My Reply at ForexFactory

This is what I replied in a thread at ForexFactory.

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I have several solution to the issue you brought up. These solutions is for long-term traders using Daily charts to trade.

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However, it should be mathematically self-evident that “cut losses short, let profits run” only works to the extent that markets trend.

Just pick a market that the Daily charts show a strong trend e.g EURUSD.

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Think about it logically: if (hypothetically) prices trended indefinitely, then it wouldn’t matter when you entered, as long as you hold on for as long as possible, you will profit.

All trend will finish sooner or later. Solution, trade long-term because long-term trend continues for years like EURUSD.

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But if/when the probability of reversal (e.g. at support/resistance) exceeds the probability of trend continuation – if/where this can be approximately calculated – then the “cut losses short, let profits run” maxim breaks down. This will happen repeatedly during sideways price movement.

This is the time where entry and trail stop is crucial. With good execution, you will be able to cut losses short, but since the market is sideways, you cant let profits run simply because the market doesnt let you to. Just be happy and stick to your plan (buy, trail stop,buy trail stop) until one day the trend resumes. You dont have to make money everyday. Patience.

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So the question becomes: does your chosen currency pair “trend” sufficiently, in your chosen timeframe, consistently enough, to allow you to overcome costs? If so, you will profit overall; if not, your account balance will fall.

Hence the beauty of trading long-term (daily charts). You can hibernate for 3 months and the trend is still there. LOL.