The logic of "sell half keep half" (Forex)

2021年9月12日

Both holding & not holding don't make sense.
Definitions:
- Holding = try to hit "homeruns" every time
- Not holding = snatching profits at target (not before, that's just being a huge noob)

Assume winners 5 times bigger than losers on average: 5R.
And the winrate is of 20%. So that's a PF of 1.25, all good.
To keep it simple there is no trailing until target.
Risking 0.5% per trade you'll never be down more than 10%.

Once at target if you move the stop to 1R (-4),
12% of the time the price will go to 45R.
So risk 4 to make 40, or 1 to make 10.
With a winrate of 12%. PF = 1.36.


But if you do hold and trail well...
12% of 20% is 2.4% of total.
80% will be losers (-1R),
17.6% will be +1R,
and only 2.4% will be (huge) winners.



In other words:
Risking 0.5% per trade, by the time you get that big winner (+22.5%)
you will be down 15, 25, maybe 50% on a bad luck streak, or more.
22.5% is just enough to get to breakeven after an 18% drawdown.


Compared to just lose 4 times (down to 98%) then win once 2.5% (up to 100.45%)
Even after a 10% drawdown (an unlucky >20 losses in a row) get a few 5R's and you quickly get back to zero.


Holding just makes little sense, and there is no margin for error.
But at the same time it's stupid to ignore these big wins.

So here is the solution:
Sell half, keep half. (Or any other fraction).
Selling half at target allows to smooth the returns.
If they are too volatile it just won't work out.

And keeping half first with a wide stop then maybe not as much, allows to catch the "big ones".

This makes most sense even if "on paper" some will say "oh well you should go for the big ones if the odds are in your favor" lol sorry but it's a bit more complicated than this.





More generally with Forex I think that any risk to reward under 1 to 2 is bad as is anything above 1 to 10.
Can aim for the moon, but not all the time. The "sell half keep half" concept is the best compromise.
Adding to winner at some point is too dangerous, it doesn't work, it's just greed.
Adding to winners is another subject entirely and anyway there is nothing as a "just do this".
It all must be researched and well thought.

With this sell half concept you're securing 2.5 + 1.25 = 3.75 / 5R so that's 75% of the profit.
Then risking 25% of profit to catch some of these massive winners is I think the smart move here.
Profit is secured, to push this a bit further you might have thought of this already:
secure enough profit to breakeven (on 20% winrate secure 4/5 R) and "go double or nothing" on the extra (1R).
So it's as if in a way these big winners are "free".
Risking 1R with 50% retracement means you're leaving 2R in or 2/5 = 40%. Pretty good.

And then the account I showed turns to this:



Isn't this the best? Sure you'll "only" be in the huge wins with maybe 1/3 of the normal size but it's how it is.
This is not gambling. Really, there is no other choice in my opinion.
Sort of go nowhere for a while, then boom get a big winner, account jumps up, then go nowhere for a while, etc.
The risk all "double or nothing" is actually stupid even if "on paper" you are risking less than you stand to make.
And constantly closing at target is just bad and leaving some profit on the table.

This does not apply to stocks (sometimes it does, probably).
To be honest with stocks you're better off holding everything and getting these zigzags and all so you always have (balanced out) losses ready to be declared, and the huge winners never ever getting closed.

2021年9月12日

ノート

Disclaimer:
I will not use "sell half" usually. But I have it in my toolbox. For example with the S&P 500 I have been "selling 1/3" (and reloading lower).

With my Forex trades, in the current market that does not trend that much, I have found that with what I do well price hesitates a bit to a lot almost all the time so I have to give it much space, and once it goes, and gets to my target area (that is even more important than the entry honestly) of the positions that go a bit to a lot past TGT, well about half very roughly pullback a lot and about half explode through (they just keep going) with less than 1R retrace. So this 50% fib does not make sense, for what I do. Destroying my reward multiple by 4 to double my winrate is terrible.

I posted this idea the 20 May, and this is how it went:







And so the perfect example of "sell half":




Ok here is an arbitrary typical example of why I don't "keep half" most of the time (this is really common):




And here is a similar example of a winner with a previous high as TGT, except it retraces so much:



And of course you got the horror once in a while:



That's enough examples I think :p