Taking Part Profits and Trend Trading

[DugDug 10]

This thread is ideally about discussing good/interesting/profitable ways of being able to manage and combine strategies.

 

This is both in the respect of asking the questions

- how to manage and combine various strategies

- how to manage and combine long term trades and short term trades

- how to manage taking profits v letting them run.

 

While I dont wish to get into arguments about what works, whats best, etc; etc;

So ....I would like to start off with a few assumptions with which to begin a discussion.

 

Assumptions.

1...Trading with the trend works - is easier, less stressful, less timing is involved.

2...The big money is made in the big moves with fewer trades.

3...Psychologically tricking ourselves is actually very important - more so than discipline

4...Discipline is important in that you have to follow what ever plan you devise

5...While a lot of ideas can be backtested, context is important, as is flexibility, hence a lot of discretionary trades, whilst having a basis that can be somewhat tested, are not binary, and hence very flexible as to what works and when to apply it - in other words dont take anything too literally if you cant profitably test it as human input is vital in trading.

 

.........................

It has dogged me for all the years I have been trading that there is always a conflict between letting trades run, and taking profits. Mainly because, we are all told to let things run. That is were the money is made.... however its really difficult, as we always prefer to capture short term gratification

We think that - by taking lots of little profits that the market offers, we can capture more PL.

Example: a currency may move 15-20% over the course of the year, yet it move 1% a day (possible 255% a year). We extrapolate to think well if we can capture even only 1/3 of that we will still make 80%

 

- We also think that the less time you spend actually exposed to the market the less risk that you have. Hence the desire to get the timing right so we make quick money and then exit waiting for the next opportunity.

Problem is with this the maths. Let’s say your chances of being right are 50% (50:50) if you buy something and get it right, then sell it taking profits, looking to buy it again on a pullback etc; Are you not actually increasing your risk?

I always thought the probability was that getting it right, AND getting it right AND getting it right was along the lines of 50%*50%*50%.... etc; which means that ultimately you actually made it harder foryour self to get it right over the long term.

(now I know this varies, and this is possibly nonsensical …. Just go with the flow for now)

 

Yet buy and hold also does not necessarily work either – that’s why we want to try and beat the market with ideas etc and develop trading styles, strategies and plans to better the odds in our favour.

 

We also know that doing the same thing over and over again is boring – even if it works, and that psychologically trading is difficult. Basically our brains are not really built for it (read Your money and your brain by Zweig plus other books)

 

So how do we combine – trading less, trading with the trend to capture the big moves, and yet still manage to satisfy our needs? One of the ways seems to be in combining systems and strategies, and being able to take profits, as well as running trades.

 

This becomes then a question of …. Is it not then one big system?

 

Eg; you short 3 contracts, buy one at a level that allows you to cover your costs, buy one at a level that allows you to move the stop for the remaining contract to Break even and then run the last contract.

The argument is that its one system – why not just sell three contracts and let them ride. OR

Is it three different systems – one for each contract.

 

Lets just assume for simplicity sake that they are just one system, and that this system is designed to help make it psychologically easier for the trader to follow, by satisfying their base desires, and also allowing them to run it.

 

So to the crux of the discussion.

 

Do other traders have thoughts on how best to do this?

What do they do in practice?

What do they find hard and or easy about each aspect of it?

How can they trick themselves if need be?

Edited January 29, 2010 by DugDug

[DugDug 10]

As a few thoughts to kick me off.

 

Do other traders have thoughts on how best to do this?

This has always been a conflict for me, and so I use a rule of thumb for most trades. I trade off patterns, using a combination of discretion, and signals around context - I have tried to formalise it, but cant seem to mange it sufficiently to be able to put it down as a set of rules.....hence I guess this thread and other forums. I also trade longer term than most day traders.... while i trade daily and may only hold positions for a few minutes to hours, I also may hold positions for months.

I combine strategies - of shorts and longs on different time frames.... so I can be short 5 units whilst at the same time being long 2 units,in the same instrument.....thankyou excel.

 

What do they do in practice?

I pyramid into winners, and if I need or feel like taking profits at a level I either had in mind, or the market changes shape, I will exit. If I exit on a gut feel but know I should be running profits, I use a rule of thumb of taking off two thirds and letting the third run.

I know that you never know when the big one will come, so you always need to at least give yourself the opportunity.... as they say even if the odds are against you, you will never win the lottery if you dont buy a ticket.

 

What do they find hard and or easy about each aspect of it?

The fear of missing a trade means there is the conflict, the fear of letting a profit turn into a loss is probably the hardest aspect. However I keep reminding myself - remember what works, remember what you are trying to capture.

The easy part is taking losses..... just cut them and move on. After a while they are forgotten and treated like a small cost.

Its hard knowing that most trades will be scratch to loosers - I tend to make most of the money out a small number of trades. you always feel that surely I can improve this.

annoyingly so, a lot of the times I manage to get the general direction right, but lack of patience hurts me.... a problem I currently have.

 

How can they trick themselves if need be?

I dont look at a daily PL - I try and avoid thinking in dollars and sense - rather I think in points/pips.

I am trying to develop a system of levels, so that I dont even have to think about noise in the market..... not successfully yet..... as I still actually like to be closely involved day trading, and I am a computer ning nong.

I do take partial profits to make myself feel better.

