Protecting profits while limiting risk is key, but how safe too safe? The goal is to turn a profit without giving it all away in pullbacks and commission fees. Today Bill Poulos, of the renowned mentoring service Profits Run, will show us how he quickly enters trades with limited risk, and yet still profits from big moves. Be sure to comment with your thoughts and check out Bill's new service, Forex Profit Multiplier.
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When it comes to Forex, most traders focus on where and when to enter the trade, and pay little attention on when to get out.
This is a big mistake.
It should go without saying that as soon as you enter the market with a new position, an initial stop order should be entered to protect the position against an adverse move in the market or an exit strategy should be employed to cover the trade if the market closes adversely. If such a move occurs, as is often the case, you want your position liquidated and out of the market with a minimal loss.
The consequences of failing to do this are that you will not be successful at trading - period. In fact, every trade you put on, you should plan to lose, so that you are sure to place your stop loss order or cover the trade on an adverse close. Otherwise, what would have been a small loss turns into a big loss, throwing the entire risk/reward ratio out of kilter against you.
That being said, where should the stop be placed? The short answer is, 'Where you don't expect the market to go'; or, more specifically, where the assumption in putting on the trade is no longer valid.
For example, if a long position was entered into after an uptrend or breakout market traded back down to support, an initial stop could be entered below the recent low because if the market does go there, support (as defined by that low) would have failed, and there is no longer any reason to be long the market - so get out! Don't wait around for it to come back in your favor because the odds are against it.
If the market goes in your favor once the initial stop is in place, then you need a set of rules that will allow you to exit the market profitably. This poses a real dilemma. If you exit too soon, you may secure a small profit, but miss out on all those big moves that occur (and the big profits that go with them). On the other hand, if you wait too long to exit, the market may reverse and take away all of your open profits and even put you into a loss position.
So what do you do? Well, the first thing is to realize that there is no method that can forecast whether or not a particular move will:
- Go against you immediately
- Go up only a little before going back down
- Go up a lot in your favor
For example, after you enter a long trade in an uptrend, there's absolutely no way to predict what will happen next (contrary to what the so-called 'gurus' tell you). Because of this, you absolutely need an exit strategy, because the risk of loss is significant no matter how carefully you plan your entries and exits.
The Optimal Profit Exit Strategy
The following is the very best exit strategy that I believe possible when trading the Forex markets. I call it the Optimal Profit Exit Strategy. It's a strategy that scales out of a trade in two steps. This strategy is first and foremost about taking an initial profit as soon as appropriate, thereby 'taking some money off the table' and reducing the risk in the trade at the same time.
1. Step one is to cover 1/2 of your position at a pre-determined profit target. The profit target is modest, but enough to make the trade worthwhile and the specific level is also dependent on the overall method being used. Once that initial profit target is hit, you should move the initial stop up for the remaining 1/2 of the position to the lowest low of the past 3 bars for an uptrend trade or the highest high of the past 3 bars for a downtrend trade. You're now out of 1/2 of the trade with a very nice profit and at the same time you are prepared to ride the market as far as it wants to go in your favor for the remaining 1/2 of your position.
2. The remaining 1/2 position should remain protected by a trailing stop always based on the lowest low of the past 3 bars (for an uptrend trade). And so as the market continues to move up, you should continuously move the stop up with it. This locks in a significant portion of the remaining open profit but also gives the market enough room to trade down a bit without shaking you out of the trade if it moves higher.
With this strategy you should be prepared to take advantage of the market after entering a trade no matter what it does, and that's a big deal.
Good Trading,
Bill Poulos, Profits Run
To learn more about how to trade like this in 60 seconds or less, check out my new private training website here.
Market Club appears to be a fine, reasonably priced professional service and your contribution to trading education in a professional manner is more rare than common and is recognized and appreciated.
Have traded many investment vehicles for a long time but not Forex so am looking for Forex professional education and orientation, not particularly a system as it is believed if there were a system that is right as often as Bill Poulos promotes, that soon one could hold all the currency in the world.
Based on Bill Poulos being promoted on Market Club, gave email and watched the videos. There is a string along marketing plan in which the price still has not been given plus a contest to get free software etc. Have been around long enough to realize one has to sort the real from the unreal. When a hype type method is used such as used by Bill Poulos, what he is doing warrants further investigation prior to investing in his service and products.
So, did a Google search on Bill Poulos focusing primarily on what appear to be Forex reviews and found some very negative things. One of the most positive was that at least some were able to get their money refunded. Others tried and were unable to make contact and had no email replies with also unsuccessful phone contact attempts. It could be there is no merit in the negatives. This is not a judgment, but only an encouragement to look before jumping.
