otherwise "run" is what you let your profits do until they turn into a loss, then rule #1 (the 2% loss rule) kicks in keep doing this until you violate rule #3. (all those trades you got stopped out on can really run up the commissions) as for rule #4, never average down, as soon as you get stopped out put the exact same trade right back on at a better price, that way you don't violate rule #4. (this is also a good time to increase size) and never scale out, if you get flat and it keeps moving, just put it back on. Keep doing this until rule #1 kicks back in and repeat this is the correct method of trading and the one 95% of all traders use.
True, there is a lot of noise here. Anyway, the reason I asked is because without quantitative definitions of those subjective terms, the advice is basically meaningless and will be interpreted by each person differently. I have an empirical answer to my own question and use it every day to do exactly what the OP suggested, I was just curious if he'd gone and done that as well.
well, I think we all have had experience with our own version of "cut your losses short" it really only takes a calculator to figure out how much heat we can stand so what is your let profits run method? I can tell you, the one thing I tried that really destroyed a good system was entering a trailing stop on winners fixed stops weren't much better the thing that really made it click was trading the account new account high? get flat
Trailing stop is the correct answer, but the trick is in the way you figure out how to trail it (duh, right?). It's the best way to suck everything out of a move and to cut your losses short. I measure the efficacy of my stops by how often the market stops me out then continues in the original direction, leaving me behind. I have also quantified what "leaving me behind" means, so that I don't go chasing the market on a false continuation. I can't even remember the last time I've truly been left behind like that, but it was some time last summer. The market will tell you when it's done and when any subsequent move will be a false breakout. Once you figure it out, it makes complete sense that that would be the place to put the stop.
well, that makes sense. After I take out a new account high, I figure it is normal to then give up 30% of the move, so that over time is probably about the same as using trailing stops on winners.
Everyone's perception of what noise is is different. The point is to define that yourself and stick to the 2% rule risking no more that 2% of TLNW on any one trade/idea. -- I have defined for myself what noise is to me. --Each person will have their own system, but there is but one correct method on how to trade that system. If it's a bad system, then these 4 tenets will lose less money.
if I like the trade, and take a 2% hit, and then put the same trade back on, does that count as observing rule #1?
Certainly. It will be difficult to go broke only risking 2% each time since as TLNW drops, 2% becomes lesser number. The system that is being used to initiate entries may be bad, but with the 2% rule, it is much harder to decimate an account. Loss can be less than 2% of course and that is defined by position size. Distance to be outside the noise dictates what the position size is.
or once I get stopped out, I'm supposed to mope around the house blaming myself for what a fool I was, especially since now it finally starts to be moving my way, but, I don't want to violate any rules, so I guess I should just let that one go. 2%, just like milk, that is the secret to success. If you don't have rules, you might just do whatever the hell you feel like, and who knows where that may lead? Good traders follow rules and the first rule is "Don't trade" if you break that one, there is no hope for you Trade the odds, except when it comes to the odds that most will lose, it's ok to break that one you got any more rules? because they are starting to get really entertaining