I am completely flexible in that I will happily reverse a trade and go from long to short.

I am very tempted to give my levels to someone else to monitor and watch - they can call me,...... but where is the fun in that. plus you then have to trust them, and be bothered by them...

Edited January 29, 2010 by DugDug

[DugDug 10]

This was all started from another thread....discussing taking profits and pyramiding

One of the quotes were from making a point of employing a strategy of

" trade 3 units, sell 1 to cover costs, sell 1 at a take profit, run the last unit.

Keep pyramiding, so that by the end of a large run, you may have accumulated quite a large position with the trend."

the response being.....

 

"I've thought about this a lot for a while now but ended up thinking that the concept is in conflict. I mean if one is going to be scaling out quick and fairly quick (exits 1&2), but then later on adding to the winner (the pyramid part) - the whole thing seems in conflict to me. One is adding to the trade when the risks for continuation are diminishing. At least that is how I decided upon it"

 

This is another area of conflict - apart from others mentioned.

a) The fear of selling at the bottom, or buying at the top.

Which is why I try to use context, and ask ? can this continue... is it likely to continue? if it does where could it get to? ie; what's the risk reward? Can I possibly get into this trade at a better level?

 

In reality I usually just do the trade, and if it goes my way I let it ride.

 

b) Are the risks of it continuing REALLY diminishing? Or is it the longer the trend lasts the higher the probability of it continuing?

Again this is a context and time frame issue. If you are entering a daily trend using 5 min charts, then yes the trend will probably continue in the daily trend. If you are counter trend trading, then you are probably asking for trouble.

Also you really do have to ideally try and pyramid early and fast for the best results.

Longer term trend traders will say, and prove via their methods - that the trend is likely to continue, however, there are a lot of them that also have limits/rules to ensure they dont enter trends after the horse has bolted.

How many times have we looked back and gone doh, an example I had of some friends in Australia.... a stock called Paladin - uranium miner. code PDN. They were all patting themselves on the back for buying at 3cents, some sold at 10 cents, a few at 20c.... one even hung on until 50c.... the stock went to $11.00 or something.

 

Thats why I think the combination of the two styles works. capture short term volatility and also put some in the bottom draw.

Again what ever works for you as an individual.... as the point of this thread is to get other ideas, tricks and tips, or help people think about things.

Edited January 29, 2010 by DugDug

[DugDug 10]

Also from the same above idea.....

a quote from another trader

"In my work I now seek two different types of setup (context factors + trigger + post trigger entry + stop and profit capture). One is "get into trends on the timeframe reasonably early and then hang on for the big one." The other is "find the high probability of an xx move for a yy stop" situation and take a quick high probability buck.

 

They are very different.

 

One thing to think about in the first category is a high probability non-trend liquidation point where you can take half off to create a free trade for the long run rider. Thales clearly does this effectively although hes to fast to be+ for my liking if he was going for really long holds. At ff this is advocated for some systems where the NTL has an expectancy of under one --- but I suspect the real positive for it is that it gives the holder that "free ride" feeling that lets them hold a position long enough for the few really big pay offs.

 

Also, if you get at all mixed up about what you are doing you are likely to join the 95%."

 

I think the key here is the last sentence...... How do you not mix them up? Are you deliberately going to cause problems when trying to do so? (I would suggest yes - as its hard to say I'm bullish and long, yet bearish and short - kind of like here is some bacon and egg flavoured ice cream - great experience but mainly as your mind is being played with.) I also think that it is precisely these types of conflicts that cause many traders to fail....ie; the 95%

 

To separate the two ideally a broker that gives separate accounts, that allows you to either have two accounts. or allows you to take from one and place the orders that you are running into another.

Tough to resist temptation. Its like saying here is the cookie jar, I am going to place it in front of you, its clear, the lid comes off easily.... now dont eat the cookie.

I have opened a separate account at another broker entirely. Here I place the slow burning trades, whilst I day trade elsewhere. I open the second account systems to amend orders once a day - THEN I CLOSE IT. It seems to work.... how ever its tough mentally you keep thinking, but what if, dam it, could of....

then I use Excel to manage the overall portfolio (if you like)

[DugDug 10]

perfect example -

sold on a 5 min chart as part of a plan to pre-empt a larger move in the daily charts.

It initially went my way, would have been a good intraday trade.

However it reversed and stopped out.

Should I have taken part profits?

[Marko23 10]

perfect example -

sold on a 5 min chart as part of a plan to pre-empt a larger move in the daily charts.

It initially went my way, would have been a good intraday trade.

However it reversed and stopped out.

Should I have taken part profits?

 

Could you please show a larger chart. This is only a thumbnail.

[Grey1 10]

This thread is ideally about discussing good/interesting/profitable ways of being able to manage and combine strategies.

 

This is both in the respect of asking the questions

- how to manage and combine various strategies

- how to manage and combine long term trades and short term trades

- how to manage taking profits v letting them run.

 

While I dont wish to get into arguments about what works, whats best, etc; etc;

So ....I would like to start off with a few assumptions with which to begin a discussion.

 

Assumptions.

1...Trading with the trend works - is easier, less stressful, less timing is involved.

2...The big money is made in the big moves with fewer trades.

