Tuesday, November 08, 2016

A huge multiple R winner

David came to me just over a year ago for some 1-2-1 training, after I was recommended to him by another trader.

It has been interesting to see how his trading has developed since then, and how he has dealt with suffering a high proportion of losing trades. With a trend following approach, that is to be expected, but as I explained here, it is critical to also let winning trades run, as you never know which set up will generate a huge winning trade.

At the beginning of July, David opened a position in a UK stock which has developed in such a manner - the chart is shown below.  Fortunately, he was able to exhibit the discipline and patience to hold onto his position, which has handsomely paid off by generating a huge profit measured in terms of R.

We talked a number of times about this trade as it progressed, and David explained to me his way of thinking as a trend follower:

"I like to think of myself as a gardener. With a lot of the trades I have placed, these quickly turned into losing positions as the trend didn't develop. So, I cut these very quickly - like you would look to get rid of weeds starting to appear in your garden.

With the winning trades, however, I have allowed them to grow, monitoring them as they went along (by updating my trailing stop)."

Once again, what this shows is the need to stay with an existing trend as long as you can, providing there is no need to exit the trade

Given a run of losing trades, it would be very easy (some might say 'safe') for a trader to bank some profits for fear of losing them relatively early in the trend. And that would have left you frustrated as the trend developed, with you on the sidelines. Think of what Old Partridge said in Reminiscences of a Stock Operator:

"My dear boy, if I sold that stock now I'd lose my position; and then where would I be?"

As it happens, because of this trade, together with a couple of other reasonable sized wins, and despite suffering a whole bunch of small losses, David's account is significantly up this year.

1 comment:

  1. Great story Steve! And glad you were able to help David with his trend following trading. I use the garden analogy myself sometimes, -it's very fitting! I'm also smiling since you mentioned Old Partridge: "It's a bull market, don't you know?"