Hello.
‘Parabolic moves’:
It’s just a term that I found in the book ‘Street Smarts’ (Larry Connors and Linda Bradford Raschke). It has NOTHING to do with an indicator such as Parabolic SAR or anything like that. Basically is just means that let’s say you are trading a particular system and let’s say that you know that particular system is ‘good on average’ for say +100 pips or +$100 per trade. All of a sudden the market moves ‘violently’ in your favour and the position turns into a +1 000 pips or +$1 000 profit. That’s what they (Larry Connors and Linda Bradford Raschke) advocate in their book i.e. take profit ‘there and then’ at market and then look for another trade. These moves can and do happen due to anything from surprise (news) data releases to ‘flash crashes’ to simple bad ticks (in the case of simple bad ticks SOME brokers will let you keep the profits while others will not and ‘surprise surprise’ most will not)!!! LOL!!! In other words: I would say that a ‘parabolic move’ is when an extraordinary big move in your favour results in an extraordinary and ‘sudden’ unexpected profit. Does that make sense???
I’ve on occasion been known to be sitting on floating PL that if closed out on a Friday would have me realise a 50% - 60% gain on capital in a week (sorry leandar: not in a day but in a week). Sometimes I’ve just closed all the positions at market and gone and gotten ‘f*ck’ drunk’ to celebrate my success. Sometimes I’ve left those positions open only to end up closing the next week at maybe only 10% gain on capital or, worse, a loss at the end of the next week.
But this topic is one of those ‘slippery slope’ issues. In other words: there is a very fine line that cannot be overstepped when it comes to deciding when to take profit. Take a look at the words of Michael Covel in the Turtle Trading System Rules document (you can download it from here: Technical Trading Systems at TechTraderCentral - TTS Introduction). Don’t worry about the Turtle Trading System itself (unless you want to). Just read what he has to say about taking profits early and the impact that it CAN have on your trading system etc. and then you’ll get what I mean when I say it’s a ‘slippery slope’ issue. It’s one of the best explanations on the subject that I’ve seen anyway (and it’s ‘short, sweet, simple, and to the point’). (Don’t worry: it’s not a WHOLE HUGE book i.e. it’s just a couple of pages that detail the Turtle Trading System with some comments by Michael Covel) (at least I THINK it was Michael Covel i.e. I forget now BUT it was ONE of the Turtle Traders anyway that made this document public for reasons given at the beginning or at the end of the document).
Does that explain a ‘parabolic move’ to you??? If not: I’ll try another way.
‘loss exits’:
Basically all that John F. Carter was saying was that there are normally MANY MANY entry points but it’s where and when that you take profit that makes the difference between possibly being profitable overall or losing overall. I remember even TaldonD saying somewhere a while back something along the lines that ‘we all know that most trades initially go into profit’. That’s very true in my experience. But it’s when you take those profits (if you take them at all)??? Alright: most of this is trading system dependant. Most all of the trading systems that I use are called ‘true stop and reverse’ trading systems. In other words: I’m ‘always in the market’ either long or short at any given time and my take profit levels are dictated by the trading systems themselves. In other words: I don’t know BEFOREHAND what my risk/reward ratio is going to be on a trade unlike, probably most, other trading systems where your stop level is at ‘X’ and your take profit level is at ‘Y’.
And there are some other well known traders (authors) on the subject. Kathy Lien and Boris Shlossberg, for example, state in their work to ‘never let a winner turn to a loser’. Well: again that depends on the trading system. If I had to move my stops to breakeven using most of my trading systems I’d probably breakeven on 99% of my trades which really would defeat the object. Most of my trades turn to profit, then loss, then profit, then loss, and then, most times, if followed through, will eventually have me stop and reverse at a profit (which could be big OR small). If I interfere with that logic (by taking profits when I THINK they’re ‘enough’) then that would have negative results overall for sure.
I guess what I’m saying is this: just take your latest statement. According to your notes that’s a 50% gain on capital in, what, a few hours??? Let’s just SAY that was sustainable (which I’ll tell you right now I DO NOT believe that it’s sustainable but I’m ALSO not going to discourage you either). Let’s just say that you now never traded for the rest of the month and managed to ‘rinse and repeat’ JUST ONCE the next month??? Take one of those ridiculous ‘straight line compounding’ spreadsheets and see how quickly you’d turn your current capital into GAZILLIONS!!! And yet, at the moment, you’re sitting with open positions and no stops which COULD VERY WELL ‘turn on you with a vengeance’ comes Sunday night / Monday morning. See what I’m getting at???
That’s one of the reasons why I get so ‘pis*ed’ off with people when they say ‘ONLY 10% PER MONTH??? Is THAT ALL you can make on average???’!!! 10% PER MONTH is OVER 100% PER ANNUM for crying out aloud WITHOUT compounding!!! Show me ANY other business where this is consistently possible??? You sure ain’t gonna get those types of returns from a bank. As a matter of fact: you’re not even going to get those types of returns consistently (if EVER) from the best run hedge fund in the world (well that’s normally because the hedge fund managers are taking most of your profit in commissions)!!! LOL!!! EVEN 5% per month CONSISTENTLY is ‘the name of the game’ in my opinion.
But THIS topic and discussion could be a veritable STUDY in and of itself and I most surely cannot address ALL the related issues in one post (nor do I even KNOW enough to ‘write a paper’ on this)!!! LOL!!!
Wilder, to me, on this topic, seems to have the most realistic outlook on this when he says “There is only one unforgivable sin in trading … [B]letting a small loss turn into a large loss[/B]”. (But of course I’m ‘Wilder biased’)!!! LOL!!! But at least he realises that losses ARE realised and does not have the ‘dogmatic approach’ to NEVER let a winner turn into a loser. While the latter may in theory be great: in practise I believe it’s a bit hard to implement (although, as noted, it’s definitely trading system dependant).
Regards,
Dale.
