I invite input from experienced profitable traders on stop management. When I put on a trade, I place an initial stop at a price that, if reached, would invalidate the original setup. My profit target varies with each trade based on the overall setup. I normally have a profit target setup rather than a specific price (except when scalping a small move). For example, if I buy a stock that's oversold, I will look to take profits or trail a stop to lock in profits when it reaches an overbought condition. As with most beginning traders, I have trouble letting my profits run. I tend to move my stop to break even, or take profits on the trade, too soon. What have you found to be the most ideal stop management system: 1. Leave the original stop in place until the profit target or target setup is attained. 2. Move the stop to break even at a particular point in the trade, and at what point do you do this? 3. Move the stop to lock in some profit on the trade, and at what point do you do this? 4. Take profits on part of the trade at a certain point and then....
i asked the same question a few weeks ago, but got close to no response: http://www.elitetrader.com/vb/showthread.php?s=&threadid=159191
"Letting profits run" is a dangerous phrase because it encourages greed. You can never take profits on a trade too soon!. You take 1/3, 1/2, 2/3rds off the table or whatever you like, and let the rest "run", but never make it a "oh well either i make money or lose money on this trade" because you refuse to take some off. 1. This is sometimes the best option for stocks that have the most volatile moves, where moving stops to BE would be rather risky. I always move stops up over time, and never risk money when i dont have too. You'll never regret taking a profit. 2. Take a look at TASR ( http://stockcharts.com/h-sc/ui?s=TASR&p=D&b=5&g=0&id=p71597392114 ) I sold this short at 5.11. I'm up .23 cents. At this point I can risk a full loss on the trade of 1.11pts by seeing how it plays out, or take some of my profits here. I'm going to wait a little while longer till I move stops to BE, as .23 cents isnt really much of an incentive at this point. When stops should be moved to BE is really your feel of the market that will develop over time. Its like how a chef can cook without using measuring tools, as he has a feel for how much a teaspoon is and so on, like you will develope a sense of how price moves. 3. after each day of trading, move your stop to the previous candles low or high, plus/minus .01. example, TASR had a high of 5.36, my stop will be 5.37. Now instead of risking 3% on the trade, im risking less than 1. This is one of my favorite ways of moving stops, because its greatly reduces risk, but you'll give back profits too. 4. what?
NoDoji you asked what I consider the most important questions in trading. But, traders do not want to comment on this topic because experienced traders know it is the key area that breaks any trading system. I spent 12 years asking the same questions you did. It is well worth the effort to figure it out for your self. I have easily tested 1000s of scenarios. I will tell you this. Answer these questions 1. When price move. How do you move (stops)? 2. Define how prices are not moving your way (to exit)? These questions are extremely hard to answer. Not so you say? Try to build these 2 questions in to a strategy that can trade trends, swings and volatility all in one. Then you will see how hard it is to do. If you answer the questions you will not worry about break even or profit targets. These tools are only need if you cannot answer the questions.
Oh yes you can... matter of fact, that's exactly how a good many traders go broke and quit. Taking profits too soon = eliminating your edge over taking natural losses in the process. To the original question at hand: there is no best way to manage trades. There are countless trade management methods or systems that have absolutely nothing to do with the reason(s) a trade was entered in the first place. Mechanical system writers here will tell you there is no long-term edge of using any type of strategy stop versus plain vanilla dollar stop. Goes against the grain of logic, but if logic equaled profitable trading, everyone would be rich. Lots of trade management tactics work about equally well over time. Main thing is to pick one that doesn't negate or destroy your edge, even if it's emotionally tough to swallow.
I know your a day trader and more experienced than me, but I disagree A trader that breaks even or takes a small profit is doing much better than a trader who loses on most his/her trades. Your saying a scalper who takes 10 cents is going to lose over time because he sold too soon into a move that was say 30+ cents or more? I never said sell everything at a small gain, i said take some off at a small gain if need be.
I'm recording various stop methods for my trades. So far letting profits have room to move has been the best, and each stop type that does that stays in until the break of trend or until the target is reached. I don't think this is really a surprise given that I aim to trade trends, and that there's no reason to exit until the trend is broken. How do your trades usually play out after you exit them? Try monitoring different strategies for a while, and see which one seems to work better or which one you prefer. Ideally you want a reason to exit the trade, but it's a psychological game as well so that'll factor in.
Actually, my win percentage has been very strong this year, I believe over 80%. I think I need to start keeping detailed track of alternate scenarios on my trades (if I'd left the original stop in place, if I'd taken profits on half and moved stop to b/e, if I'd held overnight for a larger move, etc.) Right now it's mostly anecdotal observation, which is easily tainted by expectation and regret. So easy to look back on a chart end of day when the bars aren't moving and decide how great a trade could've been. This is what I will do: I will start a spreadsheet with a log of alternate scenarios for each of my trades, categorize them, and hopefully come up with a best-odds plan from the results.
I am not really sure yet on this myself but my trade management comes from a gauge of how the market has been trading recently (last 10min, last 2 days, last few weeks). I take into account what the market has been providing recently (as far as trade profits) and try to make a determination on what it is likely to give now. Trying to anticipate what is to come is sometimes hard but trading what you see isnt.