It has been a year since I start learning to trade forex. From the books that I’ve read, I know that one can come out with a million ways/ combinations of implementing bar patterns, price actions and indicators into your trading setup.
I found that the biggest problem I’m facing is not about the entry. but the exit.
My current trading system gives me very slight edge: about 56% win rate, from back-test result from 2010 to 2014, with a simple recent High/Low stop with a 1 to 1 profit target. Some months the win rate can go up to 80%, while others not as good, might have few losing months in a year.
I knew that my trading system can be much better by improving the exit strategies. I tried many form of trailing stop, indicator based stop, fixed 1 to 2 profit target etc, but I feel that they tends to lower my expected value, hence lower my overall return.
Does any of you guys have been successful particularly on exit strategies? The idea of cut losses short and let profit run seems too hard for me, since I’m only being able to used a fixed sl and tp.
Bro, I agree with mastergunner99 here. If those are your stats then that’s more than sufficient. Maybe look closer at your losing trades and see if you can filter out a few more bad ones. Get your win rate up to 60% and you have found your grail. Best of luck
Yup, I’ll continue trying to filter out some bad trades or at least to cut losses short. I have not found an effective way to cut loss, neither to let profit run.
What I worried about my system is the edge can be seemingly non-existent for a very long period, and it will be psychologically hard to handle, not to mention financially. Secondly is about back-test fallacy, the result of back-test from past 4 years not necessarily ensure success for the future. The following years may turn my edge upside down.
Therefore, I’ll not consider my system reliable until I found a way to improve it. I knew that one trading system works well in one kind of market condition may work badly on others, but it looks like I got no choice but to include all those nightmare periods in my trading because I’m not fortune teller who can predict future market condition…
Are you trading live with your plan. If not the only way foward is to give it a go. Open a micro account and see how you go. You will be pleasantly surprise how quickly your trading will improve and that with give you the confidence you need. Best of luck
I’m trading live for about 17 trades on this system now, so far so good. All my trades is on usdjpy. For some reason the same system gives negative result on eurusd.
According to my back-test, the worst nightmare period will give highest consecutive losses of 7 times, highest draw down for about 10x risk per trade. I’m trading with constant worry about scary nightmare, or worse, the existence of my edge, because it shouldn’t rely solely on faith.
I might be the odd man out here but based on my personal experience I find trading systems, rigid trading plans and back-testing are overrated and if not flexible enough can be harmful. Here are two of my favorite quotes from a Daryl Guppy interview.
[I]“The important point is not finding a system or designing a system, [B]what is important is that you have to create an approach that’s appropriate for the current market conditions.”[/B]
“There’s always a challenge to [B]adapt and adjust your trading style or approaches to suit the market conditions.”[/I][/B]
I agree with Mr Guppy, IMO it’s all about understanding and trading the “current market conditions” not systems, rigid trading plans and back-tested results from 5 years ago.
For example, let’s go back and take a look at the daily EU & UJ charts and compare June & July 2013 to June & July 2014. We’ll find the 40-day ATRs of J&J 2013 to be approximately twice of J&J 2014.
Also let’s look at the price movement & trend. Beginning of June 2013 EU open at approximately the 1.3000 level. By the 18th & 19th EU moved 400 pips higher hitting the 1.3400 level. Then by July 9th dropped 650 pips to the 1.2755 level. And closed the month of July back up another 500 pips to around 1.3250.
Now let’s look at EU for June & July to date 2014, been as high as 1.3700 and low as 1.3490. For the most part stuck in a trendless 210 pip range v J&J 2013’s high to low 650 pip move with strong & obvious multi-day trends.
Does anyone really think that a system and rigid trading plan that was profitable with EU during J&J 2013 would produce anywhere near similar results trading EU J&J 2014? Cause if you have one, I’d love to know about it.
Yep, Guppy has a great sense of the market, his view of the ‘investor’ and his attempt to understand the investors’ view is vital to understanding market direction.
Many, if not all, of the older traders understood this, perhaps most of all Wyckoff.
When I saw D-pip’s post Wyckoff immediately sprung to mind, and this quote from his 1925 book.
The following quote was in his chapter “First Lessons”, I have not altered a word:
“In and out of many brokerage offices there hustled wild-eyed individuals with charts under their arms, who would hold forth at length on double tops and bottoms and show you how and why the “big fellows” were doing this or that with their favourite stocks.
Yet none of them seemed to have much money.
Possibly it was because they followed a strict set of rules and did not use much intelligence.
It seems that the charts told them exactly what to do!”