3...Psychologically tricking ourselves is actually very important - more so than discipline

4...Discipline is important in that you have to follow what ever plan you devise

5...While a lot of ideas can be backtested, context is important, as is flexibility, hence a lot of discretionary trades, whilst having a basis that can be somewhat tested, are not binary, and hence very flexible as to what works and when to apply it - in other words dont take anything too literally if you cant profitably test it as human input is vital in trading.

 

.........................

It has dogged me for all the years I have been trading that there is always a conflict between letting trades run, and taking profits. Mainly because, we are all told to let things run. That is were the money is made.... however its really difficult, as we always prefer to capture short term gratification

We think that - by taking lots of little profits that the market offers, we can capture more PL.

Example: a currency may move 15-20% over the course of the year, yet it move 1% a day (possible 255% a year). We extrapolate to think well if we can capture even only 1/3 of that we will still make 80%

 

- We also think that the less time you spend actually exposed to the market the less risk that you have. Hence the desire to get the timing right so we make quick money and then exit waiting for the next opportunity.

Problem is with this the maths. Let’s say your chances of being right are 50% (50:50) if you buy something and get it right, then sell it taking profits, looking to buy it again on a pullback etc; Are you not actually increasing your risk?

I always thought the probability was that getting it right, AND getting it right AND getting it right was along the lines of 50%*50%*50%.... etc; which means that ultimately you actually made it harder foryour self to get it right over the long term.

(now I know this varies, and this is possibly nonsensical …. Just go with the flow for now)

 

Yet buy and hold also does not necessarily work either – that’s why we want to try and beat the market with ideas etc and develop trading styles, strategies and plans to better the odds in our favour.

 

We also know that doing the same thing over and over again is boring – even if it works, and that psychologically trading is difficult. Basically our brains are not really built for it (read Your money and your brain by Zweig plus other books)

 

So how do we combine – trading less, trading with the trend to capture the big moves, and yet still manage to satisfy our needs? One of the ways seems to be in combining systems and strategies, and being able to take profits, as well as running trades.

 

This becomes then a question of …. Is it not then one big system?

 

Eg; you short 3 contracts, buy one at a level that allows you to cover your costs, buy one at a level that allows you to move the stop for the remaining contract to Break even and then run the last contract.

The argument is that its one system – why not just sell three contracts and let them ride. OR

Is it three different systems – one for each contract.

 

Lets just assume for simplicity sake that they are just one system, and that this system is designed to help make it psychologically easier for the trader to follow, by satisfying their base desires, and also allowing them to run it.

 

So to the crux of the discussion.

 

Do other traders have thoughts on how best to do this?

What do they do in practice?

What do they find hard and or easy about each aspect of it?

How can they trick themselves if need be?

 

Market is a counter initiative mechanism and human use their initiative to trade it,, Through out your life you have been told to use your intuitive to do things right way and suddenly you are facing a mechanism that punishes you for using your initiative,,, strange hey ,,

 

what is the solution ?

 

open a position lets say with 3 contracts close 2 contracts as soon as you have moved 0.5 unit of volatility in your favour with stop to break even point and walk away and I mean away from the PC for the rest of the day ,,, your position does not need your round a clock analysis and all it needs is to walk away and let your position run and run ,,

I totally understand this is not a very clever strategy but it works best with those who are loaded with millions of confused strategies and their initiative works against them by finding an excuse to close a perfectly sound trade instead of letting it to run and run ,,

 

I also like to add a note on stop loss.. instead of continuously thinking where to stop loss I think you must spend more time on TREND identification and not where to put that stop,, The trick in stop loss is not to stop at this or that level,, the trick is to reduce your position size and have a wider stop based on the instruments volatility and instead let the profit run ,, this is the back bone of risk analysis and traders should concentrate on putting less pressure on their CAPITAL than having a larger pos size and tighter stop loss.

 

Grey1

[DugDug 10]

sorry - previous example chart uploaded.

[Marko23 10]

sorry - previous example chart uploaded.

 

Should I have taken part profits?

 

Yes, you deserve the profit. There were short opportunities during the first third of the session and long opportunities during the last third of the session.

 

If you use the 5m chart to get early into a trade from a 1h chart:

when the 1h chart triggers, you get the stop from the 1h chart. Your risk is lower, if your entry was good, but the stop is from the 1h chart.

[DugDug 10]

 

I also like to add a note on stop loss.. instead of continuously thinking where to stop loss I think you must spend more time on TREND identification and not where to put that stop,, The trick in stop loss is not to stop at this or that level,, the trick is to reduce your position size and have a wider stop based on the instruments volatility and instead let the profit run ,, this is the back bone of risk analysis and traders should concentrate on putting less pressure on their CAPITAL than having a larger pos size and tighter stop loss.

 

Grey1

 

Good point about stop losses. A lot of the time when we focus on the stop loss, its almost as if we are telling/reminding ourselves the exact wrong thing when trend trading. By giving the brain this as a focus, there is the risk you fixate on it - and hence look for a reason to stop yourself out.

By having a wide stop loss, with less position but equal risk, I find that so long as I can convince myself, that its OK to let a profit turn into a loss, or at least break even, then it allows me to pyramid into a position as it trends..... hence you end up having a larger position on, with not that much more risk (well it does increase for gap risk, you you also have a greater margin as you have profits already) and if the trend continues and really goes, you make a lot of money. It always amazes me, and should amaze others, how much money can actually be made without a lot or risk per trade.!

