Master The Runner

Today the Trader's Blog is welcoming back Marc Nicolas of In previous posts Marc has shared invaluable trading concepts as well as tips on technical analysis. Today will be no different as he discusses the  concept of using a runner to break up lots and control risk. If you like this post be sure to join Marc and the staff for a special webinar for INO users next Wednesday, click here for more information.


To make serious money trading while controlling your risk, you need to master “the runner.” The runner is the percentage of a position which you keep open for as long as possible when the trade moves in your direction. It’s one pillar of the fundamental trading maxim, “cut losses fast, let profits run.” Sounds easy, however applying the runner principle is challenging. To understand why, we’ll look at how the most minimalist trade, buying one contract or share, can be sub-optimal.

Typically, when a one lot trade moves in a traders direction, they are eager to pat themselves on the back, so exit and bank a small profit as quickly as possible. Often traders will then suffer mentally as the market continues to move in their original direction. Annoyed by the missed profit, after a short but lethal delay, just when the market is about to pullback a little, they will enter again, only to be stopped out, returning their banked profit from their first trade (one lot).

In this situation, an extremely disciplined trader, with a low daily target, will turn off their computer after that small winner on their first trade. They are a better trader than the one above, keeping greed in check, but they are still behaving sub-optimally as they are loosing out on the bigger move days which could drastically increase their annual returns.

The first solution is to use multiple lots, shares or contracts. However, if you are still entering all in, exiting all out, and scalping profits on small moves, you are taking high risk to profit ratio trades which will eventually eat into you capital unless you have a very high percentage of winning trades. (Note: when you enter a trade with multiples, your risk should not exceed 1% of your capital – see why in one of our previous articles, 9 Key Trading Concepts).

The next solution is too use multiple lots but scale out. So say you enter with 2 contracts, with a 1.5 point stoploss. As the market moves in your direction, you can exit 1 contract at 1.5 points. Immediately you have satisfied the emotional need to take profits and your risk is eliminated, because if you don’t move your stoploss and the market turns against you, your overall trade will be breakeven. Alternatively you can play it tighter and move your stop to breakeven and protect your banked profit of 1.5 points. Either way you can trade your remaining contract, the runner, in a more technical, less emotional manner because you have put yourself in a position to capitalize on a bigger move on an auto trade with your runner protected by your exit on the first contract.

The challenge is holding onto that runner. And you should because 1 risk free runner is worth a lot more than repeated full risk scalps. For instance, assume there are 9 points between a support and resistance area and you take 2 trades for the day, 1 winner, 1 looser, using 2 contracts with a 1.5 point stop loss.

Lets look at two scenarios, one with a scalping style and one using a runner, in exactly the same market circumstances.

Scenario One – Scalping with Fear

On the first trade the market moves 1.5 points against you, so that’s a 3 point hit to your account because you are using 2 contracts.

Because their account is negative, typically newbies now start to “trade their account” i.e. they just want to get breakeven and don’t focus on their charts. So on the second trade the market moves 1.5 points in their direction. They scalp out both contracts at 1.5 points, that’s 3 points profit, bringing their account to breakeven for the day and they sit frustrated on the sideline as the market continues to move in their direction.

Scenario Two – Using a Runner

Your first trade is exactly the same as above, market moves 1.5 points against you, a 3 point hit for 2 contracts.

However this time, on the second trade, you trade like a pro, focusing on your process, your next trade, not obsessed with your P&L. So you exit the first contract at 1 point profit and keep the second contract, the runner, for two thirds of the 9 point range (between your support and resistance), exiting at +6 points, making your account 4 points profit for the day (1st trade, -3, 2nd trade-contract#1, +1, 2nd trade-contract#2, +6 = +4).

To match the performance of the trader using runners, the scalping trader would have to continue trading, racking up commissions, and risking digging themselves into a hole which gets worse as their emotions begin to drive their trades.

Finally there are several ways to determine when to exit your runners. You can either use your technical analysis, be it the next resistance, support level determined by Fibonacci, price action, moving averages, floor pivots, oscillators, whatever works for you OR by using a trailing stop. It’s a matter of personal choice. I prefer to rely on my targets, and see if momentum begins to shift at our support/resistance. Either way, hang onto those runners until your teeth hurt, knowing that you are in a risk free trade which is better than having to potentially enter the market several more times at full financial and emotional risk. It’s when you grasp and apply the runner concept you will transform from a good to great trader.

Marc Nicolas

For more from Marc and be sure to visit their free webinar for INO readers, Wednesday August 25 2010 at 4.00PM EST, click here for more information.

14 thoughts on “Master The Runner

  1. I think this is an essential part of money management, 20/80 rule is applicable here also. I will be in Marc's September program, really look forward to it.

  2. Great article Mr Nicolas!

    Forex Joe would refer to the runner as the "Gravy Train" where one has the potential
    of profiting 1000's of pips on that runner.

