Quote:
Quote from gifropan:
Never let a profit turn into a loss. On the face of it, this looks like very sound advice. However I find quite often adhering to this rule costs me money although I am right about the direction of the market. Here is a scenario as an example.
Go long at 37 stop at 31 profit target 47
market gets to 42 move stop to 37
Market comes back stopped out at break even
market makes new high, buy at 43 stop at 37 profit target 53
market makes 48, move stop to 43, get stopped out then market continues to make another new high.
This can happen a number of times so that I end up buying the market higher and higher. The market moves way beyond my original profit target but never the less I close trades at break even a number of times until the last one gets stopped out with a loss.
Is there something wrong with this supposedly golden rule of trading or am I doing something very wrong. I, obviously, am since I find myself very often on the right side of the market and still end up loosing money.
Can anyone tell me where I am going wrong
Thanks
Note: Trading instrument being discussed is the Euronext FTSE 100 futures but the advice below can be applied to any futures trading instruments like the Eminis (ES, NQ, YM, TF), Eurex (DAX, DJstoxx50, CAC 40), Hang Seng HSI, Energies (CL, QM, HO, NG) or Metals (GC, ZG, SI). In addition, below advice is applicable on trend days, range days, high volatility days or low volatility days. (1) You must (it's not an option) do some statistical work involving backtesting different trade management rules and then compare them to the statistical work of your real trades...
Then make the necessary adjustments. However, you must remember that the price action is not the same every trading day. Therefore, profitable traders often use different trade management rules for different types of price actions.
(2) As soon as you reach whatever
trigger price (trade is at a profit)...do not adjust your trail stop to breakeven. Instead, adjust it to a price that pays for the trade if price does reverse against you.
Simply, a breakeven trade is actually a loss because of comissions.
(3) Learn to recognize and then
take action (don't freeze like a deer in the road while staring at approaching headlights) when the price action is reversing
prior to reaching your profit target so that you can exit early
(prior) to the profitable trailing stop is hit.
(4) Design a
re-entry signal near the price of your profitable trailing stop if/when the trailing stop is hit...only take the re-entry trade if your re-entry signal appears.
The key to remember is that most traders that have problems with stop outs are using (more often than not)
fixed risk:reward ratios in their trade management. It's extremely flawed because the markets are not the same from one hour to the next nor is it the same from one trading day to the next trading day...markets are just too dynamic for those types of risk:reward ratios. Simply,
fixed risk:reward ratios prevents a trader from being
practical in protecting profits when the price action changes prior to reaching their profit target.
Tread your trading like a business and take profits when things are no longer in your favor instead of waiting for your trailing stops to be hit at breakeven. Just the same, you got to know when to jump on the next trade opportunity that appears at/near your prior trade entry.
Best Regards,
M.A. Perry
Trader and Founder of
WRB Analysis (wide range body analysis)
@
http://twitter.com/wrbtraderhttp://www.thestrategylab.com Phone: +1 708 572-4885
Business Hours: 8am - 5pm est (Mon - Fri)
Skype Messenger: kebec2002
questions@thestrategylab.com
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