Here is my result of testing one cut loss strategy, exit position earlier when the odds stacked against me as indicated by the strategy.
When successful cut loss (true)= it cut the loss of the trade by half on average
when failed (false) = it makes a winning trade to become a losing trade, lose by average of half initial risk.
Based on a sample data of 119 trades, it signalled 47 trades to exit earlier, which include 31 cut loss(true), and 16 cut profit(false).
The strategy seems to be quite effective, being true for about 65-75% of the time to cut losses short, but after doing a little maths:
Setting the initial risk to be 2%.
losses avoided= 31 trades * 1 %= 31% loss avoided
losses cause by false cut: 17 true signal being cut into loss= 17 * 1%(average loss)+ 17*2% (gain if din’t cut loss)
= 51% total loss!! Note that my initial entry setup always used a 2% risk with a 2% profit target.
Looks like this strategy failed mathematically, I’ll have to keep on working hard in order to come out with a better exit strategy either to cut loss, or let profit run, or better still, both.
See now your messing with your strategy bro. Ask yourself this, whats the underlying market bias at the time of your trades? Were you trading with or against that bias. And do check the relationships to news events and their influence. Your strategy sounds solid enough
I think you have the saying " cut losses short and let profits run" misunderstood. To be clear the saying means that when you put on a trade if it doesn’t go your way instantly cut that loss because we don’t enter a trade to lose we enter a trade to win. As for letting profits run it simply means that once you’ve entered a trade and it starts to go in your direction let it run to its target. As for an exit strategy you need to use your tools as for me i use Fibonacci and Elliot wave structure interpretation to find a good exit.
To me, I think it is the most practical way of applying the idea of cutting loss short and let profit run. The underlying rationale is stay with the trend as long as possible while cutting losses when the odds are no longer favourable for that position.
Becoming a successful trader involves:
Developing both entry setup and exit strategy which gives you an edge over the market. ( very underrated, it is by far most important in trading success, once you have it, it’ll make others problem much easier to solve)
Being able to manage your trades safely and systematically. Keep a low risk, plan for the worst to come, have the mental toughness to sustain through the nightmare and continue trading until market is favourable to your system again.
Enhance your trading, by improving exit ( decide when to let profit run/ scaling in), cut loss( include not entering not so ideal trades), which often rely on personal discretion and can be really hard to learn.
Lately I am working on “let profit run” part on my system, under certain condition I might want to raise my profit target. Further research and statistical support needed, before that not going to apply to my current trading.
Jcanle, how’s it for you to set a profit target? some kind of fibo extension? do you look for 1-1, 1-2 because you can essentially choose like 23.6 , 38.2, or 61.8, there are a lot of option, and very often I can’t see it as better than a fixed 1-1.
As mentioned in “Technical Analysis Explained” by Martin J. Pring, there are no existing method to predict the exact magnitude of the trend. So I set my stop at recent support level and target at 1-1 of my stop, regardless of the current resistant level. I find that’s the easiest way for me to achieve positive expectancy on my trading.
Yes i use a fib extension’s but i also use wave structure interpretation which has patterns within themselves that have certain terminal points that coincide with the fib extension and the bigger picture is painted according to the out come of the probabilities for that wave sequence.
What a load off who ha. Hey bro, do you think your smart money cares about fib lines. My experience the only lines the real players respect are support n resistance. Forex is not about us retail traders. They have no time for us. Trade what you see not what you want to see. This is a major mistake made by newbies.
[QUOTE=“bobbillbrowne;644169”] What a load off who ha. Hey bro, do you think your smart money cares about fib lines. My experience the only lines the real players respect are support n resistance. Forex is not about us retail traders. They have no time for us. Trade what you see not what you want to see. This is a major mistake made by newbies.[/QUOTE] Trade what you see and not what you want to see!! I quote that once more. Wait I think I’ll write that down and stick it on my laptop! Wise words!
Same as entry, there are many exit strategies out there. There’re no right or wrong, what matters is does it suits your personal style and can you use it efficiently. For me, i couldn’t use most exit strategies out there, except of my own.
I’m still keen to learn more about exit, in order to improve overall profitability.
I have no knowledge to wave principle, but I believe what you are saying is analyse the past structure and use fibo to project some resistance and hence profit target. This kind of exit is too hard for me, it gives many possible options, and rely heavily on personal discretion to turn it into a success.
Yes you sorta have the right idea. as for personal discretion whenever you are met with having to make a decision you will meet with many possibilities. Thinking in probabilities is essential in trading as well as Chess.
