I’ve mentioned in the past about the staged entry based on the Turtle Traders rules.
Basically when a trade trends in your favour you continuously add to the trade to really mount up the profits.
However, in my August trading when using this system it didn’t really work out… mainly due to the trades not gaining a good trend.
So, these trades that were profitable at one point, became losses and added to the many losing trades I will encounter anyway.
More learning has been done and this month I learnt about focussing on CAPITAL PRESERVATION and not AIMING FOR PROFITS.
If I ensure I preserve my capital, then the profits will come along anyway.
As you can see by the Turtle Trader staged entry, it actually eat into more of my capital rather than bringing me profits.
So, let me tell you about this new strategy…
Lets begin the basics of a simple trade with an ENTRY and a STOP LOSS
In the example above, we place a buy order and if it turns against us and reaches our stop loss, we lose £5
We may have a lot of these small losses, as I have done. But when a trade does trend, we make back all the losses and more.
However, if we can reduce out losses, which preserves our capital, then when the profits do come, they will be even more profitible.
So let’s turn our entry into a risk free entry!
We do this by placing 2 entry orders. One of them will take a profit at 1R meaning our total risk will be removed completely.
We enter Trade 1 with the entry price and the stop loss price. We also give this a target price when the price = 1R (equal to our risk)
We also enter Trade 2 which has exactly the same entry price and stop loss price, but NO target price.
For each of these trades, we halve the risk of a basic trade. Each trade in this example has a risk of £2.50. A total risk of £5
Let’s explain the action.
We have 2 trades and they enter at the same time. We have a combined risk of £5.
As the trade moves in our direction, it hits the Target Price of trade 1. Trade 1 is now closed for a £2.50 win. Trade 2 is also at £2.50 profit but still an open trade.
We have also now removed the Trade 1 risk meaning that the total rist left on this trade is now £2.50.
Should this trade now turn against us and come right back down to our stop loss we will lose our remaining risk, which is £2.50.
But we have also banked £2.50 meaning that our trade balances out to breakeven.
Banked £2.50 – Lost £2.50 = £0 win/loss
We have preserved our capital!
We can still allow our winners to carry on in our favour as Trade 2 has no target point so should this trade trend, we have zero risk and only profits!
This chart shows what a typical movement was like for many of my trades in August, however I was opening new positions which ended up increasing my losses.
In backtesting, the Target point was hit many times in a trade. But not all the time. We will still have some trades that don’t meet the Target Point and will close both trades at a loss. However, remember, we are not doubling the risk, we are keeping the same total risk as we would having a basic trade, so this is a manageable loss.
Also remember, we often get a signal to close a losing trade well before the stop loss is hit so that keeps our losses less than our risk anyway.
Here’s some examples of TP hit on the charts.
Hopefully this will help to reduce losses (and in turn, increase gains!)
I’ve planned a Traders Coffee once a month for the next three months.
Basically I’ll be working on trading and Lexi Art whilst over-dosing on caffeine and probably cake, but I’m encouraging people to come along to get together and begin to create a community and a supportive network here in the North West.
Facebook Group Forum:
A boring disclaimer… coz I don’t wanna be sued and stuff!
The information contained within this blog/website and any information contained in any social media account related to EXF Trading is intended for interesting reading only.
I am not qualified or considered an expert in any aspect of trading and the words which I write are my opinion only and not to be considered correct.
If you trade based on any of my information, you do so at your own risk.
I urge you to do your research and make your own conclusions before considering trading.
You are responsible for your own trading actions.
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