How to Know When to Stop Trading

Let’s face it. We would all be better traders if we only knew when to stop trading each session. It felt worse giving back hard won success than it did just losing outright. The real problem was that I had no intelligent or effective way to actually know when to stop trading. If I quit too soon, I would miss a bunch of good winners. If I traded too much, I gave away my winners.

When I first started, one of their most important concepts, ‘The Power of Quitting,’ didn’t really make sense to me. If the strategy was so good, then why would I want to quit trading? It is such a counter intuitive concept and later, as I learned more and actually began to turn my trading around, much of the new found success was largely a result of actually empowering myself to stop trading. Yet, to this day it remains one of the least understood necessities to ongoing success.

In short, the Power of Quitting (POQ) is a dynamic goal setting strategy that allows you to take what the market wants to give you, while allowing you to quit with positive results on ‘most’ sessions. In its most basic form, you need to get a winning trade AND have a positive result. This can be accomplished with the very first trade sometimes. Other times it requires more trading. There are also different formulas that you could use. POQ 2 means that you need to have TWO winners and a positive result. The PTU Trend Jumper actually needs a full target winner for one of its winning trades to qualify for POQ.

One issue that gives many traders problems is knowing when to stop on a hard session. There will be sessions with ALL strategies that just will not get positive. How long should a trader continue trying to get positive? What’s a good circuit breaker? This is one of the most difficult questions to answer. So much of it depends on the trader. How long can he or she trade? How much capital do they have? How much stamina and attention span do they have? How much skill? Etc.. The only way to really know that answer is to actually conduct your own backtests so that you can come to the best answers based on actual research and understanding. Each strategy is different. Each market is different.

Some traders love finishing a session, one and done; that is, winning on the first trade to satisfy the basic POQ 1. Count me in as one of those traders. My own backtesting has shown me that the actual average winnings per trade (the avg net of all trades in the backtest) is actually higher with fewer trades. POQ 2 might yield more net winnings but it is actually less succesful and a lot harder, day in and day out. Why work harder? I prefer smarter? If I can increase my average winnings per trade, all I have to do is increase my position size as my account grows. I do not need to trade more. Less is more, actually.

Some traders want to trade more. They also see the benefit of a POQ concept. Diversification is certainly a smart thing to work into your trading too. How does one satisfy all three while still remaining consistently successful? Here are two ideas that have a lot of merit.

1. Diversification is one answer. You could begin trading one market and as the session progresses, stagger in other markets. Crude Oil or a forex pair could start at a certain time in the pre-market. Then when the US market opens, you could trade an e-Mini or a grain futures, for example. You could also include some swing trading.

2. Another idea that I really like, is the whole idea of the ‘mini session.’ In the PTU for example, we learn how to use tools that help us isolate the most productive times of day to trade a specific market. Some markets have various pockets of time that are more productive than others. Taking that idea to the next level, I like treating each ‘pocket of time’ as a unique session, each with its own start time, stop time and POQ goals, typically, POQ 1, with a full winner being necessary to qualify. That means I have to have a full winner and be positive before I could quit the mini session. I also combine it with a maximum number of trades, a maximum number of losses and a hard stopping time, which would end the mini session.

Then I just wait for the 2nd mini session to begin. The second mini session has its own unique trade plan and POQ, just as I described with the first. Here are a couple examples.

Using the new Trend Jumper Pro Plus Calculator and Automation, I was able to determine a two hour and 40 minute window to trade Crude Oil Futures early in the morning. The trade plan allows me to take a maximum of six trades or two losses, with a POQ 1, whichever happens first. The second session begins later in the am and uses a completely different chart and trade plan. It goes for two hours and its own POQ. Both plans operate at their own cadence and have their own personalities. As separate plans, they are each successful. Combining the two, adds more chances to grow my account while sticking to the ‘less is more’ concept. I get to have my cake and eat it too, in other words.

For the Dow e-Mini, I actually have three different windows of time to trade three separate trade plans. Each one is successful in its own right but combining the three, adds a lot of fire power and juice to the bottom line. It’s also very flexible. If I am not available for one, I might be available for one of the others. It’s a great way to go.

The important thing is to not overtrade. Combining a smart and dynamic goal setting strategy to your overall trade plan is essential to success. Anyone can make a winning trade. The hard part is hanging on to your hard earned gains on a steady basis and consistently growing your account. That’s why we trade. Remember, it’s not the quantity of trades that we take. It’s the quality! It’s also being able to keep our winnings. Controlling one’s risk exposure to the market is critical to success and the Power of Quitting is the perfect solution. But if it’s not enough for you, don’t throw the baby out with the bath water. Consider the idea of the mini session and learn to focus in on the most productive times of day to trade while still controlling your exposure and keeping your winnings.

Trade well.

For more updates from Mark and the team at NetPicks, be sure to visit their trading tips blog at NetPicks.com.