Hi Matty44
This is a challenge for me as well. To me, this is what separates professionals from amatures. I read somewhere that there’s a theory that people spend way too much time focusing on entry signals, and not enough time on exits and risk management. To demonstrate that, I believe there was a study done where a guy used a coin flip to determine if he would go long of short. But was profitable from proper risk and exit management. Entries aren’t what makes a trader profitable. Managing risk and exits are.
Personally, I’m working on this to get my own comfort. I’ll share this as ideas of an evolving process, and not something set in stone as it is fairly fluid. So these are general principles.
Basic principles:
- Think of every trade as a scalp trade and a trend trade (with the exception of Asian Sunday whiplash). You can have a bias towards a scalp, or trend…but manage exits with this in mind.
- After a reasonable period, take profits and move stop loss to break even. This removes risk taking the fear out of the equation because you have money in the bank and won’t lose.
- I’m thinking of approaching exits like baseball. Shoot for singles, doubles, triples, and homeruns.
- Evaluate win versus loss % of trades to tune the numbers I’ll share below.
Now for specifics…again…these are still conceptual and I haven’t set it in stone yet.
I started following this thread 2 weeks ago and right now I am experience a 70% win rate. I’ll write another post to lay out my struggles and things I’m doing well in a later post. But right now, I’m around 66-70% win rate. That means a 30-34% lose rate. Or…another way to look at it, For every loss, I get about 2 wins.
Assuming I enter a trade with a standard 30 pip SL…
I am looking at taking about 50% off the trade when it hits 30 pips and consider moving SL to BE If I risked 2% on the trade, that means I bank 1% of my account equity and risked 2%. If i continue to win trades at a 2:1 ratio (counting a trade that I hit my “single” as a win), that means for every loss of 2% on a losing trade, I make 2% on singles (1% on a single, but win at a 2:1 rate resulting in 2% on singles) or cover my losses with singles.
For most trades…the “single” will be about the location I drew my fib from on the retracement to identify the OTE.
I’m looking at a double to be the 1.27% extension, a triple the 200% (which is the same as extending the fib to put the 50% on the reference point of the fib used to determine the OTE). And a home run which would come from top down analysis. This would be a 268% extension or more of intermediate term swings. Something along these lines. At a double, take an additional 15% off the trade of the origianl amount. This would mean I have 35% of the original trade left. And look to let it run. The triple take off amount at 20%, and 15% going for the homerun.
Basically, with my singles…offset my losses. Then my doubles, triples and homeruns are what makes the account equity grow. My hope/goal is that the gains from triples/homeruns will result in greater returns than if I just try to hit singles, or go with a 2 step exit strategy (which would be going for singles and doubles in my analogy).
Other things I’m considering baking into my exit strategy…
- perform top down analysis and determine if I’m entering this trade in the direction of top down, long term analysis, or a trade counter trend to long term top down analysis. If you’ve watched ICT’s webinar from last Monday (I’m about 1.5 hours through it but find it awesome)…IMHO, on the cable, nothing has changed in terms of long term direction being short. Even though market flows are up on 4 hour and 1 hour as I write this…if I was to take a long at this point, I would view it as a counter trent trade. Long term market structure still points to a bear cable as no ITH or LTH have been pierced to the upside on a 4 hour chart. Most recent ITL, and LTL are broken point to bearish market.
Given the above…I’m looking to incorporate this into my thinking where, for a trade consistent with long term market structure, the homerun would be an extension of the intermidate term/long term fibs regardless of where I enetered. That means if I enter a OTE trade in the middle of a retrace, it might be going for much more than 268% of the fib I drew for my OTE…but the 268% of a much larger fib resulting in greater returns.
If I enter a counter market structure trade (IE…long in cable at this point), my homerun might be a 62% retracement level where I would expect price to turn to head back in the direction of the long term market structure. Another way I’m thinking about approaching this is too adjust the percentages of scaling out. If I think I am counter market structure trend, increase the percentage I take off at the single level. nd be more agressive getting it out and leave only 10% on the homerun. At some point, the long term structure will change to bullish and then I might have a little something on the table to let it run with that.
Hopefully this makes sense…kinda longer than i expected and something I am definately toying with. I’m trying to balance making the exit strategy too complex, with addressing the urge to not feel like I missed out on a big move by exiting too early and leaving money on the table.
I’m doing some analysis now on my trades…since I don’t have a definitive approach to try yet and it’s changing, I don’t have a lot of hisorical trades to evaluate with a specific plan (and also have been trading ICT’s tools for only 2 weeks).
Since a lot of “wins” are singles (meaning you get your 30 pips, take 50% off, but 75% retraces and hits the stop that was moved to BE). This makes a lot of trades look like poor R/R ratios. It’s a .25 R/R which appears pretty bad to have quite a few trades like that. However, I have several bigger trades that have mush higher R/R.
This week for example, I took 9 trades. 6 winners 3 losers.
On my 3 losers…2 have a R/R of -1 and 1 trade with -.24 (The -.24 trade should have been a profitable trade, but had a bad setting in the MT4 Expert advisor (EA) and it didn’t close right so it’s a loss due to user error).
On my 6 winners…3 of them have R/R ranging from .4 to .6. 1 have R/R of 1. 1 has a R/R of 1.7. and 1 has a R/R of a little over 5. (I actually have a component of 1 trade still running for a homerun that is very profitable and will make these numbers look even better when I close it out).
Overall, I had a 3.5% equity increase in my account (and when my current homerun closes, it might be over 4%).
While I am very pleased with this result (it’s a profit for the 3rd consecutive week now), I look at it an say…If I had taken all my money off the table at the “single” level (I.E. shot for a 1:1 R/R), I would have increased about 6%. So I need to work on consistency, formalizing the exit plan, managing where to move stop losses as I run for triples and homeruns and striving to make a week like this pan out higher.
If you read this far and understand what I’m saying…congratulation. It’s a tough topic.
Once I formalize my baseball exit approach, I’ll post what I’m attempting and see if I can improve on consistency and trade exit manamgent to result in higher Risk/Reward.
Just a long winded way of saying…exits are a tough thing. I think ICT’s appraoch to take 30 or 70% off at 30 pips and let some run is great. But each trader needs to take the tools ICT gives us and make them their own and this is part of that exercise that I am underway on tackling. Personally…I need to know that I have something to shoot for the monster 300-900 pip gains…even if on a small % of the trade. That’s exciting to me and scalping alone makes me feel like I’m missing out. So trying to customize the tools and guidelines ICT has provided and making them my own.
Others may be fine hitting singles day in day out and not get mad if they “miss the big one”. If you have the psychology for that…great. If not…what I’m looking at might be something you can take and make your own as well.