 

I would add it is maybe not so much about trend identification, but trend CONTINUATION. I call it this as often (and i fell into this trap before) its not so much the entry that is hard, its the hanging on to a position that causes the issue. So identifying why/how a trend continues is better.

Edited January 31, 2010 by DugDug

[DugDug 10]

thanks Thalestrader and his thread of real time charts for this little article.

It actually covers a few similar ideas (amazing how sometimes timing works).

 

quotes of note for this thread.....

1) "I could have a position on with a directional bias lasting two to three months and i would continue to trades a market leaning to one side. What you do is supplement those longer term positions with lots of scalping"

 

Exactly what I end up doing (or trying to do)- except I guess the point of the thread is to work out more about taking profits.... or getting long/short and staying long/short.....

 

2) "When you average a position, what happens is you'll always average the losers but you'll never put more onto your winning trades when they start to go up"

 

This I found interesting, as I felt it contradicted a little about the previous quote.

example; you are long 3, take profits of 2, run 1..... later on you buy 3 more, take profits on 2, run 1 --- total long 2 contracts..... this means you are averaging winners.

Or is she

long 3, selling 2, buying 2 back, all the time, thus staying long 3.

 

If the second choice ,then I guess that's similar, but I find that mentally harder sometimes, as you it seems that you are actually picking tops and looking for re-entrys, as opposed to taking profits, and then looking for new trades with the trends.....

 

Is this just a mental thing? Is it effectively the same thing....but just a mental block/view that needs a rethink to put it in a new perspective in order to be able to find it easier to do?

 

I think also a lot of it boils down to focus.... trend trading you are trying to distance yourself a lot, whilst intraday trading requires far more focus.

[Grey1 10]

I would add it is maybe not so much about trend identification, but trend CONTINUATION. I call it this as often (and i fell into this trap before) its not so much the entry that is hard, its the hanging on to a position that causes the issue. So identifying why/how a trend continues is better.

 

Excellent,,,,,,,,,,,,,,,,,,,

[sep34 10]

This thread is ideally about discussing good/interesting/profitable ways of being able to manage and combine strategies.

 

This is both in the respect of asking the questions

- how to manage and combine various strategies

- how to manage and combine long term trades and short term trades- how to manage taking profits v letting them run.

 

While I dont wish to get into arguments about what works, whats best, etc; etc;

So ....I would like to start off with a few assumptions with which to begin a discussion.

 

Assumptions.

1...Trading with the trend works - is easier, less stressful, less timing is involved.

2...The big money is made in the big moves with fewer trades.

3...Psychologically tricking ourselves is actually very important - more so than discipline

4...Discipline is important in that you have to follow what ever plan you devise

5...While a lot of ideas can be backtested, context is important, as is flexibility, hence a lot of discretionary trades, whilst having a basis that can be somewhat tested, are not binary, and hence very flexible as to what works and when to apply it - in other words dont take anything too literally if you cant profitably test it as human input is vital in trading.

 

.........................

It has dogged me for all the years I have been trading that there is always a conflict between letting trades run, and taking profits. Mainly because, we are all told to let things run. That is were the money is made.... however its really difficult, as we always prefer to capture short term gratification

We think that - by taking lots of little profits that the market offers, we can capture more PL.

Example: a currency may move 15-20% over the course of the year, yet it move 1% a day (possible 255% a year). We extrapolate to think well if we can capture even only 1/3 of that we will still make 80%

 

- We also think that the less time you spend actually exposed to the market the less risk that you have. Hence the desire to get the timing right so we make quick money and then exit waiting for the next opportunity.

Problem is with this the maths. Let’s say your chances of being right are 50% (50:50) if you buy something and get it right, then sell it taking profits, looking to buy it again on a pullback etc; Are you not actually increasing your risk?

I always thought the probability was that getting it right, AND getting it right AND getting it right was along the lines of 50%*50%*50%.... etc; which means that ultimately you actually made it harder foryour self to get it right over the long term.

(now I know this varies, and this is possibly nonsensical …. Just go with the flow for now)

 

Yet buy and hold also does not necessarily work either – that’s why we want to try and beat the market with ideas etc and develop trading styles, strategies and plans to better the odds in our favour.

 

We also know that doing the same thing over and over again is boring – even if it works, and that psychologically trading is difficult. Basically our brains are not really built for it (read Your money and your brain by Zweig plus other books)

 

So how do we combine – trading less, trading with the trend to capture the big moves, and yet still manage to satisfy our needs? One of the ways seems to be in combining systems and strategies, and being able to take profits, as well as running trades.

 

This becomes then a question of …. Is it not then one big system?

 

Eg; you short 3 contracts, buy one at a level that allows you to cover your costs, buy one at a level that allows you to move the stop for the remaining contract to Break even and then run the last contract.

The argument is that its one system – why not just sell three contracts and let them ride. OR

Is it three different systems – one for each contract.

 

Lets just assume for simplicity sake that they are just one system, and that this system is designed to help make it psychologically easier for the trader to follow, by satisfying their base desires, and also allowing them to run it.

So to the crux of the discussion.

 

Do other traders have thoughts on how best to do this?

What do they do in practice?

What do they find hard and or easy about each aspect of it?

