    even though much of the time they dont.

    think 100% aim in daytrading probably does more harm that good,
    but do like charts when daytrading.

    You can either sell too late or to early;
    if you are too late daytrading , then it becomes swingtrading/overnight not daytrading.

    While longer intraday charts help get more of a move;
    frankly, unless your management likes the idea, you probably should stick to rapid trading.

    #10     Mar 20, 2007