In this episode of Truth About FX, Walter probes into trading positions and scaling these into different targets. Should you go for close targets or choose the further ones? According to Walter, it really boils down to the targets you’re willing to take and the stops you want to make. He also gives some great advice on “wiggle rooms” and trailing exits.
Download (Duration: 04:28 / 5.11 MB)
In This Episode:
00:36 – weird
02:04 – bigger position
03:08 – too tight
04:07 – split it up
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. This is a question that I saw recently that I thought was interesting. This person is asking, “Should I place more positions with a small lot size or a few positions with a big lot size?”
Walter: That’s a weird question because I’m not really sure what this person is trying to get. I don’t know if the question is, “Should I scale out of my position?” You know, like in gradiance. Perhaps, have like six positions and kind of scale out at different targets.
Hugh: Yeah, I think that’s kind of what they’re asking.
Walter: Okay, cool. The other way to read that is to think, “Well should I go for further targets or really close targets like scalping or something?”…I’ll just read it the way you did.
It’s going to depend basically on “really, you should task this”, but it’s really going to depend basically on your approach. If the hardest thing for you to endure is having been in a trade and then getting out of the trade and watching that trade still go in your expected direction.
Like, if that’s a really difficult thing for you to digest then you’re probably going to want to have multiple ways of getting out of your trades. That’s just so that you can feel like you’re right, really.
It’s not necessarily to make more money. It’s like logically enables you to keep trading your system. That’s the way I see it. That would be more of the former which is placing more positions with smaller lots.
The other way to do it is where some people might only have, let’s say, one or two different ways of getting out of trades. You might have like a target and a trailing exit but, in that case, maybe you have two bigger positions.
If you have, let’s say, you have three targets. I do this sometimes where I have a close target, a further target, which may or may not be hit and then assuming I don’t get stopped out. Assuming I don’t get stopped out I have three, I have a close target — a further target — and then like a really just, “Wow, this trade kept going from the amazing, I’ve got this other target”. So that’s one way to do it.
The other way to do it is to go the same sort of thing but you might have a trail in there. You might have like a 1.5 reward to risk trade, 2.0 reward to risk trade, and then a trailing exit too.
That’s another way that’s pretty cool too because that trailing exit, as long as it doesn’t retrace too much against you, you should be able to really bag some nice profit with that one.
Now, one thing I would say though is a lot of traders tend to give their trailing exits too much wiggle room. It’s interesting. Most traders, what they’ll do is they’ll have too much wiggle room on their trailing exit but it’s not tight enough.
They’ll have an entry where it’s too tight. The stop is too close in the beginning of the trade which is where you really need to have a wide stop in most cases. Again, it depends on your system.
Some traders are okay losing 75% at a time and they are okay having a really tight stop and that’s fine. But, if you’re like most traders and you like to win, you’re probably going to be better off with a wider stop just in the beginning, if you can. And then, a really tight trailing exit so that once it starts to consolidate or retrace against you, you’re out. That’s what I would say.
I would say, in most cases, most traders will be better off with more just because psychologically you are able to endure the system longer without freaking out.
When you have big positions, you tend to feel like you’re wrong sometimes if it goes much further than your targets or if it doesn’t quite get to your target or things like that. But, of course if you’re using a trailing exit, the target isn’t really part of the equations.
That’s another reason why I think that makes sense for a lot of traders, is even if you deal with a target, you might also have a trailing exit position as well. Definitely, splitting it up is the way I would go there.
Hugh: Okay, cool. That makes a lot of sense. Thanks, Walter!
Walter: Thank you.