Vince had the following questions about how I trail my stop loss orders and take partial profits:
Mike - it is great to see your trades - it helps many of us - great job. Question - you seem to acknowledge that at 2R you take partial profit and also at the same time you raise your stop to a break even on the balance. I am wondering how you came up with these levels - i.e. 2R vs another R -- for instance raising your stop to break even after 1R. Would 1R seem to tight?
I wish I could say that I did some sophisticated testing to come up with 2R but I didn't. It was simply through trial and error and studying my journal that I decided to use 2R as the lowest point that I'll consider taking a partial profit. In general I feel that 1R is too low for me to exit half of my shares. I'd feel like I was limiting my upside way too much by exiting so soon. But there have been days when I wished I had taken some off at 1R. That happens on choppy days where I may have 3 or 4 1R gains early in the day and then they all reverse. It stings to see 3 or 4 R (for me that's 2.25 to 3%) vanish. But hindsight is 20/20.
While I won't close half of my position when I get a 1R gain, i.e. a gain equal to my initial risk, I think there's no point in taking a loss on that trade so I'll move my stop to break-even at that point. People like to believe in the saying that "you can't go BROKE taking a profit" -- well, that's a bunch of BS. As I (and others) have shown, it's the big winners that make all the money. You can't get big winners if you keep snatching small profits. At best you'll just generate commissions for you BROKEr. And you can certainly go BROKE taking small profits and big(ger) losses.
So why do I consider taking profits at 2R and not 3R? Because, depending on market conditions, most of my trades don't make it past 2R. So it made sense for me to lock in some gains at 2R. However, that's not a hard & fast rule for me. I take other things into account, like how the broader market is doing, if the stock is approaching support/resistance, if the stock is showing signs of a reversal, etc. How much money I've made recently also comes into play. During dry spells (generally during choppy markets) I'll be quicker to lock in gains. When I'm feeling flush I may not take partials at all and just trail my stops.
As you can see, it's more art than science. There probably isn't a right answer for taking profits that works in all markets. For me it just comes down to having a guiding philosophy and adjusting based on experience.
Michael,
when you trade, typically how much do you want to see it break the prior bar or the signal bar to get into the trade? On your stop, do you usually place it right at the low of your signal bar or do you give it some room, i,e a few cents?
Finally, once you are filled on your entry, do you immediately place your stop order?
Thank you
Gary,
For longs I set an alert for when the bid is equal to the high of the signal bar. For shorts, when the ask is equal to the low or the signal bar.
The stops vary -- sometimes at the low/high, sometimes a cent or two further away.
Yes, the stops get entered immediately. Why wait?