What is an Hard Exit ? and a few notes on trading managementHi everyone
Today I'm traveling so can't really share a script because A) it's not coded B) I'm tired C) no inspiration today so instead, I'll be spreading a bit of wisdom (if I may call it like that)
I see a lot of traders out there solely depending on two main signals to exit a position :
1) A signal in the opposite direction
2) A stop loss to exit a position (fixed, or trailing)
Those two points are a very good practice but what if you could exit a position before "sh*t will hit the fan" (pardon my french).
For instance, you enter a trade, you see it's going against you, you're down 2% and your stop-loss is only a few % more away.
Thanks to your experience, you know that when one of your trade goes down below a given threshold, it will wreck (= rekt in crypto terminology) you even deeper with a high probability. Obviously, sometimes it will, sometimes it won't and you'll never figure out the right stop loss level to handle all the edge cases...
Let's now introduce the concept of a hard exit . What is it exactly? In short (no pun intended.... actually yes it was...), now thanks to your experience, you know that whenever a given indicator gives an opposite signal, you'll have to exit your trade if you don't have a positive trade balance. If positive, you know, that you should either set your stop loss to breakeven (entry-level of your trade) or exit it completely.
When such a scenario happens, maybe sometimes, it's better to exit a trade completely when you have that signal before going to bed...
Hands up anyone who took a trade before sleeping, thinking they'll wake up way richer and finally discovered they got margin called? or lost way too much money because their stop loss wasn't hit because that mean broker decided to use the "SUPER WRECKING SLIPPAGE" function to go beyond your stop loss... Your stop loss is looking at those candlesticks going above and doesn't understand what's going on...
The example in the screenshot is very interesting. Let's assume a very simple strategy using the supertrend. When it's green, we go long, when it's red, you go..... (finish it)
You noticed that the MACD Zero Lag will often allow you to exit the position before your stop loss will be hit and before the trade will go in the opposite direction. Sometimes, it won't save you any $$ doing so... but most of the time it will save you a few % of capital per trade and this will add up very quickly. (imagine saving a few percents or capital per trade multiplied by dozens of trades)
I'm not advising to use the correlation between the Supertrend and the MACD Zero Lag here. This is just an educational example :)
Warren Buffett said this: “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1”.
We all believe we're smarter than the average but 95% of us is losing on the market... this doesn't add up :) 95% is losing... let that sinks in.
Does it mean that most of the things you read on Trading Twitter about guys taking leveraged trades and waking up with a brand new Lamborghini might be a fake story? (rhetoric question)
Am I saying that you should close your trades before sleeping if not already winning? (rhetoric question again)
"But sir I'm sure of those trades, I know the market, I'll be promised to go to the Valhalla by John McCaffee if I hold this XVG, XRP and TRX positions" (no one actually told me this that way but that's what I hear when someone finds reasons to keep losing trades overnight/over weekends)
Those people generally have a plan in mind and they want to stick with it. Either because they're scared to exit and to see then their trade going in the desired direction... or because they're too stubborn. And even then, if you have a system giving you a few signals and you count on each of them to pay your rent.... you're doing that trading thing wrong my friend
Either way, you have the choice between not losing or risking to lose big but maybe winning when you'll wake up. The best traders I know constantly doubt, optimize their strategies but never assume the market will favor them, not even once. However when they see a great potential profitable setup with an amazing Risk:Reward, they know that's with those trades, they'll have to go real BIG (betting the house, the wife, the kids, the car, ...) but certainly not with the already losing trades and hedging before sleeping ... (who...came up with those expert advisors using martingale during sleeping hours...very dangerous... )
If you wonder who I am to give all those lessons and scripts.
I worked in a bank alongside traders for years, and I saw hundreds of traders/investors losing everything and I mean they lost more than their trading capital.
This is truly sad because trading is a psychological game between you and the casino (market). We surely have more hedge than playing cards in a casino for sure thanks to technical analysis and that's why I got so deep into TA 6 years ago, made it a full-time job in a bank and learned everything I could to secure my trades/investments and become an emotionless machine when trading.
That's why I made the Algorithm Builder, to remove most of the psychological aspect. This made my own and my clients' trading way more enjoyable.
More to come about it tomorrow or the day after.
Wishing you a great end of your day
Dave
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