I thought I’d share some recent email Q&A on the topic of active versus passive trade management. There is so much more that could be written on this subject. Hopefully you’ll find this initial email question and reply to be of interest. Feel free to share your thoughts as well if you agree or disagree. As mentioned in the reply, nothing in trading is black and white.
I really have found your site helpful as I try to set the foundation for a career in futures trading.
A couple of questions about stop and profit target management. I’m not a probabilities expert, but can’t one make the “argument” that once the trade is actually put on, accepting anything less than the initial risk/reward outcomes actually interferes with the probabilities and in the long run can neither help or hurt because even decisions to adjust are subject to probabilities and will even out over time?
In other words, tightening my stop may help me some and hurt me some, but isn’t it likely to be a wash over the course of 1000 trades? Also, once the trade is set, even if stops are immediately adjusted, the full risk of the initial stop was incurred once the trade is entered, so the possibility full reward should be allowed to occur. As an example, with a 9 profit and 5 loss stop, as soon as I enter a trade, I am assuming a 5 tick risk. It doesn’t matter that I tighten the stop, the risk was already undertaken. So, for my ratios and probabilities to work in the long run, shouldn’t I just let the trade be what it will be?
Thanks for your perspective and continued success.