Cut losses or wait for recovery?

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Cowlinn

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As a very new trader one of the areas I'm struggling with is knowing when to cut my losses and close an open bet on a loss, or wait it out and hope the bet recovers, bringing me back into profit.

On the contrary, closing a winning position is also a problem for me. Yes, a nicer problem to have - but still a problem. Do you have a pre-determined profit amount you want?

How do you decide when to exit? Do you wait for your stop to kick in, always?
 
Try seeing your position objectively, not as YOUR position but just as a point on the price chart.

If you're long and holding, you expect prices to rise. But what in the current TA would cause other players to buy here? Would you buy here if you had not already gone long?

If your TA suggests no-one in their right minds would buy at the price your position has reached sufficient to cause price to rise, why hold a minute longer?

Applies both to trades in the money and under water.
 
I personally place my stop at a point where I know if the trade passes that point I am wrong about that trade.

I usually aim for 1:1 as my first target but as I am typing this I realise that it also has a lot to do with your strategy/system.
 
£80 said:
I personally place my stop at a point where I know if the trade passes that point I am wrong about that trade.

I usually aim for 1:1 as my first target but as I am typing this I realise that it also has a lot to do with your strategy/system.
Click to expand...

Thanks very much, what do you mean by 1:1?
 
tomorton said:
Try seeing your position objectively, not as YOUR position but just as a point on the price chart.

If you're long and holding, you expect prices to rise. But what in the current TA would cause other players to buy here? Would you buy here if you had not already gone long?

If your TA suggests no-one in their right minds would buy at the price your position has reached sufficient to cause price to rise, why hold a minute longer?

Applies both to trades in the money and under water.
Click to expand...

Hmm, I would start to think that because others are not likely to buy now - they may do in the near future and thus could be tempted to wait it out.

That's where my difficulty currently lay.
 
You should know (calculate) the maximum loss you may suffer before entering a trade. Once that amount is reached, you must exit. You must not wait and hope (in trading).

Profit taking levels depend on trading styles and are important to a certain extent – you should try to take more than you lose if you're trading to make money.
 
Cowlinn said:
Ahh sorry man, I hate to ask but I'm really struggling with the terminology (have tried to Google this).

In layman's terms, what does that mean?

Risk:Reward?
Click to expand...

You have £200. Basic money management says you should never risk more than 2% of your capital (£200) on a trade. So that means you will risk £4 in order to get a reward of whatever you choose. If your R:R is 1:2 that means you risk £4 to get a reward of £8

That is as simple as I can put it
 
£80 said:
You have £200. Basic money management says you should never risk more than 2% of your capital (£200) on a trade. So that means you will risk £4 in order to get a reward of whatever you choose. If your R:R is 1:2 that means you risk £4 to get a reward of £8

That is as simple as I can put it
Click to expand...

Makes perfect sense. Thank you
 
£80 said:
You have £200. Basic money management says you should never risk more than 2% of your capital (£200) on a trade. So that means you will risk £4 in order to get a reward of whatever you choose. If your R:R is 1:2 that means you risk £4 to get a reward of £8
Click to expand...
. . . and it's why you'll almost certainly blow up your account with IG if you continue trading at £2.00 per point. Assuming their spread is just 1 point on the instrument(s) you trade, you're losing 1% of your capital on every trade you make. Note: you're not risking 1% - that's a fixed loss that you make on every single trade! If you move to a broker that permits you to trade at £0.10p per point then, assuming a 1 point spread, that's only 0.05% of your capital and 2.5% of the £4.00 you risk per trade.
Tim.
 
Cowlinn said:
Hmm, I would start to think that because others are not likely to buy now - they may do in the near future and thus could be tempted to wait it out.

That's where my difficulty currently lay.
Click to expand...


What in the TA now, assuming a falling price, would make you think that people might convert themselves into buyers at any time in the future, ever? How high would they pay up? And what indicates your timing - will they see the light in 10 days, 10 months, 10 years?

Surely, if they start to buy again, you can get back in again before the supply runs out.
 
Cowlinn, It seems from what you say that you are not sure what to do. That could be due to your inexperience or a genuinely confusing situation or both. Either way my recommendation would be to get out – you can then think about what's going on dispassionately. Come to a reasoned conclusion and see whether it would have been the correct one. Learn from the results and hopefully you will be able to employ it properly on a future occasion. I have usually found that indecision in such circumstances as yours generally leads to a worse situation. As Tomorton says, you can always get back in later. Markets have been open for years and years and aren't going away.
 
0007 said:
Cowlinn, It seems from what you say that you are not sure what to do. That could be due to your inexperience or a genuinely confusing situation or both. Either way my recommendation would be to get out – you can then think about what's going on dispassionately. Come to a reasoned conclusion and see whether it would have been the correct one. Learn from the results and hopefully you will be able to employ it properly on a future occasion. I have usually found that indecision in such circumstances as yours generally leads to a worse situation. As Tomorton says, you can always get back in later. Markets have been open for years and years and aren't going away.
Click to expand...

Thanks 0007. Sorry if I was not clear enough - however I am not currently in this situation.

It's a problem I have had before with my trades.

Thanks,
Matt
 
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