Should I close a trade if it doesn’t hit the profit target after X days?

A complete trading system will tell you exactly what to do in different circumstances and let you take profits. For example, if you backtested your rules, tested this hypothesis, and then a trade goes sideways for X number of days, should you exit it? Does that improve your system and let you make profits? You can answer questions like this yourself by learning to backtest your trading ideas.

If you put these rules into Amibroker, backtest them, and add the time stop which gets me out after a certain amount of time, backtest it again, it doesn’t make it better or worse, that answers the question.

Empowering you to answer your questions like this is the key. Build the skill to answer great questions like this with analysis because in one market, it might make sense to close them. But, still, it might make much more sense in another market to wait and see them hit the profit target. But what I do know is that if you’ve got an expectancy of 0.04 R after 67 trades, your edge in your trading decisions is very small. You need to look at the expectancy equation. Expectancy is the size of your average win times, the percentage of winners minus the size of your average loss times, the percentage of losses. Look at that equation for your system, your approach that you’re using and ask yourself “would I be better off instead of having a two-hour profit target, I had a four-hour profit target? I was right less often, but it was twice as big. Or maybe not have a profit target at all and have a trend following exit so that if a stock takes off, it just goes and goes and goes. And I keep holding it until it stops going up and starts going down.” With an expectancy that low after 67 trades, you need to look at your strategy because there’s something wrong and missing.

The best guidance is to learn to backtest, put those rules in, and then try some different exits. Try some different widths of stop loss. It might be that your stop loss is too tight, and it’s getting hit too often. It might be that your two-hour profit target is capping your profits at too small a level. And you would’ve been far better off to let the profits run, but you don’t know that until you’ve done the work until you’ve done the backtesting. It will differ between all the different strategies and systems.