Bail out of losing trade

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This question was raised in passing in another thread, but I thought it's an interesting one, which warrants a thread of its own.

Namely: how do you determine that a trade has gone sour, and it's time to accept a loss on it? And how do you then exercise a bail out sequence for that trade?

I'm thinking that sometimes you see that a trade is a lost cause well before SL, or very likely so, and you might then close it at a lesser loss. Or maybe to start trailing SL while in red, rather than just closing it early?

Constructive thoughts, anyone? Indicators? Methods?

 

bailing out becomes an extreme necessacity when you are in a martingale position. Good thread , but i think putting our heads together to come up with a solution for bailing out of Mart.. would be more appropriate.

I think reverse hedge was a good strategy but the TP and SL must be revisited or if TP and SL stayed put then the Proper lot size must be re-calculated.

 

mmm I'm not a Martingaler myself, so there might be an ideological chasm lurking about, but at least as a start point I'd assume the problem is pretty much the same :-)

As I see it, the first problem is one of making the judgment that a trade (or position) basically is "bad". How do we make that judgment? What do we look at? It can't be price alone, because often or at least sometimes we can see it at a loss and yet "know" that it'll soon come back and close in profit. How do we "now" that?

 

one very common rule is that you must have more than one reason to get into a trade and only one reason to get out.

You decide your entry rules and your exit rules and stick to it.

goodluck

T

 
teldon:
one very common rule is that you must have more than one reason to get into a trade and only one reason to get out.

You decide your entry rules and your exit rules and stick to it.

goodluck

T

I like "more than one reson to get into a trade and only one reason to get out". Thanks.

 

Well, wouldn't there be two reasons at least: either in profit or in loss?

There is a fair bit of discussion and methods etc about how to exit in profit, but I haven't seen much about how to exit in loss. Does this mean that everyone set their SL upfront and then stubbornly hold on to that decision? (Except perhaps if the trade goes positive and you can move SL to BE etc)

I suppose some systems try to avoid setting SL as well, and rather run to stop-out than reason about taking a loss....

But what I'm trying to do is to get a handle on is that reasoning. Maybe there are books about it -- "the beginners guide to losing on forex"?

 

there is trader's rule no.1 - when you lost your mother -in-law apartment - you should stop immediately!

 

that's a rule based on portfolio equity... and too late... one could have stopped already with the wife's second Ferrari ...

Ideally though I would want decision making relating to the individual trade(s). Don't most traders lose most of the time? So there should be thoughts around about "well, I saw that one coming, because ....". Or is it really that every losing trade is a surprise for you?

 

Lose gracefully with Trendy Wendy or Double Bounce

Obviously there is much less interest in "graceful loss" than I would have thought.

In any case, I thought to suggest a couple of methods that an EA may use, and then let you pick them to pieces.

Method 1 (Trendy Wendy):

+ open the position with 70 pips stop-loss.

+ if since position opening time, the price has gone 35 pips against it,

then trail the stop-loss at 35 pips off price.

Obviously the 70, 35 and 35 would be parameters. The Trendy Wendy method is intended for trend following methods, which also may trail SL in profit, and then that function would of course override the graceful loss attempt.

Method 2 (Double Bounce):

+ open the position with 300 pips stop-loss

+ review an SMMA(72):

if since the position opening time, the SMMA(72) has turned down,

then up, then down and then up, with the first down turn in loss, and

the second down turn some 60 pips further in loss,

then trail the stop-loss at 55 pips of price.

Here "the first down turn" would be the first one in loss, and "the second down turn" would be a subsequent SMMA(72) down turn at a level 60 pips further in loss than the first down turn.

Obviously there would be parameters. The Double Bounce method is intended for range surfing methods, which generally have small TP and rather large initial SL.

Note that there is always the "danger" of misqualifying a position as bad, where it would come good if the EA would have sense to leave it alone. But where I have tried them, they generally seemed to have positive effect on the bottom line.

What's your method?

 

the answer is not easy cause getting out from a losing trade depends on

1- the currency pair

2- the lot size

3- the free margin

4- fundamentals

So here is what I woud do

1- If I have a US pair I would hedge or corrolate the trade

2- if I have enough margin I would grid the trade

3- Sure you need margin

4- I would do my homework and study why the price went against my trade based on that I would hedge , corrolate , or reverse and exit at break even

So there is no soild rules to get out from a losing trade, I never use stoploss, and I am doing just fine

 

Ralph,

I've been thinking along the same lines as you. If a trade is going bad, what can we do to create a winner out of it? Or at least minimize the loss.

First- I am a big fan of trailing stop methods, but not via the Ordersend() or via OrderModify(). I think it lets the broker know too much what you're up to. I prefer these to be internal in an EA and not "visible" to the broker. I'm experimenting with an internal trailing stop that re-adjusts itself every pip that works in the favor of your trade. Also experimenting with having the trailing stop decrease every time the trade moves in your favor. Ex: If original TS is set at 50, and your Long order goes up 1 pip, TS is now set at 49. The hope is when it finally stops out, you will be in a profit.

But how to manage the trade that goes bad from the start?

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