The Challenge of Letting Winners Run

Beginner Questions
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The Challenge of Letting Winners Run[B][/B]

Feb 26th, 2014 | By mprincipato | Category: General Comments, Marc Principato, SMB Forex

You know the following situation well: You had a long in EUR/USD at 1.3005 and sold it at 1.3018 only to watch it go to 1.3086 over the next hour. Of course when you try and hold for these type of moves, you give back your 10+ pips plus some additional when your stop gets hit. How do we know when to hold for a larger move? In other words, when do we let our winner run?

The real question you have to consider is this: What is the significance of the price area where you are initiating your trade? Newer traders lack the experience and ability to gather the most relevant information from the market and as a result have no point of reference to make informed judgements. Understanding the relevance of your entry price begins with the quality of the analysis that you conduct before you initiate the trade. And if you do not have a well-defined framework to conduct your analysis, then you will have no sense of the potential for your trade. The professional trader has the type of trade defined before entry: it may be a scalp, a day trade or a swing trade. So what can guide our decision?

One of the pieces of information that I examine carefully when I am analyzing price action is the category of price formations on the larger time frames in the price region of interest. For example, let’s say my analysis indicates that the EUR/USD is at a major support level. How do I know it’s major? Price action history will tell me that. So let’s say EUR/USD is trading around the 1.3000 area. After a few hours of price action here, I recognize a double bottom on an hourly chart which is in the process of forming. Price is attempting to push the low. In this scenario, I will be looking for signs that this low is being rejected like a long tail on a 30 minute chart, or a 15 minute bullish close. I can also look at the volume in the futures market to determine if there is any additional arguments in my favor.

If the formation holds up on the larger time frame, then I can try to further refine my risk by waiting for a setup on a 5 or 15 minute chart. Or, if I am ok with the current reward to risk ratio offered by the hourly setup, I can initiate the trade. Since the trade idea originated from a larger time frame, and since the trade is being validated on a the larger time frame, as the trader you should recognize that this trade has greater potential. It is reasonable to have a higher expectation for this trade. So in this case, if you exit quickly for a scalp because of some price noise, it means you are not aware of what the bigger picture is telling you here.

Compare this scenario with the following: Watching price action on a smaller time frame, you determine the intraday momentum is dramatically bullish. This means almost vertical. On your smaller time frame you notice a small consolidation over a 30 minute period. As it breaks out to the upside, this would be a good candidate for a long. When you look at your larger time frame though, you realize price in near an important pivot resistance area. This is the kind of trade that you want to hold on to for a long period of time? Hopefully you answered this question to yourself. This type of trade has little potential since much of the move has already played out. You are getting long near a potential top. This is when you want to think as a scalper and grab what you can. The thought process here can be further refined by the characteristics of the bigger picture as well. Are you long near a top of something that is generally strong? Or is the upcoming resistance a potential lower high? This should also weigh into your judgement as far as how much you should expect. In the forex market, 10 – 15 pips is a good target for trades that are not being initiating at a particularly important level.

Less experienced traders usually treat every trading opportunity with equal expectations when in reality, each opportunity is unique and must be judged separately. Some trades offer more potential than others and having the ability to make these judgements quickly is what separates the pros from the amateurs.

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Excellent post/thread… thank you…

I can certainly relate to that… as can many others, no doubt…

This is why I am working on a strategy for trading long-term, through a system that does not encourage me to

take too many bad decisions…

I will leave the ‘ability to make these judgements quickly’, as you put it, to later years, when I may be more

finely tuned as a trader.

Cheers.

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I agree. Great post. Time is different for everyone depending on who you are and what you’re trying to achieve and what you have to achieve it with. But the common thing that everyone needs is is a strong basic knowledge related to retail trading in the forex.

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@ gp00053

[B]My impression is that most people who attend the forum to become a better trader fail because they do not have the ability to learn the correct basic knowledge …
[/B]
Once I posted 24 points on essential basic knowledge by reversal …

Every point have I felt in my body thousands of times when I have been on the right side and vice versa …

Only the absolute very few people on this forum have the ability to understand these points of basic knowledge.
I will post them one more time to this post .

