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The importance of taking profits through shorter term trading

  • #1
  • First Post: Edited Mar 18, 2012 5:13pm Feb 1, 2012 7:47pm | Edited Mar 18, 2012 5:13pm
When you enter a trade there are 2 possible decisions to make.

Take profit

Stop loss

I am not including holding the trade because eventually it will turn into either of the 2. Just simply not including breaking even.

Most systems are based on stops. The truth is stops are fixed at the max percentage you are allowing on the trade to minimize draw down. If you exit before then you should know you have an edge in doing so.

Now take profits should not be fixed. (please debate this statement if you feel it is incorrect)

I personally have no problem taking profits to early. Matter of fact I believe it is one of the main reasons I am a profitable trader.

Obviously a trade not in the money is either even or at a loss.

With that said how many times have you seen a trade in the money only to reverse and hit your stop loss. You probably would of liked to take a profit if you could go back in time. But you didn't, why didn't you because you were concerned about your risk reward. When really there was more risk not taking your profit.

If you are not going to give the same amount of room for your losers to become winners you definitely can't allow room for your winners to become losers.

Fear is hedged through fixed stop loss and greed is hedged through taking profits.

If you are in the money on a trade and it has not hit your take profit and there are several signals the trade is going to reverse. Like the same signals you believe you had an edge to enter the trade. Why on gods earth would you not take your profit. (please explain to me why risk / reward would be more important then this situation). In short you held the trade through greed.

You either lose money make money. In doing so you can set stop even, set stop to take profit or trail your stop if you are in the money. I suggest if your not going to trail your stop set your stop in the money. You will be rewarded that way in the long run.

Now with all the previous mumbo jumbo paragraphs.

More winners less losers builds your account. Now there is a fine line on how many winners you need to beat your losers. But your true hidden edge is the compounding of the account. A few small winners compounded and a larger loss repetitively will grow your account faster then a big win followed by several small loses.

If you are not compounding it may not make a difference.

So basically in a nutshell fixed stops and having a system solely based on taking what is temporarily available with good entry points = success.

Please feel free to debate or add to the importance of taking profits.

I entirely understand there are many ways to skin a cat.
My trades are 100% profitable 65% of the time!
  • #2
  • Feb 2, 2012 1:46am Feb 2, 2012 1:46am
I am inclined to agree with you despite being a trend trader for the past couple of years.

I have been doing a lot of analysing lately and it seems my entry technique is pretty much spot on. But holding a trade for the longer term has not proven to be as profitable than if I just set a TP of R:R 1:1.

Trying to hold onto a trade for the longer trend may look better when staring at the charts but it's such an emotional roller coaster and very draining. Can't tell you how soul destroying it feels to see a 200 pip gain get stopped out at break even because you are trying to ride a trend.
  • #3
  • Feb 2, 2012 2:17am Feb 2, 2012 2:17am
Yeah I hear you that's frustrating to allow a 200 pip gain to get stopped out even. If i want to be greedy and let the trade ride i will set my stop with a small profit. in this case probably about forty pips. I figure if the trade starts to against me 160 pips it will more then likely hit 200 pips. To net 40 pips rather then break even with relatively the same greed factor sounds good to me.

To be honest i very rarely even hit a 200 pip trade. I usually take profits on the daily charts for about 30 to 50 pips. Occasionally i will let a trade ride though.

I also close out all my trades with in 12 hours and set new set of trades every 24 hours.

Thanks for the reply
My trades are 100% profitable 65% of the time!
  • #4
  • Feb 2, 2012 2:31am Feb 2, 2012 2:31am
I totally agree with your post. I'm a short term trader myself and will sometimes take trades for less than 1:1. Why do I do that? Because I'm trading short term and my next "logical" exit point would be the next entry point going the other direction. Do I take the next trade going the other way? Usually, never. But it's the next logical or technical level to either take profit or enter going the opposite direction.

