i know this is obvious, but...

Discussion in 'Trading' started by Gordon Gekko, Dec 4, 2002.

  1. we've all heard before that you need to keep losses small and let winners run. we also all know that something this simple, is hard to do. for the sake of this discussion, let's throw out scalping, or any type of trading that requires a high win %. although everyone probably knows what i'm going to say, i think it's a simple concept that many people don't have under control, although they know it's important.

    it's in our nature to want every trade to be a winner. i know if i were to make a trade right now, as soon as i made it, i'd want it to be a winner. because of this, it's easy to let a loser get away from us...hoping that it comes back so that it can be a winner. of course, this is not what you want at all. i know everyone knows this, but how many are handling all their trades the way they should? i won't know til i make money, but it wouldn't surprise me if a major key to trading is accepting that you aren't going to be right, and getting out of bad trades when you know you should.

    of course, it is good to be right as much as you can, but the reality is that you don't need to be right most of the time. yet even when you know this, it's still easy to want every trade to go your way. this is a major issue with trading, imo. the more you let losers go against you, the harder it is for the winners to make up for the losers.

    alright, i know everyone knows this already. my point is just that we don't need to be right. however, even if we know this to be true, it's still probably hard for many of us to exit losing trades fast.
  2. P.S. GG...

    What occurred today in your own trading that prompt you to start this thread?


    Most successful traders don't try to make every trade a winner.

    They try to stick to their trading plan. If it turns into a winner...great...if not...not a problem because they know there's another trade around the corner.


    Most successful traders don't think that way...most traders do. One of the reasons why most traders fail.


    Your thinking too much or your too emotional about your trades. Both can cause losses.

    If your having difficulty in exiting losing trades...

    that only means one thing...Your Trading WithOut A Stop Loss Protection.

    Therefore, if your having problems exiting losers...its traders like you that need to use actual stops and none of that mental stops bullcrap.

    When your profitable for a few years, when you have a lot of good market intuition after several years of experience, when your no longer emotional about your trades...

    only then...after those years...can you trade on low risk positions via mental stops.

  3. BINGO!

    Take my trading today for example. I've had 7 trades so far today. 2 winners and 5 losers, but I'm up $140 bucks. Why?

    My average loss has been $8 bucks and my average profit is
    $77 bucks. That gives me about a 9.63-1 profit/loss ratio.

    I don't mind losing 5 out of 7 times if I can keep that profit/loss
    ratio at least 3-1.

    Hope this helps...
  4. prox


    You're right.. it's extremely hard to keep losers small and let profits run.

    For instance, by focusing on keeping losers small .. you get antsy everytime the price moves against you and you get out quickly for a small loss .. even though it will often go your favor right after you get out. By doing this, you actually worsen your winning percentage with a large number of small losses and will negatively impact your account.

    If you let profits run .. a substantial profit may reverse and turn into a break even or worse , a loss. Therefore, people that get burned before will take the next profit immediately and then watch it move a massive amount in their favor.

    It can be a psychological hell.

    A solution is to have a rigid system for losses and taking profits so I don't have to make any judgemental decisions while pressured with managing a position:

    for example , on the ES:

    on 1 contract , see a buy signal and entry, get in, set stop at 2 points and then hang on until either the stop is set off or price moves in your favor 1.5 points. Once price moves in your favor, move stop to breakeven + .25 to ensure a small gain. If it reverses on you, then you are out with a small gain. If you get a big move, then you stay in until you get a reversal signal or until it breaks a recent swing low/high.

    People trading multiple contracts have the luxury of taking partial profits once the moves goes in your favor and then moving the remainder to breakeven, to ensure a moderate gain with further potential gains if the move goes further.

    The stop level and movement in your favor will varying depending on what you're trading, of course .. but people should defintely move to breakeven once it moves the size of your initial stop.
  5. the key my dear mr gekko is to GET INTO THE $$$. once in the green with a trade you can do anything you wish ...sell it .. ride it out...whatever.

    it's not that hard to do, really easy once you get the hang of it. get into the $$ and it becomes a free trade.

    it is really freaking easy. really it is!! bwahahaha haha hah ha ha ha!:D
  6. TGregg


    Here's a strange thing I discovered one day. Create a system in your fav tool (tradestation for example) that enters a position randomly and waits for either the profit target or the stop loss. Start with both of them even, and fairly tight. You'll get about a 50% win rate, with roughly zero profit (no commisions, no slippage). (Disclaimer: I've only tried this on the Qs and NQ - but I suspect it will work on most instruments)

    Then, try with small profit targets and a large stop loss - you can just about cover your commisions with the right settings on the NQ. Over the long run, anyways. It would appear that it's better to cut your profits and let your losses run.:eek:

    I'm also not really, truely convinced of the usefullness of stops and profit targets, but maybe that's just due to my trading style. It seems to me that if your trading system says "The market is more likely to move in your favor from this point forward" then you should stay in. If it says "OMG, break out the whiskey." :)D) then you get out regardless of your losses or profits.

    I mean, isn't that the point of playing the statistical edge? Guess my TA bias is showing :D.
  8. Aaron


    Nice post. Thanks for the results of your stop loss/profit target analysis!
  9. aaron, what did you get from that post? i saw nothing i could use but here you are with the "nice post"??
  10. nice greg. its refreshing to see some "out of the box" thinking.

    #10     Dec 4, 2002