@ pipme happy

I think a long term strategy is an unfortunate strategy before one has worked a way through a successful short term strategy.

[B]To fine tune a strategy is often based on going in and out of the market until one hits the plank.
[/B]
Very often when I daytrader , as my bias is long but I must try and fail a few times before I hit the correct road to North …

[B]It is infinitely painful , time frustrations before mastered this.
But the ability to go in and out of the market with minimal loss / win is a priceless skill …[/B]

My Metaphor for trading is like boxing
Anyone who goes into a boxing ring expecting to receive some punsh back during the fight … !
*
You will not go for knock your opponent in each punch , then you will lose fast. !!

You boxing to pick points and give less points to the opponent, when the opponent gets frustrated because you pick more points than he ,
*Then often your opponent take greater chances which in turn provides greater opportunity for knock out your opponent or pick more point who is safer .

The times you fight against a better opponent and you get frustrated then is the ability to not do stupid things but keep your cool so you do not blow it …
Which is crucial

Reversal signals all traders should be able to understand

Example bull reversal in a bear trend …

  1. Strong bull reversal bar ,large bull tend body and small tails or no tails.
  2. The next two three bars also have bull bodies that are least the average size of the recent bull/bear bar.
  3. The spike grows to five to 10 bars with out pulling back for more than a bar or so ,and it reverses many bars ,swing highs ,and bears flag of the prior bear trend .
  4. One or more bars in the spike have a low that is just one tick above the close of the close of the prior bar .
  5. One or more bars in the spike have an open that is above the close of the prior bar.
  6. One or more bars in the spike have a close on the high of the bar or just one tick below its high.
  7. The overall context makes reversal likely, like higher low or lower low test of the bear after a strong break above the bear trend line.
  8. The first of second bar of the breakout has a close that is above the highs of the many prior bars.
  9. The first pullback occurs only after three or more bars.
  10. The first pullback lasts only one ore two bars , and it follows a bar that is not a strong reversal bar.
  11. The first pullback does not hit a breakeven stop ( the entry price).
  12. The spike goes very far and breaks several resistance levels like the ma, prior swing high ,and trends lines and each by many ticks.
  13. As the first bar of the reversal is forming ,it spend most of it time near its high and the pullbacks are less than a quarter of the height of the growing bar.
  14. There is a sense of urgency .You feel like have to bay but you want a pullback ,yet it never comes.
  15. The signal is the second attempt to reverse within the past few bars ( second signal).
  16. The reversal began as a reversal from an overshoot of a trend channel line from the old trend.
  17. It is reversing a significant swing high or low(e.g., it breaks below a strong prior low and reverses up).
  18. The high 1 and high 2 pullbacks have a strong bull reversal bars for signal bars .
  19. It has trending “anything “:closes highs ,lows ,or bodies.
  20. The pullback are small and sideways.
  21. There where prior breaks of earlier bear trends lines (this isn’t the first sign and bullish strength).
  22. The pullbacks to test the bear low lack momentum ,as evidenced by its having many overlapping bars with many being bull trend bars.
  23. The pullback that test the bear low fails at the Ma or the old bear trend line.
  24. The breakout reverses many resent closes and highs . For example, when the is a bear channel and a large bull bar forms ,this breakout bar has a high and close that are above the highs and closes of five or even 20 or more bars .A large number of bars reversed by the close of the bull bar is stronger sign than a similar number of bars reversed by only its high.
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Hello Torulf39,

thank you for this.

I agree with you, and there is nothing more to say, other than, like others who start a system and keep fine-tuning it, there
is no perfect system and no loss-free test period; however, when I say ‘long-term’ I mean that the system will be such if
I (and nobody else but me) deem it capable of making as steady a return as possible in the long term.

For me, as I do not trade for big gains or as a full-time activity or with big funds (like a few of other part-time traders, perhaps),
it is important that, as soon as I will have the fine details of my strategy clear to me, I will be able to ease back on time spent on testing and searching, and concentrate on letting the strategy run its course over a longer period, stepping back to analyse the system over the months and years that it will operate.