Kathy Lien wrote an article about trading using less than 1:1. In the article, she discussed shorter time frames allow you to take those trades because your accuracy should be higher. I'm trying to find the article now and will post the link.
  • #5
  • Feb 2, 2012 6:00am Feb 2, 2012 6:00am
Trading smaller TF's; we are talking about having a clean/not padded price feed; precision entry into pullbacks and R:R 1:1 works fine; obviously one will get the bonus trades when the market will just give you the extra - without you 'asking for it'.
  • #6
  • Feb 2, 2012 1:54pm Feb 2, 2012 1:54pm
Quoting jimmyjames79
More winners less losers builds your account.
Wrong, an increasing equity curve is a function of the win/loss and the risk/reward rate.
  • #7
  • Edited Feb 3, 2012 2:47pm Feb 2, 2012 7:27pm | Edited Feb 3, 2012 2:47pm
Quoting Custos
Wrong, an increasing equity curve is a function of the win/loss and the risk/reward rate.
How did you find my thread. Oh yeah you probably read the question I asked had no concrete evidence of a bold statement you made. So instead of answering the question you come and nit pick on my thread.

That is okay though i understand that you may have took offence. I could have asked the question in a different way.

Win/loss ratio risk/reward I fully understand these fundamentals and how they coincide.

Okay small consecutive wins increases the equity curve and allows me to compound on those wins. MORE WINS THEN LOSSES. MORE LOSSES THEN WINS effects the compounding of the account This is a widely known concept. My risk is fixed at 2%.

And also when you analyze risk reward before a trade it is because in that point of time you thought wow this trade looks good I'll take it. Now you are in the trade all of a sudden the dynamics of your trade change through (outside forces, negative order flow, technical analysis and etc...) All these factors create whats known as VARIABLE CHANGE. So what do you do stick with your game plan even though you no that probability of the trade has changed in the houses favor.

(EDIT Custo's has corrected this statement further along in the posts, The trade itself is constantly evolving not risk reward.)
RISK REWARD IS CONSTANTLY EVOLVING DURING YOUR TRADE. Therefore Risk:Reward is only a guideline if you follow your risk reward to the T you are losing an edge. Not though saying you can't make money with following it to the T.

I have no problem with learning and constructive criticism.
My trades are 100% profitable 65% of the time!
  • #8
  • Feb 2, 2012 7:39pm Feb 2, 2012 7:39pm
Quoting jimmyjames79
How did you find my thread. Oh yeah you probably read the question I asked had no concrete evidence of a bold statement you made. So instead of answering the question you come and nit pick on my thread.

That is okay though i understand that you may have took offence. I could have asked the question in a different way.

Okay small consecutive wins increases the equity curve and allows me to compound on those wins. MORE WINS THEN LOSSES. MORE LOSSES THEN WINS effects the compounding of the account This is a widely known concept.

And also when...
k why so defensive? custos is right. there are always 2 components. risk/reward and win rate. they come hand in hand and cannot be separated. for example you could win 99 times and let 1 loss wipe you out. this is an extreme example but it just shows that the 2 things above come together. not as a standalone.

following the plan is important. if you don't you are always side guessing yourself. just because you think that the ball is not in your court anymore isn't enough reason to abandon your trade position. if this is not done based on fixed rules, in the long run you will lose out.

but that is not to say there is no solution. the solution which i find is rarely discussed is to always have multiple trades per entry. you need to divide them into long term trades and short term ones.

reach target profit A? take off 1 leg.
reach target profit B? take off another.
leaving only your long term leg to run. if this leg ends up breakeven, so be it.
  • #9
  • Edited 9:38pm Feb 2, 2012 8:31pm | Edited 9:38pm
Quoting thelws
k why so defensive? custos is right. there are always 2 components. risk/reward and win rate. they come hand in hand and cannot be separated. for example you could win 99 times and let 1 loss wipe you out. this is an extreme example but it just shows that the 2 things above come together. not as a standalone.

following the plan is important. if you don't you are always side guessing yourself. just because you think that the ball is not in your court anymore isn't enough reason to abandon your trade position. if this is not done based on fixed...
Did I really sound that defensive if so my bad. Maybe if I clarified my max risk that would help.


1 I never allow any more then a 2% loss on any trade. That's a fixed rule. Also there are many reasons to exit a trade. For instance i have a time expiration on my trades. Every system is different. So one trade will never wipe me out.

