What's the next best thing to taking your capital safely back and only risking your profits when it comes to trading?
I guess it would be the "Free" trade.
When I put on a trading position, the first thing my order gets filled is to enter a stop-loss order.
Its a bit like options (but not the same) where from the get go, I know the MAX I'm willing to lose on the trade.
Its a risk/money management thing.
Three scenarios will happen next:
1) I got stopped out of the trade at the predetermined loss. (Well, that was quick!)
2) The price just oscillates around my entry price, going nowhere... (Some advanced traders will get out of a trade if it does not perform within their expected time frame. That's next level stuff...)
3) My position becomes profitable. (This one I like best! Who doesn't?)
When I can move my stop-loss order point to my entry price, hey! I got a free trade!
Which means if and when the market reverses, I just scratch the trade.
No harm; no foul.
But if the trading continues to work in my favour...
Kaching!
3) My position becomes profitable. (This one I like best! Who doesn't?)
ReplyDeleteHow many % is considered profitable?
CW,
DeleteThe textbook and math answer is we are profitable when price is above our entry price + transaction costs (2 way). Duh!
But for me as a trader, I'll consider my position as "profitable" when it reaches the reverse of my stop-loss point.
Traders often use 3-1 or 2-1 risk/reward when we enter into a position.
So if my stop-loss is -1, when the position is +1 (reverse of my stop-loss point), that's profitable! I can move my stop-loss entry to 0 now - free trade!
When price is between -1 to +1, I consider that as a "flat" position - not doing anything.
When the position reaches +2 or +3, I can turn my stop-orders into profit-stops (go from limiting my losses to protecting my profits).
I hate to let a profitable position turned into a loss!
As you can see, I don't like to use %.
Similarly, I don't use automatic trailing stops.
I prefer to manually enter my stops after "active" discretionary thinking - this way, I take full responsibility for my trading decisions.
Entries and exits are the only 2 things I can control in trading.
Above is for my leveraged trading positions.
For investing, I use the same, its just -1 is a much wider band since its not leveraged ;)
Just wondering, is your stop loss order full proof? If price gap down pass your stop loss price...
ReplyDeleteI didnt use stop loss feature for more than 10 yrs, the logic algorithm might hv evolved.
Unknown,
DeleteFor EXCHANGE TRADED vehicles (eg, stocks, futures), we normally use LIMIT stop-loss orders.
Which means if the market gaps down or up beyond your limit stop-loss order price, the order WILL NOT be filled. These are trading account wipeout events!!!
That's why they are traders who refuse to take overnight position risks - they square off their positions at the end of the trading day and sleep easy.
That's where the trader, has to choose the "right" trading vehicle to suit his own feet (risk appetite).
For eg, big cap stocks are less likely to have big gap ups and downs days compared to small cap stocks. Just like some forex pairs are less volatile than others.
Another way to manage against big gap up/down risk is to adjust our position size before any major news event that may cause big swings in the price actions - central bank interest rate meetings, US Non-Farm Payroll reports, company financial report announcements, etc.
Mind you. Gap ups and downs are not all bad. Especially when they are working in your favour ;)
"GUARANTEED" stop-loss orders are more commonly found in the OTC (Over-The-Counter) markets like CFDs or spot forex.
That meant you are trading against your broker.
These "GUARANTEED" stop-loss orders are not free. You got to pay for them.
Basically the broker is selling you their version of "extended warranties" that are sold by those electronics and home appliances retailers. (Very profitable to the brokers and retailers!)
Of course we can also don't use stop-loss orders for trading.
There's the tried and tested retail traders' way of letting a trade turn into a long term investment where the position may breakeven one day...
However, this only works for non-leveraged trading positions. Wink.
Hi SMOL, i only consider it is profitable when i sold and money in pocket. 😂
ReplyDeleteAT_AT,
DeleteYes, that is so true.
You'll be surprised how many retail "investors" count unrealised profits as real, but don't consider unrealised losses as real...
My trading mantra is simple.
Limit your losses.
Don't let a profitable position turn into a loss.
Protect your profits.
Everything else is just empty talk ;)
师傅又授课了 :)
ReplyDeleteRainbow girl,
DeleteOnce in a while must remind readers I'm a trader beside clowning around most of the time mah ;)
I miss traders like coconut and ladykiller.
Hope some active traders will reveal themselves and come visit this watering hole to talk "male-chicken" with us :)
Don't want those shills talking their own books.
We just shoot the breeze (笑谈风月) here!
Hi SMOL,
DeleteHow I missed them too.
Like your comments to CW about the risk/reward and R multiples.
Risk/reward is always the tricky part. My voodoo sometimes not working so well haha. If too many "break even" free trade also sianz.
Rainbow girl,
DeleteIts never easy.
What's the alternative?
I've let a paper cut turned into zero bagger when I were a bei kambing...
So I told myself, "Never again!"
I rather protect myself than to join those who after the fact blame big daddy, MAS, SGX...
What good will that do?