How can they trick themselves if need be?

 

Nice op subject DD,

 

I believe I can relate to what you are pondering, that is to say… I had similar thoughts at some point in my trading.

In the past I have used scalping, daytrading, intraday position trading, swing trading strategies. Although I was fortunate to achieve a degree of success with each strategy, There was something unsatisfying about each style in isolation.

 

What eventually satisfied me was a Diversification of strategies, or better put Diversification of trading styles.

 

*To me scalping is when trades are initiated with the goal of taking 1-2 ticks and a scalper will place hundreds of trade in each session and will not hold overnight.

 

*To me daytrading is when trades are initiated with the goal of taking 1-2 points ( ES points for example or 10-20 YM points) with an average 5-10 trade in each session and will not hold overnight.

 

*To me intraday position trading is when trades are initiated with the goal of getting positioned to and capturing the days big move 70-90% of days range, very few trades per session 1-2 trade in each session to get positioned and will not hold overnight.

 

*To me swing trading is when trades are initiated with the goal of capturing the longer time frame swing points (Time frames of 60m or greater). There are short term & longer term swing trades and will hold positions overnight.

 

In the process of achieving a harmony and comfort, I realized the following.

-Scalping for me just did not fit my personality so that was Discarded.

-Daytrading for me required that I stay glued to the screen, we never know when our trade will form-for those that trade with real money understand that if you miss one profitable trade it can have a big impact on your P&L. 2nd factor, the risk of a daytrade for me is similar to the risk of a Intraday Position trade…the difference is that intraday position trade has the potential of much larger reward.

-Intraday Postion trading had most of the criteria’s that satisfied my needs with regard to span of time being in front of the screen, Risk Reward. What was lacking was

A. that on some days 10%of time, Im unsure of Price Action which means I cant position myself early, thus missing the proper entry.

B. By closing all my trades at session end, I was not able to exploit the positions that were the beginning of a larger multi day move.

 

A and B caused me to combine swing trading into my trade plan. Allowing me to exploit positions that have the quality for multi day continuation. Further more, swingtrading also works as a hedge for me. On days that I fail to get positioned via Intraday postion trade style, more often then not I have swing position on that will cover this missed opportunity.

The final addition is Daytrading, when and only when I have a intraday position trade on that has profits locked in I allow my self to look for some day trades.

 

My point from all of this is, in order to for me to be satisfied I had to identify what was the source of my discomfort. Almost in all cases it was some how related with RISK, or better put unnecessary RISK. This kind of risk will cause traders anxiety and no matter how much discipline you have it will not get rid of it.

 

I have found Strategy/Style Diversification to be one of the best ways to manage and hedge RISK.

 

My goal was not talk about myself, and the reason for my writing to continuously reference, “Me, For Me, etc..” is this, I don’t want to make absolute statements of what Im suggesting is right for everyone while anyone trading anything different to that is wrong.

I wanted to share my view of trading and managing RISK and at same time being Satisfied and Content, emotionally and mentally with ones Trading Plan/Strategy/Risk management.

Edited January 31, 2010 by sep34

[thalestrader 14]

perfect example -

sold on a 5 min chart as part of a plan to pre-empt a larger move in the daily charts.

It initially went my way, would have been a good intraday trade.

However it reversed and stopped out.

Should I have taken part profits?

 

Hi DugDug,

 

Trying to gain an early entry on a daily time frame opportunity using a 5 minute chart is mixing two entirely different degrees of trend. I have been burned recently trying to use a 15 minute to give me an early jump on a 240 minute opportunity in another market. As Marko has often said elsewhere - it is usually a fatal flaw in a planned trade to mix degrees.

 

If a five minute gets you in, the five minute has to get you out. I took the liberty of marking up two charts showing price action throughout your trade. In the first chart, I used a 15 minute of the ZN to show your entry. The 5 minute and the 15 minute both give me the same short entry. I would have scaled out in two stages and thus flat before the trend turned. Where I mark the trend turn, that also would have been a long entry for me on the 15 minute, and you 5 minute indicated such as well, though not as cleanly as the 15 minute. Even had my plan been to short and trail hoping for a runner, I would have been stopped no later than that long entry point.

 

 

I have a friend who trades notes and bonds only. He trades off the 5 and 15 minute time frame, and he does not trade for targets. He trails every trade. I applied an ATR-type stop using his settings to the ZN. Interestingly, using a natural stop to trail would have taken you out at nearly the same point as his volatility stop.

 

 

 

So, what's my point?

 

At any point, price is either going to continue or reverse, that is all it can do. Yes, it can go sideways, but that is really just resting while it decides whether it is going to continue or reverse. The big profits come when you trail a continuing trend. But you need to make sure that you do not mistake a trend visible on the 5 minute chart for anything more than that - after all, on a daily chart, that nice short trade you let run back for a loss is a pretty bullish bar! Your short has been erased.

 

One issue that the trader needs to resolve for him or herself is that one must decide what kind of trader he or she is. I am not, for example, very good at trailing these markets when day trading. So I use targets. If I do happen to catch a strong draft, I will lift my targets, and add further to a position. But that is not a daily occurrence.

