What do experienced traders do when they enter a trade with favourable risk/reward but after some time they see that it doesn’t really unfold the way they imagined it? Lets say I enter a trade where I risk 50 pips with aim to win 100. I did my analytics and I have a story that I believe backs my decision to go for that trade. After some time I’m still in it, it didn’t him my stop/loss, in fact I may be 10 pips good. But the trade is nowhere near I imagined it. It may still go and hit my target but I’m now in pure luck territory, I may have been there from the beginning but at least I had that story that believed in. And that has gone. If I take those 10 pips, I risked 50 for it and it won’t work on a long run.
To me it looks like that the stop/loss is there to protect us when we are wrong from the beginning. We try to trade reversal on 1H chart for example, and it doesn’t happen. It goes opposite way and hits our stop/loss in an hour or two. If it hits that in 10 hours its needlessly lost money, we should have exited that trade long time ago.
If you only look at the entry pattern you will always hit this problem.
If you look at overall context and the entry pattern is the last thing you look for, then you will see very readily when the situation has deteriorated to the extent that you would never have taken the trade in the first place.
All traders went through that stage. If yo have a strong conviction at the start, keep that belief. It’s a test of your patience. Eventually you will come to the point in the future, after all the experiences, that you will have a clear view of how the trades will end. A solid exit plan is better than the best entry plan/analysis with no clear strategy on how it will end.
when trading shorter time frames with closer stop/loss, I tend to think that you really need the price to more your direction rather soon (and validate your entry pattern) since you are more exposed to those, out of the blue, up and down swings which happen to be just strong enough to hit your stop/loss and pull back
The only way IMO that you should exit early is if the stop loss isn’t in a good place to begin with or the trade is taking so long to close that the price action structure has changed completely and is no longer a good trade
Scenarios on when to exit before price hits your pre-determined stop loss should be part of your plan.
Your stop loss should be based on an area where the reason for taking the trade in the first place in invalidated.
If that area hasn’t been invalidated, then technically, you should stay in the trade.
That said if the price action you expected isn’t happening, then it might be a good idea to cut your losses.
But again, this scenario should already have been accounted for in your trading plan before you got into the trade.
Depending on one’s trading style, stop losses don’t have to be just one specific price level. When in a trade, you can define multiple scenarios where you’d want to cut your loss.
This can be price-based, time-based, indicator-based, price action-based, volatility-based, volume-based, news flow-based, intermarket-based, or a combination of any of the above.
I have certain things I want to see when my entries are hit. If I see they are not present then it is a lower probability set up and I may sometimes exit for BE if I can. If I am in profit and some internal structure has been reached I will scale out and bring SL to BE. Can’t go broke taking profit.
I’ve been trading for 12 years now - and quite successfully. I was taught that before you place a trade, you should know what your entry is, what you target is and where your stop loss is. If you’ve worked it out correctly, then leave it.
Once you have placed the trade, write off the risk. This is also the approach called out in ‘Trading in the Zone’ by Mark Douglas.
This is all about trader psychology. Don’t babysit the trade.
It all depends. Unless you’re a time traveller, you can’t second guess what the market will do. Of course, recurring chart pattens seem to be a good guide, and could increase the probability of a winning trade.
There are five outcomes to all trades. On your example, I would cut the trade and use the savings to fund another as it’s going nowhere good. I would also cut those early doors trades that run away from any likelihood of making a profit, in the immenent future. They could cost you long term if you hope they’ll revert. Emotional control, guys. forget it and look for another trade.
There are exceptions. Trading high volatility pairs using a breakout S & D strategy, e.g. GBP/USD, is well left alone to either hit your S/L or your initial TP RRR. Most profitable long term is 1:1.5. Just walk away from the price action on the screen or suffer a heart attack.
The only trades to nurse are those that jump out of their cage and run up the profit hill. That should be easily identified within half an hour of entry. Take care of this beauty right up to breakeven risk, where you can decide to close it, let it run, or add 50% risk to the position by bringing up the S/L. The most you could lose is 50% of your initial risk.
Whatever Mark Douglas says, the top 1% of pro traders follow the ‘cut losses’ mantra. The most important money management action, above all else, is to preserve your capital at all costs. Nursing losing trades won’t cut the ice.
I usually put my sl below the support and add ± a few percents because of fake out. So I never close the position before the sl works. Even RSI shows the reversal. Sometimes MACD can make close the position, but it happened a few times. Of course it all depends on the situation, but you must always be prepared. Someone uses their knowledge and experience accumulated over the years for this, but someone can read analysts’ forecasts, forums and blogs, or check on the platform like https://www.liteforex.com/blog/analysts-opinions/apple-stock-forecast-and-aapl-stock-predictions/.