2 win/loss ratio risk/reward pretty basic stuff. I fully understand how these two concepts come together. Thus the reason why i started this thread.

3 I stated that you can follow your initial plan and be profitable. I however am more profitable with my particular system reevaluating the trade 1 time during the process. I don't think you really paid to much attention to the reasoning of why I would exit a trade.

4 If Custo's thought I was risking more then 2% per trade I can see why he may have posted his comment. He chose to not elaborate on his comment.


5. I am not going to lose in the long run because I don't follow my original plan to the T. A simple second look simply minimizes my draw down. I have a shitload of personal data on several notebooks that justifies my actions.

6. I like what you are saying about securing your profits through multiple entries. Good stuff.

7. I know Custo's knows what he's doing.

8.Lets be cool here. This is only my second thread.

9. I don't really now why i numbered each paragraph.

Thanks for the replies fellas!
My trades are 100% profitable 65% of the time!
  • #10
  • Feb 2, 2012 9:19pm Feb 2, 2012 9:19pm
Really its just one question ... when to exit ... personally i think the best way to exit is with a dynamic system based off the volatility I.E. the ATR

Also i like to take profits after large moves , if I am long, and a large bar closes bull i cut my greed.

As long as you have a solid plan to cut losses short and capture profits ... money will be made ...

I have read many times that a system must yield a 2/1 r/r to succeed ... i never liked that sentement ... if a scalper has a system that has a 75% win ratio and 1/1 rist to reward ... that is still very profitable to me ...
  • #11
  • Feb 2, 2012 9:27pm Feb 2, 2012 9:27pm
Quoting FerventForex
Really its just one question ... when to exit ... personally i think the best way to exit is with a dynamic system based off the volatility I.E. the ATR

Also i like to take profits after large moves , if I am long, and a large bar closes bull i cut my greed.

As long as you have a solid plan to cut losses short and capture profits ... money will be made ...

I have read many times that a system must yield a 2/1 r/r to succeed ... i never liked that sentement ... if a scalper has a system that has a 75% win ratio and 1/1 rist to reward ......
I don't like that statement either. I like what your saying. I'll have to check those indicators out.

Thanks for the reply
My trades are 100% profitable 65% of the time!
  • #12
  • Feb 2, 2012 11:08pm Feb 2, 2012 11:08pm
Quoting Trader613
Trading smaller TF's; we are talking about having a clean/not padded price feed; precision entry into pullbacks and R:R 1:1 works fine; obviously one will get the bonus trades when the market will just give you the extra - without you 'asking for it'.
I agree, I usually enter a trade after some confirmation. Reverse pivot with the trend. One of the best trades out there. With this approach i don't mind setting my stop even after in the money X amount of pips and let the trade ride for a much better reward. At the same time 1:1 risk reward in this case is a good example of taking your profits and not being greedy.
My trades are 100% profitable 65% of the time!
  • #13
  • Feb 3, 2012 12:13am Feb 3, 2012 12:13am
I think using atr as a base for your sl is the right way.
also depends on the market...is stable and quiet (trending ) or is it stable and volatile(whipsawing).
when trending you can hope for more profit but when volatile you can even use two times risk reward.
wo-yoy! wo-yoy! wo-yoy! wo-yoi! wo-yoy-yoy-yoy!
  • #14
  • Feb 3, 2012 12:28am Feb 3, 2012 12:28am
Quoting jimmyjames79
Okay small consecutive wins increases the equity curve and allows me to compound on those wins. MORE WINS THEN LOSSES. MORE LOSSES THEN WINS effects the compounding of the account This is a widely known concept. My risk is fixed at 2%.
Okay, that I can agree with. The compounding process is really changed by the win-rate.

