In this episode of 2Traders Podcast, Walter and Darren discuss holding on to winning trades, moving to break-even, entries and exits, and why you might get a different result compared to other traders using the same system as you.
Walter outlines some of the situations that may help you in finding the right approach to trading based on your beliefs and perception. Darren also points out how he uses a simple strategy for acknowledging trading mistakes, and using this knowledge to your advantage for your next trades.
Also, you may see what your biggest trading challenge may be, and why…
Download (Duration: 20:25 /23.3 MB)
In this episode:
00:58 – holding on to winning trades
02:14 – you’ve got that volatilities
03:35 – interview with trader Collin
05:02 – more wiggle room
06:55 – loss aversion
10:09 – pain of trading
11:43 – take on the challenges
13:40 – chasing your tail
15:25 – what’s the hardest thing to learn?
16:55 – the most important element
18:03 – expressing emotions
Take on the challenge and feel good about yourself. [Click To Tweet].
Trading is about making decisions at key moment. [Click To Tweet].
The most important element of your trading system is you. [Click To Tweet].
Walter: The most important element is you. The way that you interact with the market and take risk in the market is based on your beliefs, has nothing to do with the CCI or the Alligator or the MACD or what Darren says or what I say, for that matter. It’s really about you….
Announcer: Two Traders, Darren and Walter, pull back the curtain on profitable trading systems, consistent money management, and profitable psychological triggers. Welcome to the Two Traders Podcast.
Walter: Welcome to the Two Traders Podcast. Walter here and Darren is over there. How are you today, Darren?
Darren: Very good, Walter. Thank you.
Walter: We are going to talk about a question that comes from a listener. The question is: How can I learn to hold on to my winning trades when I get them?
I’m pretty sure that you’ve got some thoughts on this, Darren, this idea of holding on to winning trades when you get them. Can you share some ideas for this listener? What might he or she be able to do?
Darren: This is a hot topic with the traders that I work with at the moment, as well. I find it becomes a highlight when you’re in a period where, perhaps, the winds are coming slightly harder.
Perhaps, when you’ve got a run of losses. There’s one event that I feel always stands out on my mind that causes the most trouble for traders and that is the fact that a winning trade is always going to come back to your entry.
The trade that you enter that goes directly to your take profit is the one in fifty… one in one hundred. Even though we’re fully aware with that, I find that if a trade races off in our direction, it’s even worse.
Let’s say you enter and straight away, it goes up seventy pips, then it retraces. When you’ve got that volatilities, it’s even more likely that the retrace is going to be quite strong. It’s when that retrace happens that the emotions take over and that’s where the bad decisions occur.
I think, really, it’s about becoming comfortable with this notion of high price moves. Price moves in this zigzag, up and down motion. It’s always going to come back. Sometimes a lot, sometimes a little bit.
You need to learn to become comfortable with that. Like I always say, make some notes so you expect it, you can read the notes, and then you’ll switch on to the fact: “this is the moment when I usually make my mistake.”
Then you can refer to your rules of when you’re really going to accept. When you get to that point, you can make a decision. That’s the one I see occur and the most often with traders, the retraces. It might be different from different strategies but that’s the one I see.
Walter: That’s a really good point. I’ll post a video in the show notes of this episode from the interview that I did with trader Collin. He uses really simple, exceptionally simple system to trade the daily EUR chart.
What he found was exactly what you said, which was when he took his trades, the market would almost always come back and retrace against him. Sometimes, beyond his entry’s spot.
He never move to breakeven until after that happened and he was always on the market too. It’s one of the system where you’re always long or short. He was always in the market but he would never move the risk and take risk off until that first move happens.
He called it “moving your stop to breakeven relatively late” and it was simply to withstand that. I think you bring up a good point. I would suggest that if you really want to hold onto your winning trades, it sounds like that when you take a trade and you take some profit but then it goes much further.
You’d say a hundred pips and then you turn around a week later then it’s gone five hundred more pips. It sounds like you’re trying to avoid that. The best way to avoid that feeling of missing out because you’ve taken a profit so early is to use some trailing exits.
That trailing exit will give you a little bit more wiggle room depending on how you set it up. You’re always going to give back when you use that trailing exit. You’re never going to get in and out at the pig in the trough in all that.
You will also ensure that if the market really goes, you take a significant chunk out of that great move and you’re not necessarily guaranteed to do that when you have a profit target; when you have hard target, weather it’s risk-based or support-resistance or whatever you use.
