So…let’s use the following scenario…I found a setup and entered a long trade. Using S&R, fibo, round numbers etc. I set my SL at -50 pips, and my TP at +100pips.
Now, I have 2 options:
Set and forget and never touch the trade or
Adjusting the trade like this: I wait for a few bars, like 5 bars, and, regardless of where the price is in relation to my entry point, I decrease my SL, with the obvious reason to try to minimize losses; if my trade is in positive teritory, I can even move my SL to breakeven, or even better; ( of course, keeping on eye on fibo, S&R, etc)
The reasoning behind the second option is that if my TP was not hit quickly, then the setup hasn’t worked. Now, of course, if I let my SL to it’s initial level, maybe the trade would be a winner. After moving the SL, the probability of being stopped out is much higher.
In other words, if after x bars my trade is still open, then I am no longer interested in that trade and I only look to minimize losses.
What do you think? What would you do? What do you do?
It’s a common thought by traders, perhaps linked to the ever repeated quote “let your winners run, and cut your losses short”.
It sounds like you need to consider a few other variables for the currency pair that you are trading, before you decide that the trade is ‘worthless’. For example, you said that you have given your profit level an expiry date (in terms of time) before you validate if the trade is of any value. But, given the average movement of the pair vs time (known as the ATR indicator), how long has it historically taken on average for this anticipated movement to have materialized? More importantly, is this amount of time in line with your current ‘expiry date’?
ATR changes all the time, so suggesting that you wait a fixed amount of time per trade for the TP to be triggered is essentially building a non negotiable wall around your trading approach - not recommended. The markets are dynamic and changing, so should be your trading variables in order to adapt to market conditions.
As for which option should you choose? I would say carry out in depth analysis, collect your results around both scenarios and look at your profitability. No one here can say with certainty what the best option is for you. Also, wouldn’t you like to know for yourself, with evidence, what option you should be taking. It’s surprising how much you can learn when finding the answer to a question yourself; which should be a priority when it’s your money at risk
This is typical of the kind of compromises we have to make from time to time. Every trade is unique in the way it unfolds.
I do not often move my SL especially if the trade is working clearly as anticipated. But sometimes movements are very sluggish and takes all day to get there and creates a sense that the market could reverse at any time soon…In these situations if the price is anywhere near my target then I will either close out some of the position or raise the stop level if there is a newer sensible location for it.
But I think the key to this is in your statement:
If you are no longer interested in the trade then it means that the initial reasoning behind your expectation for the trade has evaporated in some way, in which case, I would simply close it out with the current profit and look for the next trade. There is no need to painfully sit with a current trade just to see “what will eventually happen”
But one has to be a little wary. As you rightly say too aggressive adjustments to stoploss levels can easily turn an ultimately winning trade into a loss. Sometimes the price can take a long time before it finally reacts in the way we have anticipated and it is easy, and extremely frustrating, to close a trade just before it takes off without us!
In principle, unless there is a sensible new level to move our stop to, or the price has just missed our target and seems to be in danger of reversing, or we feel the trade is somehow “wrong”, then it may be better to leave the settings as originally planned.
There is no right or wrong answer here. And this is just my own take on it!
If your thinking about moving your SL after 5 bars regardless of price, would a TS be a better option for you if your broker allows a TS?
Or maybe instead of adjusting your SL after a set # of bars you should adjust after a set # of pips. Or if price reaches a new S/R level.
If price goes against me, I leave my SL in place, but I will consider cutting my losses early once price is 45%-55% of the way to my SL. Esp if it happens early.
On winning trades, I adjust my SL at predetermined levels or if price reaches a new S/R level.
I think a major consideration when adjusting a SL is the balance between adjusting SL to minimize risk while allowing a trade suffecient drawdown capacity.
I put more emphasis on risk reduction, even if it means reducing profit potential or the possibility of being stoped early.
I think cutting losses is the best way to maxamize gains
I asked these questions starting from what I think is a very important problem: Should there be a point after which you say “My setup hasn’t worked.”?
Of course, everyone has his own correct answer.
Regarding myself, I have to admit I am a little reluctant to modify stop losses. I think that it breaks discipline. However, until I find my answer for that central question, I feel a lot of pressure on my shoulders to at least modify my stops to break even. But when? And we are back at the beginning.
For now, set and forget is for me. I will reconsider after 100 trades.
I’ve observed (though this is a fairly anecdotal comment) that if my trade falls back to 50% of the way from entry to my SL, i.e. to -0.5r from entry, it will almost never make entry + r. So when the -0.5r price is reached, I will exit at the best available price that follows, just using TA to time it.
As has been said above, I think moving a SL is poor discipline - if you thought entry minus x pips was indicated by the TA as the level that price would have to reach to prove your analysis of price’s probable behaviour was wrong, but price has not reached your SL, then surely nothing has changed? Except that price hasn’t done what you thought was probable in the time you thought. If the time in the trade is critical, just close it, don’t move the SL. If time is not critical, keep watching the TA and hold on.
The best justification for moving the SL is when you get a repeat entry signal on the same chart. So you buy at 8457, and the SL is placed just below a recent swing low, at 8393. Price goes up and at 8512 you get another valid buy signal, with a TA-based SL level at 8471. So you get some b@lls and open on Trade 2 long at 8512, put SL’s for both trades at 8471. Repeat as the situation allows.
