How To Let Your Winners Run

It’s Monday morning and I’m not going to bore you guys with an exhaustive reflection on why traders should adopt a policy of cutting your losers short and letting your winners run. If you haven’t caught on to this very basic tenet of trading survival 101 then you either are new here or haven’t been paying attention.

Instead I’m going to let our charts do the talking as the two specimen at hand should be considered textbook examples of how a strong trend can extend to unanticipated highs (or lows in the context of short campaigns). The Dollar campaign actually started as an hourly entry which then got converted into a daily setup when it breached a NLBL. I did make quite a fuzz about the long term implications of the inflection point at hand during that time. Unfortunately judging by the comment section it got either ignored or you guys simply disagreed.

Whatever it may be – the tape started to move in my favor for about two weeks, at which point ole’ bucky entered a sideways correction below 81.7. I could have taken partial profits there but given the squeeze potential I simply advanced my stop a healthy distance away and was able to sit things out. Now there is no real recipe for doing this properly – it takes a bit of finesse but my general approach in a nutshell is to gauge daily/weekly momentum and consider the squeeze potential that may feed continuation of the ongoing trend. In this case my verdict was to ‘let her run’ as they say. Currency markets move quite different from equities – so do futures by the way. Once a trend gets going it truly is your best friend.

Similar example here on the NQ – it’s pushing 5R and I simply keep my stop a healthy distance away. In this case I’m using the NLSL at 4032.75 – which would cost me over an R in profits but once again I am unable to determine when we’ll see a correction. Given the fact that we had eight consecutive higher highs the odds are now ridiculously high (i.e. in the 98 percentile) that we’ll put in a red candle or two. If we do I would like to ride it out – hence my stop – low enough to sit out an obligatory correction but near enough to get me out if it turns into a sharp correction. Again, there is no crystal ball and it only will be clear in hindsight.

You may wonder why I’m not running to the bank to cash out right here and call it a trade. That reason should be apparent – we are in absolute no-man’s land and there is no context. A lot of folks are going to try to pick a top here and that’s exactly why I give this trend fair odds of continuation. If I was in cash up here I would wait things out as well – there is no reason for me to short this tape right now. Similarly I simply hold my longs and advance my stops as needed and per my best objective judgment. Whatever happens – I’ll be happily banking coin as it is – given that I am representative of strong hands who got their entry early (either due to skill or sheer luck) and aren’t really worried about missing an R or two.

Anyway, if you’re watching this campaign from the sidelines don’t spend your energy kicking yourself for having missed out. Instead take it as a learning experience for the next time when you manage to get a good entry and the tape starts moving aggressively (in your favor). Being able to simply sit and do nothing is half the battle.

A now to a few short term setups for my intrepid subs:

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You have been briefed – now have fun but keep it frosty. See you guys later this afternoon.

Cheers,