 

You, on the other hand, may be the type who likes to trail for the potential trend day. If so, that's great. And here is the point I wanted to illustrate with the charts above: If you are going to use a trailing stop to catch lasting trends (whether "lasting" means for an hour or months) you still need a mechanism that either lets you recognize when the tide has turned against you, or one that does it for you. Otherwise, though you may be in for the three or four big trend days of the month, you will give too much back during the other 16-17 days when price does the range and whip.

 

Excellent topic for a thread, by the way! (I hope I managed to stay on topic)

 

Best Wishes,

Edited January 31, 2010 by thalestrader
fixed chart image

[Head2k 10]

I liked that part about different "trend degrees", Thales. While I am still a beginner, I focus a lot on knowing exactly what the situation is on several degrees (I don't use a term "degree", but rather "wave scale", "trend scale" or just "scale").

 

I recognize at least 4 scales important for every trade:

 

Large Trend Scale - framework for the ranges I trade

Trading Range Scale - the range I want to trade

Intra-Range Trend Scale - the trend I seek a reversal of

Entry Range Scale - a range within the Intra-Range Trend which I use for entry timing

 

As you can see I am basically a range trader and I do mix scales or degrees. I use stop proportional to the Entry Range, but target proportional for Trading Range. But I have defined setups which allow for that. At target I exit only a half and I trail the rest. The scale used for trailing is the Intra-Range Trend.

If the trading range is broken, then I can take a continuation trade if my criteria are met, and in such a case I have no target and I just trail.

 

A trend trader trading just breakouts uses more scales for making trading decisions if he waits for a breakout of a more significant level than just a high or low of a trend which he plans to use for trailing his stop. OTOH, if he buys a new high in a certain trend and places his stop under the last swing low of the same trend, then he uses just one degree.

 

But since the target is always uncertain once a range is broken, trailing a BO trade seems the best option to me. For this purpose, I consider the trend scale used for trailing to start in the BO. So I don't allow for hoping that I jumped into something bigger.

Edited January 31, 2010 by Head2k

[sep34 10]

Market

 

open a position lets say with 3 contracts close 2 contracts as soon as you have moved 0.5 unit of volatility in your favour with stop to break even point and walk away and I mean away from the PC for the rest of the day ,,, Grey1

 

Simple right... and at the heart of most winning methods, you will find this simple concept as the core of their managment and yet a lot of traders dont realize this.

 

Market

The trick in stop loss is not to stop at this or that level,, the trick is to reduce your position size and have a wider stop based on the instruments volatility and instead let the profit run ,, this is the back bone of risk analysis and traders should concentrate on putting less pressure on their CAPITAL than having a larger pos size and tighter stop loss.

 

Grey1

 

Correct... trying to cheat volatility you will allways lose.

[DugDug 10]

Great input from everyone

 

Sep34 Diversification of trading styles - good analysis. (Plus you nailed it for me its about dissatisfaction.... hence the need for me to re-evaluate my trading)

 

I think the core is that you can really tie "unnecessary RISK" in with the other ideas from Thalestrader, Grey1 and Head2K.

 

In terms of getting into any position then by eliminating the unnecessary risk.

 

Thalestrader - there is the case of creating unnecessary risk using a smaller frame to leg into the larger ones.....however while I start from a larger time frame then work my way down the time frame bars in order to trade....

(while it works over the long term, it probably gives me too many losses, trying to get in early...this leads to other issues of second guessing, dissatisfaction blah blah blah...)

 

Hence the matching the 5min entry with a 5 min exit - or at least a breakeven - clearly seems the right idea. I should at least hit a BE and not turn it into a loss..... but be very prepared to re-enter again....it would probably be a better trade if it gives a second go.

 

For me in this instance I cant agree with the idea of saying the 5min becomes an uptrend - while it may just be true.... it would defeat the idea of getting a short in early for a longer trend, and I am not concerned with trading the 5min - that I can do.... this is about taking profits, yet allowing the opportunity to participate in larger trends. This is key for me.

 

Thats the point of the thread..... I know I am not disciplined enough, NOR do I have the patience to really try and go short, go long, go short again by trying to build a short.... This is what gets myself (and I am sure others....as I have seen it) into trouble.

 

As what happens is you sometimes forget what the original plan is - you end up being right and then having the wrong position on....DOH!.

I am more of the intra-day trader...not a day trader or scalper so I avoid the intensity.

 

I think Head2K offers a good idea of adding another level.... "If the trading range is broken, then I can take a continuation trade if my criteria are met"

 

It seems once again that its heading to the inevitable conclusion I always come to when it comes to improving the trading by improving the timing - the more patience the better.

 

Maybe this has absolutely nothing to do with taking profits???

 

More thoughts to ponder.... to modify, improve the plan.

[MidKnight 12]

Great thread here guys. Something I have recently started experimenting with is the idea of campaigning my with the trend trades. I don't define trend as conventionally as most do, and I'm also not suggesting that one only trades with the trend as I prefer to keep my mind open to opportunity. Maybe it is best described with an example. Lets say the definition of trend is saying UP. All the profits from long trades go into a campaign pool of which each trade gets sized with the base risk (ie. say 1%) and then whatever amount of the campaign pool one chooses, is added to this base risk.

 

ie.

base risk (1%) + campaign risk (50% of campaign pool)

 

I have loose guidelines on when to 'reset' the campaign pool back to zero that is based upon longer term S/R and/or the severity of the trend and feeling like it needs to reset soon for a deeper pullback. Grey1 and DD made good points about risk and analysis of the trend. This is an area I have been putting great effort towards over the past month or so.

