Our studies have shown the advantages of, where our exit point for winning trades such as short is 50% of max profit and 25% for . However, the question of what we should do when either an undefined- or a defined-risk trade moves against us remains.
First, we analyzed the potential risk and reward on defined-risk trades and explained why we don't manage losers in trades such as the Iron Condor before expiration. Since the max loss is defined, we keep the trade on until it either meets a profit target or until.
When we sell a Strangle, however, it is more difficult to define our risk at. Tom and Tony talk through the mechanics for untested sides and rolling for duration. Historical results show that most winning trades dating back to 2005 were losers at some point, and thus Tom reports that managing losers too early can be a detrimental. However, having some maximum loss amount that is specific to a trader’s risk appetite in mind when initiating a trade could be helpful to those afraid of large moves in the underlying.
Watch this segment of Best Practices withand for the valuable takeaways and a better understanding about what to do when a position shows losses.