I have concluded that I can understand Forex reasonably well, and I am not far from ‘settling down’ (if there ever was such a thing in Forex trading) into a system, as much as possible, so that routine and fairly well established parameters will keep my account out of trouble, that is, out of my emotions meddling with the planned strategy.

I am sure that many people who started on this journey as part-time traders will recognise that:

  1. they do this alone and, sometimes, without the emotional support of their loved ones;
  2. the goal is not to become, say, finance advisers or experts in global economics but to trade well in the few hours available;
  3. the balance of full-time job versus personal life (family and friends) must be a priority, and trading must fit into that.

I am conscious that I should only invest so much time in this as I can, for the way I used to trade was too time consuming (or time inefficient) and in the long term would burn me (and my private life) out.

Some people find the balance; some people give up; some people give up their day jobs and get into full-time trading: I fit into the first category, or am getting close to it, after a year and a half of learning, trying, thinking, and listening to people who have more experience… It certainly is not a ‘learn quick’ process, and in this sense, trading takes time to learn, just like any other business or job.

What I find rewarding, as much as trading, is that I can share my experiences and questions with other like-minded individuals on this forum, who come from all walks of life: women, men, single, coupled, rich, not so rich, part-time and full-time, what all these people have in common is a desire to ride the wave of currency movements for profit, and hope not to be crushed in the process.

Happy trading to us all!

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Great List. Although I agree with you that some traders don’t understand the basics, my personal opinion is, most of them do but they don’t want it enough to do everything you need to do to be successful at trading or anything else. They always look for the short cuts. Example before I see your strategy, I want to see your trading account balance so this way I’ll know if you’re successful. Should be “I don’t care what you make, what I care about is what I make.” “Give me enough information, to be able to make a good decision. Cost is part, but the greater consideration should be based on what am I getting for my money.” and for that you need to have a knowledge of the basics.

When I started trading I along with my 1st free course was the usual up sell to the paid course. The free course was basically a SMA cross matched up with an Oscillator and the idea was to line up the cross with the oscillator. The paid course $400 was an expansion of the free course, plus a trend indicator and another oscillator, when all of them line up and verified on 2 time frames that was a high probability trade. The up sell from that was a signal alert service for $100 a month. When I first started I was like most newbies and didn’t know if that was a good idea or not. What I decided to do instead of buying, was to ask for an outline of the expanded course as well as the signal service. I researched everything and realized this was not only good value for my money, it was terrible value for my money.

Look at some of the questions that are in the newbie section. How much did you start with. who’s the best broker. Looking for a signal service that will give me more winners and losers. Do I need to do the school first. What’s the best currency pair to trade. Then there’s the advice. Never pay for anything. Never Demo. You don’t need indicators. This is not the holy grail but it’s close. I have a trade plan, but I, it’s not written. Then my personal favorite, instead of looking up to see if there’s another thread that could answer their question, they just ask the same questions over and over. Is forex gambling. The list goes on and on.

As far as comparison to boxing. Think of it this way; you not only need a strong offense, you need a strong defense, not only run hard at the beginning, you also need to pace yourself for the later rounds, incase things to go your way in the early rounds. Take out the word boxing and add trading.

Again my opinion. Again great thread and list.
Gp

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When do you know to let your winners run? Haha simple answer you don’t, instead plan your trade and trade your plan. Trailing stops can help but I do not recommend them unless it was part of your trading idea. They have worked or me in the past when I didn’t really have a clear cut idea when to get out just seen a great reward to risk ratio. Other times I got cut short. I typically will trail a stop as my trade goes deeper into profit but I dont set a trailing stop I trail it manually. If your trade plan on your next trade called for a 30 pip stop and 100 pip TP then let it play out unless the market tells you to get out. The real question is when does the market tell you to get out? It dont but would you take the other side of the trade once it is in profit? If so then just trail the stop down to where taking the other side of the trade would have been justified and let the trade play out. Imo the trade is already done lock in profits when you can and see where the rest takes you, but it is all in how you planned your trade.