In This Episode
- Why you should pick a “team”
- Why trading may not be for you
- Why keeping records are so important
What's the Best Way to Stop Giving Back Trading Gains?
It can be tough to see the market move in your favor, only to have it snap back and stop you out at a loss…or a tiny profit. So what can you do about it?
A breakeven trader wrote in and asked how to work on his exits. We give him our opinions and help you understand when you should take profits early, or let your trade run its course.
Read the Transcript
Walter: Hi, Hugh. We have a question here from a trader and he says that he has been a breakeven trader although profitable as a long term investor. He’s been developing strategies and he wants to get out of the cycle where he makes really good progress and gives it all back.
So he says, “Look, it is good that overall I was not losing money but I am not making that much too.” He noticed when he looked at his trading records that he closes trade when they were in profit rather than waiting for them to fully play out. So that would have been better if he waited for a little bit further.
“What I clearly needed to do is practice my exit and this is what I am doing in Forex Tester in my testing but how to judge when to exit is difficult?” When do I exit, basically is the question. What are some of your thoughts on that?
Hugh: Number one, you go back to your testing. When I do not exit early and I just hit that profit target, — sounds like he has a profit target — then what are the results? If it is acceptable, you just go with that and find a way to discipline yourself not to close it early.
Second thought on that is that, maybe you are just better as an investor. Maybe he should just stick to long-term investing and kind of double down on that instead of trying to spin your wheels with trading.
Maybe your personality is just not quite suited to trading but if you want to do that obviously then that is your choice but I think just going back to your records looking at what happens when you do close it early versus when you hit take profit. What do you think?
Walter: That is great. I haven’t thought of that, just being an investor is actually a good point. That is really a good point. It is tricky though. Sometimes, everyone’s really a good investor in certain markets. I think back to when I was trading stocks in the early nineties like I was really a good investor.
Hugh: So are most people.
Walter: Yeah, till ninety-nine. I am sure it was the same in the eighties. You’ve got investing in ‘81, it was great until ‘87 and all that. It is interesting. I kind of think that I almost feel like everyone needs to take a side or decide to be on both teams.
What I mean by that is I think it is really important to consider what is more important. What is more painful for you? To have a hundred pips and then watch the market go another two hundred pips and go, “Oh! I lost out on two hundred extra pips. I could have had three hundred pips on that trade.”
Or, watching the market go three hundred pips in your favor. You are high-fiving yourself and then it retraces and goes against you two hundred pips and you get out with only a hundred pips.
One of those is probably going to be more difficult. Depending on your answer to that, that means that you should probably focus on the profit target if you find it okay or relatively okay to hit a hundred pip target and then watch it go another two hundred pips.
Versus, the idea of having three hundred pips and giving it back two hundred of those. So you will only get a hundred. That is so painful for you which is obviously the trailing exit scenario then you should probably, you know go with just targets. But, you can do both, that is what I would do.
You can have a trailing exit on half of your position or third or fourth and then you could have targets on the other bid. So, I usually have a target and a trailing exit or I have two targets and a trailing exit. Sometimes I will just have the target but that is kind of rare.
Although my Yen trade yesterday was just a target and that was just because it was kind of in a range. I had no reason to suspect that it would get out of the range. So I just use a target in that instance.
So that is what I would suggest. To figure out which one is more painful. Is it the trailing exit scenario where you give back two hundred pips after having it? Or, is it the target scenario where you got out and then you watched it go another two hundred pips in your favor because one of those is probably going to be something. If you just want to have both a trailing exit and a target, that way no matter what, you will kind of feel like you are right.
It is tricky though. I think you might be right. It might be something to look at. Am I even cut out for this? Is it something that I should do? Do I still want to do this? Make sure that you have good records. You know if you are taking the trades as you should. You are getting in as you should. You are getting as you should. You are following all your rules because that is really important. That’s it for me.
Hugh: Great point. Thanks, Walter.
Walter: Thank you.
Hugh: All the information in this podcast is for educational and informational purposes only and is not trading or investment advice.
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