 

This is sort of like adding to your winners. Keep in mind I'm experimenting with this as on an intraday position trading model with the odd swing trade. The results have been enormous when actually catching a trend.

 

Again, awesome thread with great content thus far!

 

With kind regards,

MK

[sep34 10]

Great input from everyone

 

Sep34 Diversification of trading styles - good analysis. (Plus you nailed it for me its about dissatisfaction.... hence the need for me to re-evaluate my trading)

 

Maybe this has absolutely nothing to do with taking profits???

 

More thoughts to ponder.... to modify, improve the plan.

 

DD,

I don’t post that often but I liked the OP and I felt I understood or could relate… so I figured why not.

I didn’t go into more detail, its very hard to go into detail and at same time offer something useful, specially because I don’t know much abut your trading . I only explained the diversification since It’s easy to carry that across as general idea that can be apply to many combination of styles.

 

Trade-management is difficult for most and specially the profit taking, which falls under the trade-management subgroup.

 

What helps me is to my confidence in getting the trend right… or better put the market condition right more often then not and Im not talking about the micro term trend i.e. the 1m or 5m or 15m interval trend etc.

I’m referring to the force that causes each day to close above its open… day after day or vice versa. It can be called anything one likes. The key is that its real, it exists and it’s a force that I respect since it affects every facet of my trading.

Im referencing the longer-term trend, because the few big moves that occur within each day regardless if the day is Trend-Day or Narrow-Range-Day will always be in the direction of the longer-term trend that is to say the bias will be in the direction of that trend.

Therefore having a method of determining the This Longer term trend consistently & accurately is an important element… what you call it is not important. What’s important is to A. realize its effect on ones trading B. recognize it this phase as its occurring.

 

Now every longer-term trend at one point will begin to exhaust, during this phase the bias begins to balance between bears and bulls. This is referred to as ranging, consolidating, MP users call this bracketing or balancing market etc… again the label is not important. A. realizing its affect on ones trading is key B. being able to recognize this phase as its occurring is key.

In the beginning stages of the exhaustion phase the bias is on the side of the existing trend, but the bias might change ever slightly as the opposing sides might try to test the waters.

 

Why is A& B important, because a trader can adjust strategy and management of trade accordingly.

After this exhaustion phase we will continue the trend or correct the trend or reverse the trend.

 

Up to this point what I have mentioned about trend is nothing new nor ground breaking, so what’s the use in mentioning it. The value can only be realized once a trader can see the affects of this trend i.e. Force on every facet of their trading. If there it is not perceived as valuable then the trader can move on.

 

Obviously if there is value in it then finding a way to define and identify this force becomes necessity and I strongly believe once its perceived as something valuable and proper thought & focus is placed on it, its only a matter of time of being able to accurately recognize and determining the longer-term trend/force).

 

For my style of trading I can’t fathom trading without knowing the bias of this force, I would be lost, not knowing what to do. I would see lots of entries but I wouldn’t know which have the potential of moving considerably.

 

Off course the trend identificationis only part of the whole, but its a big slice of the pie. The next step is entry timing... for another post if time allows.

 

Those who know me beyond these this forum, past trading chat rooms or trading pals

Know that all my entries are via a 1m chart, regardless if its day trade, intraday-position-trade, long or short term swing trade. 1m is not an easy interval, it can confuse a trader about the bigger picture. One of the key elements that helps me is my long-term-trend analysis, it give me perspective.

Another element is my nightly homework, during this period I figure out more then 50% of my work for the next trading session.

 

The purpose of the nightly homework is to know the following prior to the open.

 

-know which side of the market I will be leaning on before the market opens.

-know if I will be Looking to initiate an intraday position trade only and close it before market close or if I need to initiate more contracts because I’m planning to keep the remainder as a swing trade.

-know what levels are important to me and how I will react.

 

In short a lot of the details are figures out before the opening, I don’t like to be forced to make fast decisions and the nightly prep is very helpful.

 

By the way I forgot to mention this in my last post… regarding risk.

Along side the Diversification of styles, equally as important to me is a max draw-down that is in place at all times. If the max draw-down is reached during any one session I stop trading, no exceptions. Its also worth mentioning that my max drawdown is purposely set a to equal the average profits of one trading minus 1.5 SD. I know if I reach this level in any single session then Im not in sink with the market and I call it a day.

It is not very common but its not uncommon either and I don’t mind it one bit, in fact its one of my favorite parts of my risk management and very liberating. It allows me to exercise my right to control the risk of my capital for each session.

 

 

Last of all, you mentioned Dissatisfaction of trading style, and I would suggest, which I think you are already doing, to look at it as glass half full situation. It precisely these moment in our trading time line that we make the biggest leaps. We have identified what we don’t like therefore we know exactly what we like…which is a good thing because its the beginning of every accomplishment.

 

 

~

Edited February 1, 2010 by sep34

[DugDug 10]

Midknight - interesting you have two pools - similar to what I do, separate accounts.

 

When it comes to defining trends I did a lot of work on similar systems eg; turtle system, trend definition etc;

Man....that is a whole different kettle of fish....where do you start and end.

