This is not a golden rule. This is the type of nonsense you hear from hyped up authors like Tharp. Open loss can turn into realized profit quite easily and the same for open profit into realized loss. By cutting losses short you just reduce your success rate and you must catch some big winners to make money. This strategy works only in trending markets with low volatility and for people who have the discipline to trade long term. There is no guaranty such startegy can make more money than intraday trading with a win/loss ratio of 1. Bill
I wouldn't change that strategy too much if I were you, so I agree with the posters above. You can make one slight improvement by combining both recommendations given in the books but I'm not sure if you are already doing it because your post doesn't quite reveal it. Start off with 3 lots and scale out. Adjust the stop on only one after each pullback and leave the stops on the remaining 2 a little above or below where you bought/sold. Take partial profits on 1 if you see a reaction above support or below resistance (depending on which direction you are trading) and leave the rest in. Once you are down to 2, adjust the stop after each prominent pullback on the 2nd lot. Imagine your contracts as your working bees. You want to make sure that your bees have enough freedom to collect as much honey as they possibly can without the market knocking them out. If a bee is knocked out (either by getting stopped out or closing it) you have to manage the bees that are left to ride the trend as long as it's still intact. Stay in the market as long as you possibly can. Once out you are in a struggle. "Should I get in now? Buy again higher?" The advantage that you once had is gone. You might not excel in a ranging market, you do give money back, but the more you will profit in trending markets. You can't have it both ways, right? The priority is to secure a degree of profits and make sure the other positions don't turn into a loss.
You might not excel in a ranging market, you do give money back, but the more you will profit in trending markets. prince I agree your opinion for me it is more difficult to make profit in ranging market
I've changed to an all or nothing strategy. I set my target and my stop loss upon entry. I used to use trailing stops, but I have been more profitable waiting for my target. I've only done this for the past month and a half, but so far so good. I have to admit it is difficult watching a profit turn into a loss, but many times my target is still hit before the loss truly materializes.
I sometimes do that on intraday trends. I'll get in on the 1/2/5 minute or whatever for the range breakout sell a third, then wait for the next breakout, or a big move over the atr or whatever, then hold the last lost in hopes the trade will move through a time horizon,at this point the trade becomes risk free, and as long as I can Identify a profitable increasing time horizon I can hold it. if it works itself up to a daily breakout, you now have a risk free swing trade.
the smaller get in and out with small profits strategy works with smaller accts that can't take a big hit,thats a way to start out and build up an acct, u have to b careful not to overtrade or the commish will eat up the acct, as a rule ,u never go broke taking profits,is considered a bad way to trade,because you never make any big profits and u will occassionally have a big loss,keeping that in mind u have to be very careful not to let a loser run,u have to cut a lot of losses that may have become winners if you were allowed to take the heat. Since a small acct can't take the heat ,you have to learn to master your point of entry skills,take less trades and keep stops. I am trading a very small acct and i try to enter at trendlines, mostly reversals but on a trending day i will sometimes sell a new low or buy a new hi. Let's say the spus are ranging between 1287 and 1280 from now until the open, its 6:47 right now in chicago ,on a 5 min chart for the last hour spus have been between 87 and 82,i shorted 85 and have a bid in at 82 and a bid at 80, if they trade 88, break the upper trendline ,im out for a loss, i would have rather sold 87 but i wasn't up yet, had i waited they traded there as i was posting this,anyway thats one way to trade a smaller acct with small risk and small profits
I think this depends on your tail distribution, with intra-day trading when you are exiting at the close that's already a time based stop working to chop down your positive tail so profit targets make more sense in this scenario than in longer term trading I believe. If you are a classic longer term trend follower and not using a time based stop then you might want to hunt the extreme returns, the kind of trades which one or two of can make your entire year. As a day trader you really want to avoid the scenario where a missed trade can cause too much impact to the bottom line I think.