Hi,
This is for all those who have preferably been live trading for a while. When you have 2 TP levels, what do you do at the intial TP level? Do you close half of your position or do you move your stop loss to the TP1 level?
Or perhaps you do something else?..
Close half at initial TP, then move stop loss to entry point.
Haven’t been live trading all that long (2 months) but when I have 2 TP levels and TP1 is hit I close half my position and also move stop to breakeven for the remaining half. I tend to concentrate on not losing anything when I can avoid it.
I haven’t done any analysis though on what would have happened if I let P2 go. I guess there’s times it would’ve been stopped out at the original stop and other times it might have recovered and reached TP2 so I can’t offer any advise if what I’m doing is optimal. I’ve just been trying to follow Graviton’s advice about learning not to lose and it suits my trading style.
Interesting, a lot of what I’ve been reading has mentioned moving stop to break even, which is actually what I currently do. I was also closing half my position at TP1 but was starting to experience issues with what is essentially bet variance. What I mean by that is, you could have a good win/loss ratio but as your losers are essentially double the position of your TP1 winners, you could end up in a losing overall position…
Anybody elese encounter this issue?
Hmmmnnn…
I’m glad somebody brought this up because I’ve been pondering this very same issue (and I’m particularly interested in your analysis WildChancer)!!!
One system that I trade is called ‘The RSI Rollercoaster’ by Kathy Lien and Boris Schlossberg. As with ALL (well MOST) of their systems: they advocate moving your stop to BE after your first TP has been reached.
HOWEVER: I’m still a bit ‘in the dark’ as to EXACTLY what moving your stop to BE actually MEANS in all cases (I mean to say that I KNOW WHAT moving your stop to BE actually MEANS but there are two ways of doing it).
Let me explain further:
Let’s assume that you open two positions at a certain price. These two positions ACTUALLY represent a SINGLE position (insofar as risk is concerned anyway). Then: you have two profit targets. Once TP1 has been reached you can handle it in one of two ways: EITHER you move your stop to BE on the second (half of your and remaining) position (in which case if stopped out you will still take a profit regardless) OR you move your stop to BE on the aggregate of the two (half of your) positions (in which case you will indeed be stopped out at BE with no profit). (The latter being the way I’m handling things now by the way). The difference between the two really is the fact that using the second option: you are giving your position that much extra room (equal to the profit made on the first half of your position) to ‘move’ and I find that this works well (although you do get stopped out often at BE which is dissapointing of course).
Opinions and thoughts on this???
Kathy Lien and Boris Schlossberg work on the premise that SOME profit is better than a loss or NO profit but I find that giving your position that ‘little bit extra room to run’ yields greater profits on trades that are profitable (but of course I’ve not kept records to prove whether or not it would be better to take those smaller profits more often i.e. I’m REAL bad at ‘record keeping’)!!!
Regards,
Dale.
True. Don’t know the ins and outs of your system but can see how this could happen. Are you finding that your TP2 is rarely hit? Guess you could move the stop up to TP1 on P2 if price pushes past TP2 a bit. Worst case (and presumably most common) scenario you take home TP1 on P2 and provided your win/loss ratio remains good you’ll take home a steady profit.
Without knowing your strategy it’s hard to say what would be optimal for you. When I used the Boll DNA method full on I got about 12 trades per week from it. They broke down into on average about 7 winners (maybe 1 reaching TP2), 4 breakeven and 1 loser. I didn’t find the betting variance impacting profit as that ratio meant that getting TP2 usually more than covered the loss.
By back-testing and live trading over a period of time you should be able to identify which scenario works(give the best reward) best with your method.
Are you trying to be funny or what??? Who backtests or keeps records??? We know it’s not working when we get margin called!!! How much more accurate a test can you get??? LOL!!!
Good point made!!! LOL!!!
Regards,
Dale.
i see this talked about a lot, the backtesting, demo testing, etc it is a lot easier said than done, there are various technical reasons why backtesting can give wildly inaccurate results depending on how it is done.
I find that closing out a trade for partial profit before it reaches your stop loss amount (but with opposite sign) is typically not a good idea. If you do this on a regular basis, you are trading at a serious disadvantage in much the same way as scalping.
I move my stops up to b/e+1 or 2 as soon as a trade goes 10 pips or so positive. And that stop move is for my entire position. I then use swing lows or highs on the 15 minute chart to move my stop up. I don’t close out half. It’s all or break even. A winner will always turn into a loser, but only if you let it.
If I get stopped out early, I’ll wait and renter the trade often at a better price, and the game resumes. If I have confidence in the move, I’ll also add positions along the way., using rose same swing high/low opportunties.