Quoting jimmyjames79
RISK REWARD IS CONSTANTLY EVOLVING DURING YOUR TRADE. Therefore Risk:Reward is only a guideline if you follow your risk reward to the T you are losing an edge. Not though saying you can't make money with following it to the T.
no, it doesn't. Does your win-rate change during a trade? If, over a couple of thousand of trades you have determined the average win-rate and the average risk-reward ratio per trade, then guess what, you have two fixed ratios, not a floating number that changes during the trade.
Ratios of individual trades are irrelevant, except you are only making one trade in your life. However, if you plan on executing thousands of trades during your life-time, then you better stick to ratios that reflect a couple of thousand of trades as well. And those ratios are then fixed, not floating.
  • #15
  • Feb 3, 2012 12:57am Feb 3, 2012 12:57am
Quoting Custos
Okay, that I can agree with. The compounding process is really changed by the win-rate.


no, it doesn't. Does your win-rate change during a trade? If, over a couple of thousand of trades you have determined the average win-rate and the average risk-reward ratio per trade, then guess what, you have two fixed ratios, not a floating number that changes during the trade.
Ratios of individual trades are irrelevant, except you are only making one trade in your life. However, if you plan on executing thousands of trades during your life-time, then...
Fair enough, thanks for the correction. And also for the reply.
My trades are 100% profitable 65% of the time!
  • #16
  • Feb 3, 2012 1:01am Feb 3, 2012 1:01am
Quoting pemully
I think using atr as a base for your sl is the right way.
also depends on the market...is stable and quiet (trending ) or is it stable and volatile(whipsawing).
when trending you can hope for more profit but when volatile you can even use two times risk reward.
Cool yeah i read a book about widening your stops during volatile markets. It really enlightened me. Also have had more success in doing so since.

Interesting two replies regarding using atr for stops. Thanks guys!
My trades are 100% profitable 65% of the time!
  • #17
  • Feb 3, 2012 4:43pm Feb 3, 2012 4:43pm
I would have to agree with thelws "the solution which i find is rarely discussed is to always have multiple trades per entry"

Putting on a trade is different than managin/exiting a trade. It comes down to market conditions. If the trade i put on is not showing profit potential in a certain amount of time i will close partial profits and protect the rest by clossing in on the stoploss.

They key is to let some of the trade run a little longer when the market goes your way in a fast manner, but at same time not increasing risk.
  • #18
  • Feb 3, 2012 5:32pm Feb 3, 2012 5:32pm
Quoting MackS10
I would have to agree with thelws "the solution which i find is rarely discussed is to always have multiple trades per entry"

Putting on a trade is different than managin/exiting a trade. It comes down to market conditions. If the trade i put on is not showing profit potential in a certain amount of time i will close partial profits and protect the rest by clossing in on the stoploss.

They key is to let some of the trade run a little longer when the market goes your way in a fast manner, but at same time not increasing risk.
Yeah I have not heard to much myself about multiple trades per entry. Also how to manage each trade.

I agree putting on a trade is different then managing it. So basically a talented trader can intervene on the initial risk reward. In doing so you can minimize draw down and maximize beyond your initial reward. Sounds good

Thanks for your input. I'm learning hopefully some others are as well.
My trades are 100% profitable 65% of the time!
  • #19
  • Feb 3, 2012 5:35pm Feb 3, 2012 5:35pm
Quoting Equicurve
I totally agree with your post. I'm a short term trader myself and will sometimes take trades for less than 1:1. Why do I do that? Because I'm trading short term and my next "logical" exit point would be the next entry point going the other direction. Do I take the next trade going the other way? Usually, never. But it's the next logical or technical level to either take profit or enter going the opposite direction.

Kathy Lien wrote an article about trading using less than 1:1. In the article, she discussed shorter time frames allow you to...
I'll definitely Have to check out Kathy Liens article. Thanks Equicurve!
My trades are 100% profitable 65% of the time!
  • #20
  • Feb 8, 2012 1:11am Feb 8, 2012 1:11am
Quoting jimmyjames79
Yeah I hear you that's frustrating to allow a 200 pip gain to get stopped out even. If i want to be greedy and let the trade ride i will set my stop with a small profit. in this case probably about forty pips. I figure if the trade starts to against me 160 pips it will more then likely hit 200 pips. To net 40 pips rather then break even with relatively the same greed factor sounds good to me.

To be honest i very rarely even hit a 200 pip trade. I usually take profits on the daily charts for about 30 to 50 pips. Occasionally i will let a trade...
i'm newbie,can you give me some advice if i want to take profit 30 to 50 pips,,,how many pips i've to set the stoploss?
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