The myth of letting your winners run

Discussion in 'Risk Management' started by Flowfollower, Jun 2, 2020.

How do you do it?

Poll closed Jul 21, 2020.
  1. Outlier hunting

  2. Profit target

  3. A combination of both eg trim and trail

  1. I know this post may come across as blasphemy, but is 'letting your winners run' one of the most deceptive commandments in trading? I say commandment as it seems to be preached as gospel. But is it what it seems?

    When we let trades run, it is countered by a drop in win rate. We hope for outliers to keep a positive expectancy.
    But we sacrifice important trade frequency.

    Let's say I'm putting together a swing trading strategy and I believe it has a 50% win rate if I keep profit targets at 2R reward to risk multiple. Certainly a realistic expectation.

    This might not sound special but it would allows me to turnover my account in a shorter time and with fewer positions, so minimal portfolio heat.

    Why is 'letting your winners run with a trailing stop' any different to using a short term profit target (eg 2R) and then entering another trade which is moving?

    I have come to the conclusion one should trade a robotic statistical mindset above all and should really question trading mantras.

    Enter trade.
    Enter stop loss.
    Enter take profit order.
    Aim is to have resolution to trade (win or loss) in as short a time as possible. This allows next trade to be entered as soon as possible.
    Trading becomes a matter of just entering orders.
    Trading becomes boring.

    That is all.

    Thoughts appreciated
  2. Real Money

    Real Money

    Truth is not all winners are created equal. You may identify, execute, and trade into a profit on one time frame, but if you tried to "let it run" it would just come back to your entry or hit your risk limit.

    It really matters what time frame you are trading. A trade based on minute charts may be very unlikely to have good risk reward over longer period.

    The key is to find trades that have a real chance of running for a long time, if you want to do that.

    Theoretically, the best edge gives high probability signals, in a liquid product, with high frequency.

    An edge like that may or may not fit with the "let the winners run" stuff.
    Zor_Champ, Nobert and Flowfollower like this.
  3. carrer


    Don't just listen to the commandments blindly, understand them.
    'letting your winners run' is specifically to be used in trending markets, long biased markets like S&P500.
  4. maxinger


    The myth of letting your winners run --->
    How to let your winners run.

    talk about day trading futures.
    let's say you are trading with 3 lots.
    first lot you target RR ratio of 2:1
    2nd lot you target more than that.
    3rd lot you hold your position for many hours

    why do this way?
    because we don't know if market will move in our favor.
    because we don't know much far it will move in our favor.

    Last edited: Jun 2, 2020
  5. But a trend can only be identified in hindsight! (another can of worms opened!)
  6. wrbtrader


    The problem is that those saying such do not understand the phrase or those trying to apply such do not understand the phrase.

    As @Real Money explained...not all trades are created equal. It means that you need to have the ability to recognize during an open trade position which trade has potential to exceed your profit targets and which trade you exit at your profit target.

    Simply, you need to recognize which price action that shows up after your trade entries are most likely to blow past their then manage your profitable trail stops accordingly to that type of price action that showed up after your trade entries.

  7. It seems like you're comparing two different ways of trading, i.e., scalping versus holding for longer swings.

    Both can work really well, but you'd need to be a very good scalper in order to beat someone who's consistently capturing larger swings on less trades.

    The question is of course what you're able to do consistently.

    If you aim to capture a particular move - let's say a 10 point up swing on the ES, you will pretty much always make less money and take on more risk if you're getting in and out multiple times instead of simply holding your initial position. This market moves fast, so as soon as you exit for your small profit, the market may jump ahead of you. Too late to get back in.

    As a matter of fact - this is something I'm still struggling a bit with. Yesterday, I was long shortly after the Open, but instead of simply holding, I got in and out and back in at worse prices (and with more risk). Price eventually reached my target and I made money off the move, but if I had held the original trade I would have made far more than by getting in and out.

    Then there's the extra commissions too.
    Zor_Champ, Math_Wiz and Flowfollower like this.

  8. Too much mental capacity though needed and no guarantees of results i find it easier to apply the same rule accross the board this way you wont get the worse or the best

    Its like picking up girls at the bar, you either go direct and ask for a number and out of 10 u might get 1 or you talk at legnth with each one, except that if you mix the two you might get the worse of both systems, or thought principle,
    CDoubleUU and Flowfollower like this.
  9. carrer


    Dude, trading is mostly all hindsight.
    murray t turtle likes this.
  10. deimos


    Letting your wins run. Mostly talked on paper lessly seen on real :) It is one of the most important parts of being a trader. As well said above, the timeframe and the leverage are very important.
    Letting a trending stock to gain is easier when compared to ES. Or letting the latest silver move?
    If you are a daytrader with margin instruments, -my opinion- scaling out works best. Split the original position and close each part with a RR you select (selecting is the most important part. you can adjust it after trying a sample size).
    For swings, it mostly depends on the trade. Each moment is unique. What I am using: closing half on the way and stay the wins at most (or trying to stay :) ).
    #10     Jun 2, 2020
    comagnum and Flowfollower like this.