  3. Hi David R. I'm a newbie as well. I think a point is the whatever the unit is you are trading. i.e if it you are trading stocks and shares priced in dollars a point would be one cent. Someone please correct me if I am wrong. I assume because of the extremely close placing of the stop to the entry price in the examples, day trading is being discussed. So the stops are only being placed 1.5 cents from the entry price. Not sure if a point is the same for futures but it will be a similar concept.

    To David who is playing Devil's advocate. I understand where you are coming from. However I have played around with some backtesting - with longer term trading only and what I found was taking a smaller profit led to more consistent profits and a greater annualised profitability because of the short trade times. Looking for larger profits using a large trailing stop led to a smaller win/loss ratio but generally led to greater absolute profits. However there is the time element - your money is tied up for longer and is also exposed to more risk. The point is you have to go with what you can handle psychologically. For me as a new trader I find it very hard to sit through retracements. I think the concept of a runner may be the middle ground and of great help for me. I am paper trading it with the S & P over the last year to see if it would have made a difference. Intuitively I like the idea because you have some safe money so the runner is now risk free. Ok it might not work that often but my backtesting tells me that hitting even one or two big trades in ten would beat the 5 or 6 winning trades with a small profit.

    Thanks Marc for a great concept and a thought provoking article.

  4. David I disagree, it does work, maybe you need to work harded on defining entry/exit points, support, resistance and stop losses. David R., again, I disagree. If I would've learned this relatively simple concept earlier, I'd be ahead of where I am now. Paper trade the strategy, it does work, but don't completely dismiss it before you've tried it.

  5. This works great! I like to use it with the ATR. If the price moves in my favor, once it moves 1ATR from the price I entered the contract at I will put on a trailing stop. If I'm lucky and the price continues to move up I adjust the ATR by .25, so the next ATR is .75 of the price. It lets my profits run and worse case senario, I break even! In combination with a 1ATR stop loss, I've found this to work very well.

    Great article, thank you very much

    Justin Miller

  6. Hi David,

    My Experience has been while trading at an Hedge fund and on my own observations for the past 15+ years with my own money on the line...

    Is that the Runner is super key with proper risk management and a sound trading process.

    I know keeping a runner can be very difficult to do and we all strive to be better at keeping a runner from one big resistance area like today to an important support with your own process in a down trend.

    Today is perfect example where you could/should maximize your profits.

    Taking your example...

    I get in 2 contracts and let say I take 1.5pt profit on the first contract...

    Am I better off taking the 2 contracts off for 3pts (1.5+1.5 as you mentioned because of a potential choppy day) profits vs 1.5pt on the first and the second for about 5-6 points from a conservative entry of 77-79 today?

    Which you had plenty of time that would compare 1.5+6points to the pivot that I had 1070 total 7.5 vs 3 points on taking both contracts out. Also what is the worst case scenario you make +1.5 on the first get stopped once for break even on the 2nd contract pay your $4-8RT commission showing a profit of $71 (1.5point profit on the 1st contract $75-$4RT loss for the commission on the second contract). Then you got to trust your process to reenter and get another one and eventually you will get that runner for more than 1.5-2points assuming you do not over trade eg 2-6 trades per day maximum.

    I can only speak from my personal experience and the best traders I have been fortunate enough to trade with and observe for many years.

    I Hope This Helps...

    Take Care,

  7. Hey Marc,

    As always you bring it my man. Between your fan page, videos, articles and now webinar you have me hooked and
    almost to the point I don't want to work anymore and just do this.

    For those of you who still don't know much check out Marc's videos on his fan page and you will be brought up
    to speed quickly and if that doesn't help then I don't know what will as his free videos have taught me more
    than tons of paid products...

    Hope that helps you guys out...

    Again Marc thanks as always and I too can't wait for the webinar.

    Your Friend
    Kevin DaSilva

  8. Ive been trading for all kinds of books,studdied cd's @ tapes..and prayed,when i asked questions,somebody has been kind enough to answer.that has helped me more than anything.

  9. Not exactly and article for a beginner! I thought these articles were for beginner investors. I am still completely in the dark on this subject. It's almost like reading a foreign language! What is a "point" in this context? I'm sure that those who already know the subject think it's perfectly understandable but, then, they already understand it!

    A complete waste of my time trying to read it.

  10. I am sorry to be the advocate here but your theory hardly works. It doesn't because I have tried it numerous time and it failed. In your scenario, the price moves in my direction 1.5 points but as soon as I exit one contract, there you go with the reverse direction as the market, except in odd situations, never trends but moves very choppy.
    So I would be better off to exit both contracts with a little profit as oppose to almost break even and pay the commission too!

  11. Very useful tips marc, I am one of those traders who turns off their computer after a small profit but recently I have been wanting to increase my returns. Thanks for the incentive and technique to up my game. Looking forward to your webinar.

  12. Love the Runner concept. I've settled for small profits too often. Runner increases chance for Big Move.

  13. Good article Marc. The runner is a challenge for all of us for optimum results.

    Thank you .

  14. great article , very helpful and very important . only way to make it in this business is knowin and mastering the runner ! thats the way the pros think and trade !! great job on the article ! and thanx !

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