I've had a recent change in my opinion of staging out of FOREX positions.

Previously, my attitude about staging in and/or out of currency positions was based on my 40 year career as a real estate investor. In real estate: you go all‐in at the start, and at the end, you cash all out. Pretty simple.

At difference, however, between real estate and trading is — once again — the time of the investment.

Unfortunately, trading educational resources generally don't have the experience that I do in multi discipline investment. As a result, they advocate unsound methodologies, or at least end up teaching unsound methodologies because they don't understand that time plays such an important role in trading.

Time is such an important element in trading that it should be part of any viable training curriculum.

Because I didn't have a mentor when I began my journey of learning to trade currencies in the FOREX market, there was no one there to advise me of the correct manner in which to judge lot staging. All I read was 'what' to do, not 'why' I should do it.

If you do things just because someone tells you what to do, you're sure to experience adversity. And I experienced lots of that because no one out there could effectively show me that they understood that time was a major factor in trading, particularly for the short term trader, of which I am.

Staging, when done as part of a long term trading investment methodology, can be a very viable tool. Since most all educational resources do not agree with the principles of short term trading, and in particular scalping, they have no concept of time. For this reason, they would make absolutely miserable short term traders.

However, because time is such an essential component of consideration in the short term trader's planning, short term traders can make the jump to long term trading, and be successful at it. A short term trader can understand better how to long term trade than most long term traders.

The reason short term traders don't do long term trading — particularly in the FOREX market — is because we do not choose to leave ourselves exposed to unexpected events in the market consistent with carry trades.

Of note is that to this post, I have a companion video of the same title: Rethinking Staging Out of FOREX Positions that puts all of this together from a different view point.

If you've come from watching that video, then press on here. However, if this is your starting point, I might suggest that you read through this before watching the video. Or, if you want, you can skip to the bottom of this post to watch that video now.

Staging implies breaking an order (either buy or sell, or both) into a series of individual trades.

Before proceeding any further, I need to mention here that all of the analysis I do of pip distances, timing, trading process, etc. are based on most major pair characteristics. So, when I say my minimum scalping profit target is 5 pips, that's based on a pair daily ATR of 80 to maybe 120 pips. If you're trading a currency pair with a 5 minute ATR of say 30 pips, none of anything that I say here, or in any work that I produce whether that be in person, written, or video would make any sense.

Say you have a $3,000 account size. This will allow you to trade 3 mini lots at $1.00 per pip — under best practices funding/leverage principles.

If you were staging in you might enter your original order of 1 mini at 1.2000, another mini at 1.2005, and the final mini at 1.2010. This results in an average position value of 1.2005, which is to be expected.

Why would you stage into a position? Well, you might want to mitigate your initial risk if price immediately turns against you. In that case your loss would be just 1 mini vs the entire 3 minis if you had gone all‐in at first. There are other reasons, but let's keep it simple.

If you were staging out you might pull 1 mini at 1.2030, another mini at 1.2035, and the final mini at 1.2040. This results in an average trade value of 1.2035, which is to be expected.

Why would you stage out of a position? Well, you might want to ensure yourself of some profit as price advances by pulling lots off and trailing your stop behind the remaining ones. There are other reasons, but let's keep it simple.

In this example, your staged in average was 1.2005, and the staged out average of 1.2035 gives you a 30 pip profit. Without staging in or out, your profit would have been 40 pips, 10 pips more than from staging.

By staging — either in or out — you lose a certain number of pips over that of going all‐in at entry, and cashing all out at exit.

So, wouldn't the all‐in approach be better? Sure — if price goes to the ultimate profit target.

But what happens if price doesn't get to the profit target? And that's the argument used by traders who do stage: they get paid something, bring the stop to break even, and the rest of the trade is for free.

The counterpoint to that of the all‐in trader is that they're willing to take the initial hit against the full lot size because they know that over the long run their win to loss ratio will enable them to make up for the few times they do lose, and, with their more robust wins the majority of the time, their gains will be so much higher.

The all‐in trader feels the staged position trader is not getting full value for the initial risk they are taking, and feel that they are leaving a lot of money on the table by staging their positions.