What has been interesting is looking at a lot of longer term trend traders, and short term volatility breakout guys this last year have all had pretty flat to bad years....so make sure the data set is a long enough time back to really gauge ideas. (or if the trends are more short term intraday, then even this year appears to be different)

 

Sep34 - dont worry too much about my trading - as I mentioned I am price action - very similar to what it seems Thalsetrader does but more trending (I think), so I also take breakout more, but also very discretionary - hence trying to formalise and change a few things a little - Lets say going back to basics to refill the glass ..... hence the thread is really about ideas and the way I write things is more about it being a discussion - and the best discussions are where you actually rethink your own position or ideas. (Who knows after all this I might actually just go and join a nunnery)

 

Additionally as there is no right or wrong way for anything (or as you say defining the trend). There are many ways to skin a cat.....each of them personal, each of them designed to fit a personality, however you still have to get the skin off and there is no need to reinvent the wheel if someone can suggest any new ideas.

So I am sure anyone reading says thanks.

 

I am building a document with the myriad of options available, and what I think works, yet also adding other ideas.... lets hope it only takes weeks not months or years.

Edited February 1, 2010 by DugDug

[BlowFish 10]

Hi DD,

 

Most simple trend following systems have a general characteristic of a fairly low % of winners. Of course you could add all sorts of filters discretion or what have you to try to improve this. Tough job that. However there is an easier way to deal with this. Sweeping generalisation number two most trend following systems utilise fairly aggressive pyramiding of winning positions to produce acceptable returns. Without this approach to MM they are unlikely to perform well.

 

I should say so far I have only read your original post.......you have been busy this weekend!

[DugDug 10]

Hi BF,

yes most trend trading does have pretty poor looking right/wrong trade ratio, in the realms of 60% + losers.

While the pyramiding is an important part of some trend trading systems....its not always crucial.

The pyramiding basically means that they are sure to have the maximum position going, and hence will maximise the profitable trends.

I mean we all want to have our biggest positions on our winners, and the smallest on our losers.

There are a lot of trending systems that look to get on lots of smaller term trends with vol breakouts and then run a position - if it happens to just go their way..... without necessarily pyramiding.

Thats the beauty of trending systems -there are so many ways to do it.

 

There are generally two other crucial elements of a lot of the longer term trend traders

1) The diversification over a lot of different markets. They dont trade often, but one good trend in any market can really pay.

2) the money management and position sizing - But for ease of this thread lets leave this one alone, and assume its covered in terms of how many contracts - lets just refer to them as units.

 

I am more interested in trying to meld the short and long terms, and the idea of taking profits yet still being able to participate in any trend that may develop. Ideally by developing a structure/plan and method of doing so..... one that works for me as there are so many different ways to do it. To me its all about being able to at least give yourself the opportunity of participating.....whilst you may not necessarily increase the percentage of winners that develop into trends - its about taking small profits on the losers that dont develop.... (I think that makes sense)

 

While it may be difficult - nothing is impossible! (especially as this is now a focus for a period of time)

Edited February 1, 2010 by DugDug

[MidKnight 12]

I know a guy that trades a LOT of options stuff and a lot of his trades have this sort of a look to them. He will take a large theta positive option position usually in the form of short straddle or exotic no touch barrier. I've mainly see him do these with exotics so I'll discuss that going forward. The barrier is usually set to expire in something relatively short, like up to 2 weeks. He will then use the spot market to trade into his barrier, increasing size as it gets closer to hit. He never tells the details of why he is entering or exiting the hedges, but he usually gets very sizeable payouts from the hedge and the barrier expiration.

 

I tried this type of thing about 3 years ago for a couple months with mild success. I did struggle with working my hedges in a consistent manner because it was against my bias for the no touch barrier. This type of trading probably needs maturity than I had at the time. Maybe a revisit is due soon!

 

Is this the sort of thing you are referring to when you talk about 'short and long terms'? If not, I my apologies for the OT post....

 

With kind regards,

MK

[BlowFish 10]

The thing is the short term trades (if they are trend follower too) will have that similar 60% 65% figure. Of course if you are talking about mixing another strategy with trend following to smooth the equity curve that is a different matter I dunno I think there are fairly fewer ways to 'do' trend following.. If you are taking contracts off along the way I would evaluate them as different trade types (that just happen employ the same entry setup).

[DugDug 10]

Midknight re options....

I see the similarity but the better analogy is probably from a long volatility perspective.

Whereby you try and trade around, to pay for the time decay, and hopefully get a big move that you can run..... Or even make money out of a a move no one sees - ala black swan.

My early days trading as an option market maker definitely bias my thinking here.

 

using short vol, just probably adds to your friends PnL, or helps pay for the losses in any short terms trades..... however I could never live with the outlier risk, if say you have a small hedge on and a big move occurs.... I guess this can all be altered using barrier options and knock outs...... again a whole other thread.

 

BF - I understand the thought that yes its a different strategy not necessarily with the same entry, but I have made the assumption that I wish to look at this from the perspective of making it one strategy, and peoples thoughts on taking profits.... as opposed to just combining strategies in order to smooth vol.

Maybe this is the wrong way to think about it?

Or maybe its just as simple as...

Go long or short, take off some, let the rest run. (Even if this the the final conclusion arrived at I would rather work through why, how etc)