I think it's time we revisited a topic we discussed a few years back. The fact that an individual trade does not provide sufficient data to allow you to make informed changes to your plan.
Changes MUST consider the impact across a series of trades.
I see this problem repeatedly in email conversation with new traders, who have not yet understood the nature of edge.
Their questions come in various forms but this latest one is typical of the general nature of all of these questions:
- "I took profits on this trade at the target area, only to see it then continue on without me. I could have got twice the profit if I held. Do you think I should use a trailing stop rather than targets?"
The trade involved a 2R profit at the target, which could have been 4R if he held for a trail exit. An addition of 2R to the account balance.
And so the trader was disappointed. And frustrated. Because when viewed after the fact, it was just SO OBVIOUS!
But here's the problem:
This is the whole point of a post that I shared about a fortnight ago.
Progress comes from analysis and review of your performance over a series of trades. Not individual trades.
Changes to your plan must come from analysis of results over a series of trades, whether you prefer to use samples of fixed number (20, 50, whatever) or a fixed time period (weekly, monthly).
You ask, "I took profits on this trade at the target area, only to see it then continue on without me. I could have got twice the profit if I held. Do you think I should use a trailing stop rather than targets?"
Or even a more generic, "Do you think I should make "xyz" change to my plan?"
Here's my response:
- Only if you're seeking an answer in response to a recognised problem or underperformance across a series of trades, and not one individual trade.
- And only if your subsequent investigation of that problem or underperformance shows clearly that this change would have improved your edge over that series of trades.
- If yes to both, then implement the change and see what it does to the next group of trades.
You have access to this information. Do the work.
Assess the outcome over a larger sample.
And determine the appropriate plan of attack for your next series of trades.
You might argue, "But Lance, we don't know how the change will impact the next series?"
True. No-one knows.
That is why you continue to assess. Make the changes and then reassess. Did they help? Or is further work required?
Continue to track performance. And continue to learn, grow and develop in pursuit of never-ending improvement in both profits and consistency.
But never due to an emotional reaction to one single trade. This is a game of profiting over a SERIES of trades.