The trader that stages feels that they are getting far more value for the risk that they are initially taking because if they lose, they only use the first stage size going in, and if the trade works in their favor through to the next stage point, they then make huge percentage gains over that initial risk because the entire rest of the trade is really risk free — from a dollar standpoint.

Both approaches — staging and not staging — are valid.

The approach a trader chooses should be based on their personality, and comfort level with the assumption of risk over time.

The primary reason that I made this decision was after doing hundreds of thousands of computer simulation runs against a permutation matrix of staging in scenarios using 6 lots [(1,2,3); (3,2,1); (2,2,2); (6); (1,5)....], nothing paid the value of going all‐in, and running the position out through a series of random generated price moves to target. Not even close.

Because of that, not only didn't I stage in, but I discarded staging out as well.

Now, I didn't do any simulation analysis programming for staging out, but assumed similar results to staging in as far as not getting full value for the position.

However, a more specific reason was that because I was building a short term/scalping methodology there just wasn't the chart real estate to stage out.

In scalping, you don't even set limit orders — entry or stops — because you're just in and out so quickly that there isn't time to even make a plan for that type of trading.

Langers has been trading a long time, and in this video discussed why — and how — he stages his positions out. His main rational is that his initial pull point ensures him of a small profit if the trade either goes against him after that, or price doesn't reach his profit target. He breaks the staging out into 6 targets with the 6th intended to run for as long as it will run.

What he's doing is not uncommon. However, how he describes why he does it made me rethink my own approach to exiting a position.

What interested me was that he says trading is his job, and that his job is to pay him a wage.

So, every day when he sits down at the computer, all he's trying to do is get a small profit locked — similar to the 5 pips minimum that is part of my own trading plan.

Once he gets that small profit, he repositions his stop to break even, and just runs the rest of the lots out as far as each profit take point lets him. Again, common practice.

But it was the use of the phrase: "...trading for my wage," that was something I had never thought of. Hummm.... A wage.

Langers is not just trading: he's treading for a specific purpose: to earn a steady income.

And, to ensure himself that he gets paid, his primary focus is not to lose money, not to be greedy, and to at least get paid something for his daily work if his overall profit target isn't hit.

You're about to close the browser in disgust....

Don't.

You can't afford to miss what I'm going to be discussing for the rest of this post.

Go get a cup of coffee, and come back to finish this.

Go on.... I'll wait....

Now, write this down on a piece of paper:

The reason I trade is:

1. For income
2. To grow my net worth

Now, select why you trade — and one of those should be the reason, and not just for 'shit's 'n grins', or 'to make as much money as I can'....

Why is this important?

Because, depending on your selection, that should form the basis of your overall trading plan because your choice will require a different approach to how you trade than the other selection.

Okay, that sounds logical. But, what's the point?

I came to trading after 40 years of real estate investing. During that period I was a senior software applications development engineer making a great 'wage'. I didn't need the income from my real estate to live off of, and so that income became money that I invested back into my real estate to increase my net worth by increasing the value I would ultimately get for my properties when I went to sell them.

I retired in 2015, and began to sell off my small portfolio of properties. Because of net worth enhancing investing, in 2017 I paid cash for a beautiful 1775 antique cape, and put about $40,000 into renovations. All cash. No mortgage.

After renovations began, I put my condo up for sale. Note that I didn't need to sell my condo in order to buy the new house. This enabled me to tell bottom fishers offering on my condo to go away because I didn't need to sell. I had built my net worth up sufficiently such that I had 'fuck you' money. And that's basically what I told the deal seekers, along with: 'If you want a deal, go to K-Mart.'

And this has what to do with staging out of a currency position?

Remember, Langers trades for income. He says that himself. And so we could just leave it at that.

That would be a mistake....

When I began trading, I didn't need a 'wage' — an income. I had my I.R.A., Social Security, and money from savings, and property sales.

Thus, I began trading currencies in the same manner that I 'traded' real estate: to continue to build my net worth.

Because I didn't need the 'wage' I continued to feel that staging out was not consistent with my overall trading plan, which was trading to increase my net worth. To that end, my goal was to squeeze every pip I could from my trades, and not leave anything on the table.

Just because Langers said he was trading for a wage didn't imply that was all there was to it. He was increasing his net worth every time he pulled that initial stage out profit off the table.

And, if the trade went really well, then he didn't need the excess money above his target wage. That money increases his net worth.

