Q: I have purchased your home study course, 2 of your latest books and your special report on position sizing. Position sizing has had the most impact on my trading. I still think I am missing something. I may be transferring a fear of letting my profits run into a position sizing scenario. If I can anchor my emotions and thoughts to a specific “rule of thumb, ” I can trade much better.
When I place my 2nd entry after a profitable 1st entry, I always have a stop on the 2nd entry.
If the 2ntry stop is hit. What is a “rule of thumb” to do with the 1st entry? What are the parameters
for the trailing stop of the 1st position?
1) close it out at the same time as the 2nd entry stop loss.
2) close it out at break even point for both trades.
3) close it out at my 1st entry fill price ( a 1R loss + commissions)
4) close it out at original stop loss ( a 2R loss + commissions)
5) Do not close 2nd entry at regular stop price, close at breakeven point of trade.
My guess is that it varies for different systems. But I am looking for some type of parameter.
1) Who are you? Determine your beliefs about yourself, your strengths and weakness, your edges, etc.
2) Once you’ve answered that question, you can determine your objectives. What are you trying to accomplish as a trader? Do you know that? The answer is 50% of system development.
3) What are your beliefs about the market? You can only trade your beliefs. Did those beliefs come from you? How do you know they are useful? Do they limit you in any way?
4) How good is your system and how does it perform in the 6 market types? My guess is that less than 0.001% of all traders have answered this question.
5) How can you use position sizing to meet your objectives? This is probably one of the most important questions you can ask yourself.
The answers you are asking for are basically “It depends…..!” But if you can answer the five questions I have given you, then you’ll probably also find the answers to the questions you have asked.