Let your profits run...

We all know that "let your profits run" is one the first, most basic rules that new traders learn. It's a simple and true rule but it does not tell the whole story: to get out of a profiting trade too soon (which is very common among new traders) is just as bad as waiting too long and get out when trade has moved back against you.

The question here is that, in retrospective, for any given trade there was ALWAYS an optimum point where you should have exited. Failure to do so means less profit, whether if you didn't let your profits run by leaving too early or if you waited too long and then you lost some of the profit when the price moved back.

All this rather obvious talk for what? I just want to know how people here usually judge when to exit a trade. What kind of tools do you most rely on to confirm that there is a possible change in trend and therefore time to go?

And also, as a curiosity, how do you usually qualify if a trade have been a success? for example, if I go long on a trade and price moves 100 pips in my direction in a certain period of time, I am usually aiming at obtaining at least 70 of those pips. Everything above 70% I consider a great trade, while less than that I feel that I didn't use my stops in an optimal way, whether by making them too tight for fear of a reversal or by waiting too long to exit the trade. This 70% is obviously an arbitrary number, but I have settled on it after hundreds of trades. Also note that I am referring to mostly intraday trading of only a few hours.

I venture to say that you will get many responses ranging from, "its a personal decision" to "it depends on what time frame you trade". All are correct...none are correct.

Unfortunately I have no pat answer as I really don't think one exists. Your trade goals should be your ultimate decider. One way or another, no matter how you trade, you will see that there is no perfect way to exit. If you set a limit you will see that that there was much more left when your limit was touched. If you "ride" the trend, as you observed, you cannot know when THE top has come along and must therefore settle for less.

Either way you WILL leave pips on the table. What may be of more consequence is how it affects your trading, pyschologically. If you are constantly frustrated for not milking every last pip out of a trade...you will evnetually suffer losses by waiting too long. If you are satified with a goal, and your goal is touched. God bless it and move on to the next trade.

Some traders scale out of positions taking 1/2 or 1/3 off in profit at a goal target, while holding the remainin portion to "let your winners run". But by doing that you must also accept that the final portion of your position may actually make LESS than your original goal. In my experience only 1 in 10 actually go on and make more.

No one can tell you. YOU must decide which method works best in your head and follow it religously. Once you establish a pattern of successes you may begin to try improving your results...but alway approach it from the standpoint of sucess rather than failure.

Just one opinion...there are many others.

It's just a matter of experience. The longer you're around the charts the more you'll know where the price will turn against you to a degree greater than you're willing to absorb. A perfect trade, where you get in and out at projected levels at the best possible prices, happens rarely and is more a matter of luck. But getting the bulk of the move you're looking at is just experience.

By the way, if you're just 'going in a direction' without a clear exit level or exit method, it makes it much, much harder to decide when to get out.

Rob

If I'm long, I don't get out until I'm ready to go short......otherwise, why did I get out of my long?

My approach is simple. When you buy at stronger support, you may count on more profits. Your stop loss is on. If you lost, you lost small, if you get, you get a lot.

it's one of those axioms that doesn't hold up in this arena.

too much volatility.

m

At some point in trading you will realize that getting out of a trade is far more important than getting into a trade. Its all about the exit and the problem with most traders is that they only look at the "perfect entry" profitable system but spend less to no time in how to manage a trade once action has been taken.
Exits messures both opportunity and risk and it really depends on the traders goal setting.

Haha that completely depends on how you trade.

We all have cognitive biases to 'close a winning trade while we still can' and 'watch a loosing trade become much larger'

And i prefer to scalp but I think its important to leave a trade running if its in the direction of the long term trend untill your reward becomes around 4 times what you risked. The more experienced I become the longer im leaving my trades open.

For crying out loud, it all depends on your GREED !

Let your profits run.
I believe this expression belong to those who are
successful in trading otherwise your profits will turn into losses.
That is it.

I believe it is best to know how you are going to exit a trade before you ever open it. If you're constantly looking at your open positions and making gut calls as to whether they should be closed, I think it is quite likely you will lose money in the long run (or maybe even in the short run). I know there are some people around here who claim to trade almost entirely on "feel", but I can't honestly imagine how they do it profitably.

A small sampling of possible answers includes:

You may decide to TP if a winning trade reaches a certain resistance level.

You may decide to TP if a winning trade reaches a certain multiple of an indicator (e.g., 3x ATR).

You may decide to TP whenever a winning trade retreats 20% from its previous high watermark.

You may decide to TP whenever a certain action occurs on the indicator(s) (e.g., on a MA cross).

Whether you choose one of these TP points, or you choose something entirely unique to your style, the important thing is that all of these "triggers" can be defined and decided upon before you ever open a single live trade. This removes much of the sweaty-palm factor. You're not searching your soul. You're just reacting to a predetermined set of events.

Some might whine, "But that's not letting your profits run!"

Fine, then if you want to really let your profits run, you can still do that with predetermined parameters.

For example, you could decide to set a trailing stop of X pips whenever one of the above parameters are met.

You could decide to close half of your position when a given parameter is met and then you could set a wide trailing stop on the other half of the position.

You could decide to manually move your SL to 0 whenever a given parameter is met (thus locking in at least a break-even trade).

Again, I personally think it's important to know how you are entering and exiting a position before you even think about placing a live trade. Hope this helps.

The simple answer to the original question is that if you understand the capability of your method/system, then you will have the answer as to where the take profit and stop loss points should be. This includes:

1) Understanding your profile as a trader - what you are comfortable and confident with

2) At what levels and under what market conditions the method/system (excluding you, if possible) achieves the optimum results - this takes time to establish; it can be "mechanical" (particularly for developoing traders), but can also can be based on the knowledge and experience of the more advanced and sophisticated trader, in which case a degree of discretion might be quite acceptable.

There is nothing wrong with exiting a trade in profit only to see it carry on for a longer run, as long as that decision to exit was based on a good understanding of the above...

No offense but if you read my initial post, I think that's just a cliche and doesn't really explain anything.

Thanks for the answers, definitely good stuff.

Read this thread dude....

http://www.forexfactory.com/showthre...=221545&page=2

Phorex Phreak