How stupid I had been to miss that before.... Thanks, Langers, for discussing a view of trading theory that makes so much more sense than most of the other punters throwing advice around out there.

One of the reasons that I made a decision not to stage out of my positions, as I've mentioned before, was "...because I was building a short term/scalping methodology there just wasn't the chart real estate to stage out."

When I was initially developing that plan, I was just a little too focused on that minimum target of 5 pips profit per trading day as the target. I didn't hook the fact that my real profit target was out 25 to 30 pips: if the past price action structure was not probabilistically offering at least 25 or 30 pips, then I would not consider trading.

A 25 pip move is a 2.5% gain on a properly funded account: $1,000 for mini lots at $1 per pip, or $100,000 for 10 full lots at $100 per pip. That's huge when you can hit that doing short term trading.

More important, however, is that my studies of the 'elasticity' of price action as it relates to Hooke's Law and reversion to the mean analysis puts a 25 pip run at about the maximum terminal point for most moves before price retraces some distance.

I discuss those theoretical aspects of price action in my 07/07/20 blog post How To Use Moving Averages Correctly In Your FOREX Trading. But that's not the focus of this discussion. Just know that my analysis indicates that price, under most normal conditions, will run to a max of about 25 pips before it retraces.

This is why my real profit target is 13 pips, whereas my theoretical profit target is 25 to 30 pips.

Thus, under those 'theoretical' conditions of a 25 pip run, and a minimum profit target of 5 pips, I actually have a potential of at least 5 viable 5 pip staging out points.

That was what was most revealing to me when I thought about what Lnagers was doing with his staging out: I actually did have the chart real estate to stage out of my positions.

Not only that, but it gave me a very simple rule to pull off part of my position at the the first 5 pip target, and pull my stop to break even. Now, the rest of the trade becomes risk free.

Sure, if I lose, I lose 8 pips on my entire position size, but because of my win to loss rate, that is not an issue, i.e. in the long run I'm going to win far more than I lose, and just 2 wins of the minimum of 5 pips negates the loss: a terrific position to be in.

Of course, in order to make this all happen, there's a lot of study and analysis that needs to be done, and you have to have a good win to loss ratio or things just won't work. But those are all just basic trading educational and experiential learning anyone is going to have to do.

Methods of Staging Out of Positions

• Fixed Distance
• Structural Targets

In the discussions in this post, I've viewed staging out from a scalper's stand point where the max theoretical profit target is at about 25 pips.

That profit target is determined from the surrounding structure. That being the case, there simply are no other viable structural constructs between the theoretical take profit target 25 pips away from your trade entry point. Fixed distance is the only way to do this and make it work.

Thus, it makes sense then that "...under those 'theoretical' conditions of a 25 pip run, and a minimum profit target of 5 pips, I actually have a potential of at least 5 viable 5 pip staging out points."

The corollary to that, of course, is that the last stage out point is not where you pull your last lot off.

Rather, that is the point you protect your previous stage out point, and let price just run through that last point until you get a retracement that hits some exit criteria — trailing moving average, pip distance, ATR level, price action structural element, gut feel, whatever....

The longer term trader can thus take advantage of past price action structural elements that the shorter term trader simply can not. In fact, using structure is a far more reliable methodology than just randomly assigning a set pip distance to determine any trading action.

You do need to have a deep understanding of the unique price action of the particular currency pair that you're trading in order to do this. So much of structural based decision making is premised on the trader's intuitive sense for how that pair behaves under varying conditions simply by their experience trading that pair.

Thus, any educational advice out there for a beginner — or even an intermediate — trader to look at, much less trade, several different currency pairs, for whatever advantage they are touting, is gibberish and should be ignored. And I'd advise even the experienced retail trader to just become conversant with only 2 or at most 3 pairs.

If you can't make a lot of money trading just 1 currency pair, then you certainly won't be successful juggling among several....

By being intimately familiar with one currency pair, you'll be so much more able to correctly interpret price action structure for that pair that you won't need to look at other pairs. And, your life will be soooo much easier as a result.

So, if you are a long term trader, then become conversant with matching up staging out points with price action structural components for whatever currency pair you trade.

Video: Rethinking Staging Out of FOREX Positions