Letting your profits run is the key

Letting profits run is in my opinion the most imprtant thing for any trader to learn. In order for positive expectancy to exist, a traders average wins must exceed his average loss.

One reason traders have trouble letting their profits run is that they fear it will reverse and eat away a portion of their profit or worse, turn into a losing trade. One problem is that traders see a profit that is never relized, as a loss, but it’s not.

Say for example you are in a long position at what you think is the beginning of an uptrend. Price moves 50 pips in your direction and you decide it’s best to let your profits run. Unfortunately, you were wrong and price has reversed and you are now down 15 pips. You decide to cut your losses (which you should) and close the trade for -15 pips. Most traders would not be very upset if the trade went against them 15 pips right of the bat, but when it moves in your favor 50 pips and then turns into a 15 pip loss, it’s a much worse feeling because it’s seen as a 65 pip loss, even though it’s only a 15.

I think the reason for this is that many traders have a subconsious fear that trading opportunities are rare, when they aren’t. What is 5 or 6 consecutive 15 pips losses when you regulary come across a trade that will provide a couple hundred pips or more.

Perecentage of winning trades to losing trades is not what’s important. What matters is, average profit to average loss. I don’t believe anyone can predict the markets with more than 40% to 60% accuracy for an extended period of time. By letting your profits run and cutting your losses, you can overcome the unpredictabliity of the market and come out ahead in the long run.

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Sorry, but i have to disagree on some of your principles.
Positive expectancy can exist even with larger avarage losses then wins.
The W/L% just as important as the avarage win vs avarage loss.
Even if you not believe a 70-80% accuracy, it still exist.
And i think it is rather dumb to let a +50 pip position to run back into a loss, worse case should be a breakeven from such point.
Nevertheless, if this what works for you, just keep going!

The market can be predicted with decent accuracy if you know what to look for and are patient. It sounds like you took a **** load of losses, made one big trade to make it back and think you’ve learned some sort of lesson.

I also don’t agree that we “regulary come across a trade that will provide a couple hundred pips or more”. If you are “regularly” taking trades with that pip target, you are not looking at the reality of the charts. Targets should be determined through analysis, not looking to get lucky.

…and letting +50 pips profit go negitive is …I’ll bite my tongue.

To agree with Pete, and others, if you had a trade that went 50 pips positive, and you failed at least to move your stop to break even, you need to go back to trading hockey cards…

Not trying to disagree here, but there are about a zillion ways to skin this cat. Not all of them come out of a textbook.

I am a trend trader, when I enter a trade I don’t have a profit target. I ride the trend until it turns around. That could be 400 pips above my entrance or it could be 15 pips below my entrance. I am wrong 40-50% of the time, but when I’m right, the profits make up for the losses and then some. I’ve been trading for around five years now and I have been consistently profitable for the last three. I’ll tell you one thing, until you learn to stop trying to predict the market, you won’t achieve consistent results.

The market is not predictable. When you’re right, it’s luck. If you are able to capitalize on that luck, then you have a chance.

A 50 pip change in the market can be caused by a lot of things, many of which will not interfere with the underlying trend. A trade could very easily go from +50 to -15 and then back up to +150.

If you think you can consistently pinpoint the exact timing when price will make the final upward move, you’re wrong. I let the small wins go in exchange for the ones that really count.

I will say that I don’t trade on any time frames smaller then the 4H and my trades usually last days or weeks. I was wrong to make it seem as if I believe what I’m saying should apply to every trader. I am a trend trader, obviously a scalper would have a very different view. Though I have yet to see proof of a consistently profitable scalp trader.

I see what you’re saying about large trends, but if you’re multi hundred pip target is getting hit 50-60% of the time, and not your 15 pip SL, then you are trading on something more than luck I would say hmm?

Yes, you’re right. I do believe there is a certain level of predictability in the market. Though nothing is certain and anything can happen, this is what I mean by “unpredictable”. In my opinion risk management is what determines success.

Even though I am right generally more than 50% of the time, I know that there will be extended periods of time when my win rate will drop significantly due to market conditions. This will happen to every trader and can only be overcome with very strict money management, or with the use of a method that allows for a poor win rate while still generating a profit. It’s conditions like this that separates the successful minority from the rest.

Also, I do not target hundreds of pips. My target is whatever the market will give me. It may be 300 pips or it may be 70 pips.

You never explained what it is you mean by letting your profits run, run for how long, in what circumstances, untill when, with a stop loss or without one ? I think you will find, letting your profits run sounds like a good thing but in reality, if you trade with the assumption the longer you let a trade run the more money you will make, you will probably spend more time letting your losses run than your profits, in the hope there will be a reversal to make you your money back.

First you said “The market is not predictable. When you’re right, it’s luck.”

Then you said “there is a certain level of predictability in the market.”

If you want to play guru you’re going to have to do better than that. :stuck_out_tongue:

Anyway, good luck with that.

When do you decide that the market has given you what it is going to give you?

What I mean is, the slight amount of predictability in the market isn’t enough to generate a profit in the long run. If you are relying on an 80% win rate to be profitable, you will run into a problem at some point.

I’m not trying to play guru. I’m sharing personal experience. I still have a a lot to learn and believe it or not I have an open mind. It’s just that I’ve been there, trying to be right all the time and you just can’t for very long.

That’s just it, as important as letting your profits run is cutting your losses short. It might take me multiple losing trades of up to say 20 pips before I get in at the right point.

When the trend turns around. This is the part that takes some practice.

I understand where you’re coming from. You’ve probably tried alot of systems that failed (haven’t we all), and gave up on relying on prediction. If you can make it work as your describing, great but the market can be predicted with good accuracy. I humbly disagree.

At least if your r:r is good, you dont have to be right as much to be profitable like you said, just need to find that balance of SOME predictability.

We’ll agree to disagree I guess. I actually do respect your opinion and I’m just going by personal experience and what [B]I’ve[/B] had to do in order become profitable. Of course there [U]might[/U] be people who can predict the market with 80% accuracy, but for the majority who can’t, risk management will be the key to their success.

I know I’m going to P someone off but I think the ‘Cut your losses and run with your profits’ is just like some pseudo advice that people think to much about rather than stick to their strategies.

It’s like a comment from an accountant, sounds plausible and very clever but of no use whatsoever.

Its rather good advice if you can define how to practically impliment it. I’d also suggest that the cutting losses aspect is by far the more important.

That’s kind of what I was saying, yes it needs to be part of trading your plan.

What I was thinking was that in itself it leads inexperienced traders to ‘run with their’ profits, and then end up letting it run right back to your break even SL.

I’m not sure how long you’ve been trading but from what I have seen, the longer a person is in the trading game, the more they begin to sway toward the the risk management side of trading rather than the prediction side.

I think one of the reasons the failure rate is so high in forex is that people can’t seem to wrap their head around the fact that it’s not about predicting the market, it’s about capitalizing when your right. 95% of traders are driving themselves mad trying to predict the market. In order to succeed you must operate against the herd, think outside the box.

You will know in time(months/years) if you should “let your profits run” when trading a particular system. Initially one might be quick to exit but after a number of trades and experience in the market you may figure its best going for a higher R/R base on past market behavior. .

I totally disagree with this, it is absolutely crucial to get good entries, if you start entering in a ranging market and waiting for ‘your profits to run’ you will quickly start losing your money.

And you should operate with the herd, because if the market is going down you want to be going down with it, and I would also suggest that Forex is probably one of the worst places to think outside the box.

Even a ranging market is made up of smaller trends.

Statistics tell us that the “herd” doesn’t do so well.