That’s another thing and the last thing I would say is, thinking about this, a lot of traders I found feel better. This isn’t really something to use because you think you’re going to make the most money doing this but, psychologically, it’s quite satisfying for a lot of traders who use sort of a hybrid where they will take a hard target, again based on risk.
Some risk a hundred pips, they’ve got a two hundred pip target or support-resistance or whatever. If you use indicator, the indicator crosses the other way or whatever.
Then you also have a trailing exit, too. Some trailing exit allows to capture the big chunk of that move if it does continue on. That also is something that some traders use with success.
You’re always going to wish that you had all of your position on when the market really goes and you only have a portion of your position on for that big move. Likewise, when the market just hits your target and then comes back and it turns to a breakeven or loss, you’re going to wish that you had all of your position on at that quick target.
But, at least, you have some sort of feeling that you’re doing all you can. Do you know what I mean?
Darren: It’s a loss aversion, basically, isn’t it? It’s loss aversion kicking in. You have a win and there’s nothing worse than a win becoming a loss. There’s nothing worse than that. In effect, it’s not a win if it hasn’t reached your exit rules or your target, then it’s not a win.
The problem is, associating that as a win and when you do your backtesting, you’re not considering the trades that went into profit and then stopped out. You’re not considering them as wins but your back testing still should show that your profitable all the time.
Again, it’s becoming comfortable with those losses. It really is the hardest thing to do and it seems to be compounded in trading. If you can get comfortable with that, then in a long run you really will crack the nut of trading.
It’s difficult, I know. I used a similar thing as you say. I’ll enter trade, I’ll have a specific event that must occur before I can manage my positions and once that event has occurred then I have some options.
Like you say, try on my stop, move to break even or just close out for profit. I’d still get a bit flexibility there but I’ve got a punctuation mark that needs to happen before I do any management and it’s still too very difficult. You have to work on it every trade.
I wonder sometimes if I do tend to trade just a few pairs. I see some traders who trade lots of pairs and spread their risk over many. They’ve got more positions open. Then I supposed that takes the emphasis away from like your single trade that you’re in at the moment.
It’s either win or loss. I suppose you diversify a little bit and have a mixture of pairs, then you may have two trades that are profitable. Maybe that loss aversion probably wouldn’t be strong, I don’t know. Again, this is something you need to sort of a trial and error.
See how you feel and see if your comfortable spreading your risk over more pairs. We all have to deal with this loss aversion. This feeling of the fear and there is no one answer for all of this. There’s just techniques that you have to try and somehow overcome it.
Walter: That’s it. This is something for people here — if you’re thinking “I don’t know what to do here — this is something that I would suggest and see if this resonates with, you, listener. Think about this: when you take a trade and it goes one hundred pips in your favor and then you moved your stop loss, it comes back and stops you out at breakeven. There’s that pain, that’s the pain of trade one.
The other pain is that you have a trade, it goes in your favor. You’ve got a target, one hundred pips away and you hit that target and you cash out your trade, then you see the trade go almost immediately. Let’s say in the next two hours, it goes another hundred pips but it’s gone without you.
The question is, which trade is more painful for you? Is it trade one where you have a hundred pips and it turned into nothing? Or, was it trade two where it’s the same loss, really, you gained a hundred pips but you could’ve had two hundred so you still lost the same amount?
I’ve used the term “lost”, “you’ve lost the same amount”, it’s not really a lost. What does that mean to you? Which one of those are more painful? If it’s more painful for you to see a trade that’s on with the profit, come back and stop out at a breakeven, maybe you should trade for targets. Maybe that should be how you approach trading.
If you find it more painful to see a trade go on and on without you, maybe you should be using trailing exit because that’s really what you’re trying to catch out of your trades.
That’s another way, I suppose, of looking at depending on what’s important to you.
Darren: I think, also, you need to view these thoughts of trading as these are the challenges and take on the challenge. Know that this is one of the elements that decides whether a lot of traders are consistently profitable or consistently breaking even and losing.
Enjoy that challenge, you could be ready for it. Take it on and feel good about yourself even if the trade turned out to be a loss, that you saw it through and you recognized what was happening. You stopped to your method and your process and see that as you, basically, learning to trade.
It’s not just about those technical things of the entry and the exit, it’s about making those decisions at key moment. Mark that out as your challenge of the week, not to necessarily be profitable or have losses but see “how well did I execute the process?”, “how often was I thrown off by my emotions?”
Make some notes, journal it for the week. Don’t just journal the result of your trades, journal the key moments where you either made the right decision or you are thrown off and what threw you off, and how you could recognize it in the future.