It all depends on ones method. For me it works fine. I’m a swing trader who goes for huge amount of pips(200+) for each trade. It definitely sucks at times to close half(TP1) and get closed out at b/e with the other half only to see the trade goes to your target TP2. This doesn’t happen often with my method, I normally get relatively good gains with the 2nd half, just let in run…
Exactly. Manually trailing stops (remove and replacing stops above or below highs and low respectively) is also a good idea.
As mentioned before, it’s entirely dependent upon one’s method. Either way may be suitable sometimes, one more so than the other.
I trade multiple lots and have different TP’s for each. Two important points here, one is that the risk remains the same 1%, 2%, 5% whatever you choose but it’s just chopped up into smaller lots to allow some flexibility in the trade.
Second point is to eliminate risk as quickly as possible and protect capital but keep my strategic SL in it’s original position.
This post by DailyFX explains pretty much how it works.
The Benefits of Trading Multiple Lots
A first target that is set ‘nearby’ is essential to this strategy. It should make sense that the closer a target is to the entry price, the greater the probability that the objective will be hit. From a psychological standpoint, a trader will often times view this as a winning trade which leads to a better state of mind when considering subsequent positions. [B]Practically, this first target can ‘pay for’ all or part of the trade.[/B] If the first target equals the total stop amount, the trade is essentially riskless when the first objective is met. Even if the first target is only a fraction of the total stop, the risk will be reduced significantly when the objective is met.
To better improve the risk/reward probabilities of this method of trading, we can trail the stop on the second lot. Therefore, when the first lot meets its first objective, the second lot’s stop is moved up to break even which locks in the gain and guarantees that profit. This one step can dramatically alter the performance of a strategy and boost a trader’s confidence. [B]When the first target has been met, the worst that can happen from that point on is the second lot retraces to the breakeven point and the trade is closed out for the net profit on the first lot.[/B] For strategy performance this will naturally increase the ratio of winners (though it could also lower the average size of winners and increase the average size of losers depending on the size of the stops, first target and second target). Applying the two lot method, and the trailing stop for the second lot, to our RSI strategy; we can see a dramatic improvement in performance. Our percentage winners is boosted to 60 percent with a greater average winner to loser. The bottom line, this strategy turns a faulty trading strategy into to a profitable edge through a few money management adjustments.
The greater potential from adjustable stop is seen in trader psychology. Emotions often get in the way of a successful trade whether a strategy is discretionary and placed by hand or mechanical with orders automated. Often times, when a trader creates a strategy, they will either place a target too far (in compensation of high risk or to satiate greed) or too close (in fear of a reversal). When using a two-lot system, the burden of turning a profit or avoiding risk is lessened. After the first target is reached, the trader can be more aggressive on the second objective and choose that level more objectively.
ok, but remember when trading multiple lots, you can’t double the pip count. that’s plain wrong.
… sorry, what do you mean by double the pip count?
excellent topic…
The optimum strategy changes from system to system. In order to find the optimum strategy you need to see if it will make money in the long term.
Moving the SL to BE and closing half position is not always a good strategy and here is why: if you get stopped out and then the market moves again in your favour you are cutting your profits. Today will feel great, but in the long term it could make you lose money. It depends of your system.
If you have a 50% win/loss system, then the risk/reward that wont make you win or lose money is 1. So if you start your account with 10,000 dollars and this 50% win/loss ratio doesnt move for 5 years, and your SL and TP is the same, then at the end of those 5 years you will have 10,000 dollars. SO you need to go for some more risk/reward ratio, maybe go for 1:1.5 or 1:2, it depends of the edge of the system because you can go for a 1:2 but the market doesnt give you that. SO to find the optimum risk/reward you need to back-test your system, and forward test it to see if it keeps working now.
So far we have this: a win/loss ratio and a risk/reward that will make you profitable in the long term. Closing half of the position will cut your winnings and will reduce your risk/reward, so you are reducing your profits in the long term. It takes maybe only one losing trade to erase those little winnings. It depends of the system. Maybe you have a high win/loss system so the little winners are more than the losses.
The thing is that you have different stratgies, for example:
When you have 2 targets; you have this strategies:
When you have 1 target, you have this strategies:
Or you can have no targets, and manually trail the price until you can squeeze the more profit. you can.
So the question is, which one is the optimum? It depends of your system, is it a mechannical system? or are you a discrectionary trader? are you a scalper? or a swing trader?, which time frame you trade, you trade at london, asian or NY session (volatility and pairs behave different)?.
SO my advice is this: create your system and then analyse the strategy that best works with it, back test it, and then see if it still works. The question to answer is this: which strategy will make you money in the long term?
Hope that helps! 