ooop title should read "per" trade not "fer trade"
Hi all, I read this article by a guy called Michael Gutmann and found it very helpful and interesting. He does the maths (not my strong point!!). He comes down on the side of opening 3 units/lots open trade with 2 profit targets and the final lot a runner. He also speaks to pyramiding on to an already profitable position in a risk free way. This is something I have been interested in for a few years now but most seem to scale out of positions rather than add to.
Anyhow, I hope some may find it simulating and a good Sunday evening reward
For most traders, they have heard the term "Let your profits run" but most find it difficult when they have a profit, to let it run, and risk losing when they are in a profit. Some methods that I use now, and work very well I will briefly outline:
When you enter a position, the one think that you dont know is what will happen NEXT.. You expect something to happen, but no one of us, (unless insiders) know what will take place next. We expect something will happen, nothing more...
So the only thing we can do is to protect our equity, we do this by using a STOP order.
When we enter a market, and say we enter with a 3 LOT or 5 Lot, or 7 Lot, what-ever is within our money management parameters..... Once the market gets to a point, where we feel we have made something on the trade, take 1 off. This can be in the form of points/pips, a certain target area, etc.
This does a LOT for your brain, your thinking, etc. Your all of a sudden feeling positive about what you just did. At that point, we can then adjust our stops and move it to break-even or break-even - or + 1, this way no matter if the market pulls back, we:
-have still made money on the trade
-even if we get stopped out, we have made a little money due to the +1 or -1....
We have to be careful not to adjust the stop too soon, we want the market to make a healthy leg in the direction we are in.
The next thing that most traders find difficult is WHERE do I take profits at... Most traders know about Pivots, so when the market moves to the Next Pivot, How about take 1 off at the pivot, Then if/when the market makes it's move to the next pivot, then take 1 off there, At each time it reaches the pivot, we've taken profits, and also we adjust our stop.
Then the balance of what we have on, we can let this run, until we get a price violation, based on our trading plan, or based on perhaps a technical indicator, that is lagging in nature.
This in effect is letting our profits run, Again this is just my .02 and works rather well.
The following user says Thank You to c12345 for this post:
I like the idea of pulling 1 off, I would basically adjust it to say pull off the required amount to ensure that commisions are covered or helped with... depending on the market being traded... I will try your idea this week and see if that helps my psychology a bit, based on the light bulb that just went off, I think it will.
Yea, this is a good enough way and the runner will allow you not missing a big move. For my personality I feel worse about being out of a trade too early missing a big move than taking a loss.
So I'm sold on the 3 units (3 x 1 lot or more) per trade and scaling out of 2 units at either predetermined levels or at the sign of weakness. But what interests me even more is leaving the 3rd runner lot on for as long as I can and then look to add the same position size as my initial entry (pyramiding, (3 x 1 lot or more) but only..... and this is very important.... only when I have enough profit locked in with my stop loss that this additional position even if it turns right round and stops me out will not result in a losing trade.
So for eample if I risk 1% of my trading capital per trade and I have locked in 2% profit with my stop loss I feel relaxed about adding another 1% risk with a stop loss (price action permitting). This means I will keep my 1% profit even if the additional 1% risk stops me out. This is a work in progress for me..........LOL
You will find that most traders, wont do this, they want the ENTIRE # of trades they put on, to go the entire way with them, ALL in/ ALL OUT.... But this really exposes you to the fact that when you get stopped out, AND YOU WILL GET STOPPED OUT... that your entire exposure is stopped out, vs just a portion of it....
Most know the idea of letting a profit run, but feel that they must have the full # of lots to feel successful.
When you notice the market reaching a pivot, and it doesn't go right through it, and it perhaps pulls back and re-tests a support level, doesn't it feel good that you took 1 off at the pivot? What this is called or at least what I call this, is LIKE BEHAVIOR. if the market does this, then we do this also in our accounts, if the market goes up again, we go with it, with our other positions on...
Getting into the professional traders mind is a key to understanding, and when you follow like behavior, your going to start to see improvements in your mental focus, and your trading account will benefit also.
One good idea is to write down briefly what you are going to do, and how you are going to apply this to the market(s) you trade, having it down in writing and then reviewing it and going over and over it, will get it into your head, so when you are in your trade, and you have 3 on 5 on, 7 on, what-ever, you wont have to think too much about it, when the market hits the pivot, or area you pre-determined. You'll just click the button, and take 1 off, then the next target level, take another off, etc. etc.
I like Gutmann's emini book (2nd ed is much better than the 1st ed), but his example in the article is overly simplified. At the point PT1, if there were 40% (x2) chance to make another 16 ticks with 60% (1-x2) chance to give back 4 ticks, what would I do? I will probably add 1 unit instead of taking off 1 unit at that point since the original position is risk free now.
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