Set and Forget Trading – When To Use It and When Not To
A while back I heard a professional trader who ran a trading desk sum up ‘set and forget trading‘ in one sentence:
“That is like getting in a car, putting your foot on the gas, and expecting to get from point A to point B without crashing – complete stupidity.”
By and large, I have to agree with him. There is a lot of confusion around set and forget trading, and it’s likely costing you money.
In today’s article, I’ll begin by sharing the fallacy in this way of thinking and how our brains are wired in relation to trading. Then I’ll cover the ONLY TWO SCENARIOS you should use set and forget trading.
From here, I’ll talk about evolving markets and how this relates to set and forget trading. After this, I’ll end with talking about how you limit your profits and how to avoid capping your growth as a trader.
The Irony & Fallacy of Set & Forget Trading
The irony (and fallacy) hiding behind this one size fits all approach is it assumes you are responsible enough to make a good trade entry, stop loss and take profit, BUT you are clearly not mature, intelligent or responsible enough to manage a trade. How ridiculous.
To be fair, our brains are not wired for all the mechanics of trading, and our natural bias is negative towards most things, especially threats.
The translation of how this bias affects us is: we are more likely to close a trade when it goes against us (threat) vs. working for us (beneficial). And I’m sure you have experienced this yourself.
You are in a trade, everything is going for you, the price action is impulsive in your favor, you are in profit…and then…the first major candle goes against you. Immediately you think the move is over and you close the trade to lock in profit.
Has this happened to you? If so, its your brain and reptilian brain working against you.
(NOTE: For a great trading article on the negative bias in trading, read Why We Close Winning Trades Early)
Change & Growth Come Through Re-Wiring Your Brain
We can either walk on eggshells around our negative biases (no growth), or we can learn to get past them (growth). Simply turning to a one size fits all approach for taking profit (or managing the trade) isn’t the answer. It leaves you crippled in terms of growth and assumes you’ll never get over it.
That is like saying you should never drink a beer (or glass of wine) because you’ll never be able to control yourself. Or you should never get a drivers license because you’ll never be responsible enough to drive on public roads. Ridiculous.
In reality, set and forget trading is simply ONE method for managing the trade. And it should (in reality) ONLY be used under two circumstances:
#1: You only have one, maybe two hours per day, and have no real way to manage your trades. Perhaps you work full time, have kids, and are just really really busy with a super tight schedule.
In this case, you are probably best employing set and forget as a profit taking method using daily and 4hr price action strategies, but there is a big assumption in this.
The scenario above assumes you are a) not trained in reading price action context, or b) your trade will likely hit its stop loss or take profit after you enter, but while you are busy.
Hence, unless you are not trained to read the price action context in real time, or the trade will close while you are at work, then you are a decent candidate for set and forget trading.
If your trade will take a few days, then this may not be the best method, because as it progresses, it may show signs it could go for a big runner. These are trades you have to take advantage of when they come, just like a really good poker player loads up on a strong hand.
Once you get good at reading the price action context in real time, you can also trail your stop and reduce your risk as the trade progresses. Almost every professional trader will reduce risk as their trades advance.
Very few will look at it as a hell or high-water scenario, which is what you are saying when you use set and forget as your method.
The other scenario is below.
#2: If after exhausting all other methods of managing your trades (taking profits and adjusting your stop), and the ONLY baseline method which showed profitability, then you’d be a decent candidate for the set and forget method.
This one is pretty straight forward, and the risk of ruin needs to support your decision. Without it, you could have the numbers working entirely against you without even knowing it.
Thus, if you are that trader who falls outside of the two above reasons, you should explore other options, and develop an accurate baseline for gauging which method you use.
Markets Evolve Over Time
The bottom line is the market evolves as it progresses over time. This can happen intra-day, daily, or over days and weeks. Those that train and learn to adapt with such changes in real time will have their finger on the pulse and maximize opportunities.
This is what institutional traders do. They adjust and evolve their positions as the market does, just like a poker player will become more aggressive (or conservative), based on the players around him, and the size of his chips.
Just realize if you don’t explore other options for managing your trades, and train to get beyond your weaknesses, your growth will be limited, and your profits will reflect this.
Having A Curfew on Profits
But perhaps that doesn’t sway you. No problem, just imagine the following scenario:
It is the first week in May, 2013. You have just entered short on the AUDUSD on a break below the key support level around 1.0225. Your stop loss is just above the daily 20 EMA, so -100 pips, and your ‘set and forget‘ target is +200 pips, or +2R.
About a day later, it comes out on the news that George Soros has sold over $1 billion of the AUD. Considering Soros’s history, and that he doesn’t just get in and out in a day (along with the glaring fact other professional traders will likely pile on this trade), chances are this trade is going to run.
Yet…here you are, just a couple days later, saying ‘nope, I only set and forget because I ignore everything and cannot manage my trades responsibly, so I have this curfew on profits‘.
About a day later, you hit your +2R profit, thinking you are a darn good trader. This is your chart below.
Looks great eh?
Keep in mind, this situation above happens on a micro-scale almost every day, sometimes many times per week.
So when you consider employing the set and forget method, realize there are other options, and this should only be used in very specific circumstances.
Also understand, if you choose to use this method while you have other options, you are a) putting a cap on your upside profits, and more importantly b) putting a limit on your growth and development as a trader.
There are many other methods for managing your trades regardless of what time frame you trade. For those wanting to learn more about these methods and how to leverage them in your trading, learn about my Advanced Price Action Course where you get access to our daily trade setups commentary, trader quizzes, private member webinars, live trade setups forum, and more.
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