I had a quick question about taking profits that involves trailing stop losses. Has anyone ever tested whether it’s better to simply set a trailing stop loss and let their trades run until they hit the stop loss (preferably higher than the initial investment)? Theoretically it seems best to let trends run as high as they go rather than cutting profits off at a percentage, but I see many posts stressing the action of taking profits.
There’s too many factors to say one or the other. It may be better to put a trailing stop on a pair thats trending in line with fundamentals, and take profit levels on ranging pairs with mixed fundies.
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This completely depends on what strategy you are using and what the bigger picture may be in larger time frames for example? Also are you at major S/R? Pivot points etc?
I find it is much better to base your stops and profit targets on a trade-by-trade basis as each situation will be different. Setting fixed levels doesn’t make logical sense, whereas using areas of S/R, swing highs and lows etc does.
As far as exits are concerned though, it is a difficult area as each trader has different risk tolerances, patience etc. Set it with what you are happy with and stick with it. Using the strategy that I do (pipdaq setups) I simply set risk and use a 1:1 RR. That ensures I profit over time with a strike rate of about 70% and it keeps things very simple with little trade management required.
I had a mini aha moment the other day.
I keep detailed records of my trades, always always always have put them in two parts, thanks to various mentors telling me, “Pay yourself”, “Take half profit”, etc. at 1:1 or 2:1 Risk Rewards.
However, reading this book by van tharp, he says, what you’re basically doing is limiting your gains. NOT what you want to be doing.
So, I went through all my records in excel and changed them to be as if I had kept the whole position on until the end and profits increased a LOT.
How many times does price go up, hit your partial profit, and then reverse back to your stop loss? Not enough to make it worth taking profit, IMO now i’m keeping my entire position on until I feel it’s time to get out.
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Thanks a ton for the replies; it cleared up my confusion quite a bit.
I got to admit as soon as I read this line datamonkey, everything made a lot more sense. What I was doing was a constant 2:1 ratio and I was wondering if I was supposed to take the profits at the 2% even if I had reason to believe that the trend was going to continue.
It is just too risky to let the trends run as high as they go because a slight change in the market could make your lose your entire capital within a twinkle of an eye. So, you have to be less greedy and set your TakeProfit as close as possible, depending on your analysis.
depends on your system, for mine that would be suicide x_X
I also hated to lose my winning trades based on trends and then struggled with managing stop losses until I found and started using this EA. You might want to take a look at it. It will automatically manage your stop loss and move it into profit based on levels you set up. The way it works is you set up your initial take profit and initial stop loss. Then you set up to 4 take profit levels (based on percentage). When the price hits one of those take profit levels, the stop loss will automatically move to the last level. And so on until your 100% take profit is hit (then a trailing stop will enable).
For example, using round numbers. Say you have a final take profit of 100 pips. You can set up 4 take profit levels of 25%, 50%, 75%, and say 80%. When the price hits 25%, then the Stop Loss can move to 12.5% (whatever you set). When price hits 50%, the stop loss will move to 25%. When price goes to 75%, stop loss will go to 50%. And so on. Then if your 100% take profit is hit, the EA will do a trailing stop indefinitely. So when it catches a trend, it’ll follow it while protecting profit.
This will lock in your profits. I use the EA and it works great so far. I had been looking for one like this because I wanted to simplify and maximize my stop losses while maintaining profit. So I thought I’d pass it on.
I personally let my profits run, the market is clever than me, and it so I let it trigger me out.
It’s possible that either trailing stops or profit targets work out the same in the long run (I doubt it though)
But with profit targets you are potentially opening a can of worms.
What if as a newb you haven’t quite got your psychology right and you take profits at say 2:1, the market then carries on in the intended direction and you start berating yourself for being so stupid.
Your so off tilt about it you jump back in just as it reverses.
It happens.
The profit target thesis to me is based on fear. Fear that you are going to lose what you have.
But fortune favours the brave in trading.
Accept that you are always going to give a little back at the end and use trailing stops
it’s too risky cutting winners short. But the art comes from knowing where to place your trailing stop.
These platforms that offer trailing stops at x% or whatever are next to useless.
yep van tharp is correct.
In this business 4:1, 6:1, 10:1 all very possible.
it’s nonsense to use a 2:1 target as espounced in many forex books (that frankly suck)
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Hello @Heretic509,
Great question. I agree with some of the replies above that it really depends on your strategy.
I prefer a strategy that attempts to actively manage a winning position in order to let winners run as long as possible as opposed to one that employs a fixed TP or a trailing stop.
The problem is that there are so many variables involved that it’s difficult to say that one methodology is better than the next one. There is a balance between setting a hard TP, setting a trailing stop and letting profits run that has to be tailored to every individual system.
Therefore this question is strategy dependent and as a result there isnt a one size fits all solution.
Whatever combination based on available data that leads to maximum expectancy is the correct answer imo.
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