Thanks to the web, it is easy to check out most that are selling services and it is highly recommended that each one interested do their own due diligence instead of blindly accepting the hype and hoping to buy, at any price, a get rich quick solution to what many have learned is a non-existent dream. It has been discovered by many that hard work, constant education, and unparalleled discipline will do more than most anything else.
The above is not intended to be a thorough analysis but only a preliminary look-see.
The integrity and sincerity apparent in Market Club attracts me to put my money on the Market Club approach to doing business. No hype and no guarantees, but education, hard work, and discipline.
My questions to Market Club are:
1.Do you know Bill Poulos personally, and
2.Do you recommend him and his work, and
3.If not, what reasons are you using to promote Bill Poulos.
Best Wishes
Daniel,
Thank you for your feedback.
To answer your questions sequentially I'll start with number 1. Yes, I do know Bill and his son Greg. I have never met them personally, I've only spoken to them on the telephone.
Number 2. At MarketClub we fly the Swiss flag, which means we're totally neutral and do not recommend anything or anyone other than MarketClub. So your next question would be, then why do you have them on your website. The answer is we have a great many people who come and visit our website who find that MarketClub may not suit their needs. That is why we show other ways of looking and trading the market that may suit their trading personality.
Number 3. I think my answer to number 2 really addresses your third question, and that is showing other things in the market that may or may not work, but take a different approach than MarketClub.
I hope this addresses your questions and I appreciate you saying positive things about MarketClub. We do not hype our product, as it really speaks for itself. I would like to personally invite you to attend our webinar this coming Wednesday which will detail a strategy that you may find interesting for your own investing.
Once again, thank you for your feedback.
All the best,
Adam
You are effectively advising that a trailing stop is applied at the low (or high) of the previous 3 bars. What value of bar works best? Hourly, daily etc..?
I love these ideas and want to try them, but I'm not sure if it will work because of the cost of scaling in or out. Could anyone recommend a broker that is less costly than etrade?
Thanks,
Dianne
Nice artical and i think very workfull for all beginers. Atlleast you try once this streatgy if any body not agreed. If i am not wrong,the main thing i find in this artical is that it controls you trading emmotion........... Expecting more such nice reading.
Good article. Hope to see more good ones like this. Thanks.
More greece to your elbor. What of optimal loss exit strategy?
I wonder what connection ralf has with bill cus he talks bull.
If market club is so good why do need this rubbish, yes i lost money following profit run good salesman is bill bad trader.
does this mean market club is just a sales company as well.
Vincent
"For example, if a long position was entered into after an uptrend or breakout market traded back down to support, an initial stop could be entered below the recent low because if the market does go there, support (as defined by that low) would have failed, and there is no longer any reason to be long the market – so get out! Don’t wait around for it to come back in your favor because the odds are against it."
Is what he said, but you have to actually read it!
Yes, this strategy is one of a couple that work quite well on plain old stocks too, I use it myself and it's a winner. Whether your stops are "mental" or market orders (sometimes mental works better when there's a mini flash crash and instant recovery) -- it works if you do your part, which is always of the essence. There is no "put this on auto and go relax" mode in this market, for winners.
After awhile, you also learn to sell on an "unconscionable gain" because -- pigs get slaughtered, and it's going to come right back down if it really was extreme. One trick I use for this if I'm not sure is just to set a real tight trailing stop, and if it keeps running, ok, I make a little more, but that is not as good as just watching close. I was much longer than usual today, and have been selling as the market went over the top, down to my normal levels of exposure. If it turns back up again, I won't be crying, I'll be down in the shop planning what to do with the crazy profits I just locked in.
BTW, a neato cowboy trick I've been using for the last few weeks with success is to set limit buys and sells well off the current levels. If a flash crash happens, I then automatically buy in -- when I hear the beep, chances are it's already recovered and time to sell! Ditto anything I'm holding long...I will put a sell order at more percent gain than an issue will likely ever make in a day (duration of order just that day) and hey, if there's one bizarre trade (flash bull) I take the money and then decide what to do.
Rather than be intimidated by the dumb HFT computers, profit from their errors!
I scale into positions, rather than out as he suggests (I do more like my turtle friends) but the effect is similar, maybe the commissions are less that way. So if a trade goes against me right off, I can just decide not to get deeper -- or double down if that's the way I'm playing it. Depends on how confident you were getting into the trade in the first place.
This is the best strategy I have come across..ever. wish I had of known this years ago. I would definetly be a lot wealthier. This would have worked in stocks just as easily. I have been trading markets for five years, and have lost a bundle. But i am learning by loosing and getting much better. I am trading Forex 90% since I have found it too be much much better than the equity markets. Its a day traders market on steroids!
If I may be so rude, you failed to explain the 2 other possibilities of the trade. You simply explained if your a winner what you would do. What about if you begin to lose on the trade? Without a solid answer to other 2 points in your initial paragraph, the the remainder of your post is useless