Walter: That’s great advice. Exactly! What we’re talking about here, Darren, if I take a step back is how do you fit your trading system in with what you’re comfortable with? With your beliefs, basically, what you’re going to do in a long term?
If you don’t do that, if you don’t take time to fit it all together, you’re just going to be chasing your tail always, aren’t you?
Darren: Yeah, and you’ll be trying to look for some technical element like changing the risk-rewards slightly or having your stop below the swing instead of the low. You’ll be looking for those largely insignificant elements to make the difference and you’ll be missing the big picture.
Walter: Exactly. Or, even worse, you change from the RSI to CCI or whatever.
Darren: You’ll still be making the same decision mistakes and you’re, basically, just missing the big picture of why you’re going wrong and that gets to the cracks of it all. You really need to be critical and look at yourself and see where you’re personally going wrong.
Walter: Exactly. This is precisely why if you look at someone’s account, someone who’s trading the exact same system as you are, you’ll look at their account statement and you’ll look at all their numbers. Every stats that you can look at from sharpe ratio, to reward to risk, to win rate or whatever, to average winner, whatever you want to look at.
That’s why you can be trading this exact same system that Darren is and your result is completely different. That’s what we’re talking about here.
The most important element of your trading system is you. It’s the decisions that you make, it’s how you execute it. How you fit your beliefs into your trading system and then, basically, take risk in the market based on your beliefs.
That’s essentially it. When you think about it, that’s what trading boils down to.
Darren: I agree a hundred percent, Walter. It’s the hardest thing to learn and it’s the element most talked about the least in the forums. Although, some of the good forums they do talked about it a lot more.
Some of the really big forums, it’s all about strategy, it’s all about technicals, it’s all about profit and loss. There’s very little emphasis on how you make the decisions and how you deal with your emotions in those difficult decision times.
Walter: Absolutely. I can understand why the most the discussion centers are on the right settings, further optimized alligator indicator or whatever it is. I understand that. I remember what was it like as a trader trying to learn this and figure out what do I need to focus on.
Almost everyone when they first come into this, they’re just looking for the perfect system and that’s why so much of the chatter out there on the internet is focused on finding the right system and how is this the right system. You give me the right system and I can pave the road to riches.
What we’re saying here — and probably beating it to death so we probably just shut this down — but what we’re saying here is, obviously, it’s you guys. That’s you as the listener, you the trader. You’re fitting your belief into some strategy that you’re comfortable with.
The most important element is you. The way that you interact with the market and take risk in the market is based on your beliefs, has nothing to do with the CCI or the Alligator or the MACD or what Darren says and what I say for that matter.
It’s really about you. The sooner we acknowledge that and give what it’s due, the easier it is for you to make a living out of this stuff. Otherwise, you’re just going to be looking for a better system, you’re just going to be tweaking things that don’t need to be tweaked when, really, the focus should be centered on you, the trader.
I think this has been really good, Darren, and I appreciate your time. Do you have any closing remarks?
Darren: Not really. The final point is that I think, going back to the forum thing, we are afraid to admit and talk about our emotions as well. Especially, I’m from the UK so I notice it particularly with Brits.
I’m sure there’s other countries that are more in tuned with expressing their emotions but we’re quite guarded with our emotions here, as well, and I don’t think that doesn’t help us as well. I mean, we’re not built to be traders.
Walter: Absolutely. We talked about it in one of the earlier episodes, the “Trading Tribe” episode which was, basically — you can go back and listen to that — the whole idea of the Trading Tribe is exactly what you’ve just said, Darren.
Which is that because we don’t experience emotion in sort of typical western life, that’s part of our culture. We’re very different on how they’re acted on Argentina, for example.
We are very different or literally for that matter.
Typically, you’re supposed to be guarded, you’re not supposed to share your emotions. I’ve been looking at some personality profiles of traders and only one of them had a profile where this trader had sort of an extreme emotionality. He, basically, wore his emotions on his sleeves and every other trader was really low in that regard which is not to say it’s better or worse.
It’s just the consistent face that we put on in a western culture and in western english speaking culture, that’s pretty typical.
That’s a really good point. I think that’s a valid point that you bring up. Emotions are things that can direct our behaviors much more so than we acknowledge. Particularly, when there’s sort of under the surface, brewing down there, we can act out little dramas in our lives.
We’re to experience the emotions that we’re not really allowed to experience them in real life. That’s the whole cracks of Trading Tribes. If you’re more interested on that, definitely check out “The Trading Tribe”. It’s one of the first episodes I think we did.
So, thanks alot for your time, Darren. I look forward to seeing you in the next episode.
Darren: Okay, Walter. Cheers!