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Strategies & Market Trends : DAYTRADING Fundamentals
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To: Judy who wrote (958)6/18/1999 6:31:00 AM
From: Eric P   of 18137
 
Judy:

I may be missing the point of your question, but I'll give it a try:

May I ask for some clarification of the statements "cut your losses and let your profits run" and "have a plan and trade the plan". It seems to me one contradicts the other as to having a clear cut exit point at the time of entering the trade.

In my mind, these two statements do not contradict at all. It simply means that:

1) You need a plan for trading.
2) You need to follow your plan.
3) Your plan should incorporate risk control (i.e. stop loss)
4) Your plan should not be too quick to exit profitable trade (i.e. let the profits grow)

To further illustrate this, let me propose a highly simplistic trading plan:

=> Buy long when the stock price rises above the 20 bar moving average.
=> Exit long if stock moves below entry price - 1.0 (i.e. 1 pt stop loss)
=> Otherwise, exit long when the stock price falls 0.25 points below the 20 bar moving average. This will keep you in a trade during a long term uptrend, letting profits continue to grow.

As you can see, this "trading plan" has a method for "cutting losses" and "letting profits run". Now, if I "follow my plan", I will be following all of these guidelines without contradiction.

Perhaps, I may be missing your question. Does this help?

-Eric
P.S. I don't recommend this "trading plan" what so ever. It is simply posted to illustrate a point.
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