Yes possibly but with a positive expectancy. There's a book by Ken Grant who was a risk manager for many of the best traders in the world. He said virtually all of them had 90/10 or worse profit distribution. That is the top 10% of all trades made in a year made all the money....the other 90% washed. For some, it was even more skewed like 95/5.
Yes - many people do. People vary greatly in the relative extents to which "fear of losses" and "fear of missing out on potential profits" affect their decision-making. I take at least some of the profit early, on almost all my profitable trades, sometimes by closing the whole position "early" and at other times by scaling out ... on the respective types of trades for which I've reliably proven each method of trade management to be beneficial overall, naturally enough. I quite often close a proportion of the trade at a level which locks in some collective profit on the whole trade, and let the rest run (if it will) adjusting its stop-loss manually as it does so. That applies, for example, to some of the trades I make which might catch the start of a new intraday trend, following a reversal. The three main reasons (all three of them interconnected, really) I do this are: first, it's what I'm used to and what I've almost always done; secondly, I trade OPM and it's what my employers want to me do; thirdly my principle objective with each day's trading is simply to be able to do the next day's trading without having experienced any drawdown on the day (whenever possible), rather than trying to make the most profit I can, each day. Van K. Tharp, in his (excellent) book Trade Your Way to Financial Freedom, presents the view that scaling out is, broadly speaking, a bad idea, because it tends to lead to having most at risk at the stage of the trades when the odds tend to be least in your favour. IMO there are definitely some exceptions to that - including some of the methods I routinely use, myself. So it's the one thing in his book over which I don't agree with him. Here's the thing: many people scale out as a fundamental and essential part of the way they make their livings through their trading, but that's because their analysed results have proven that doing so maximises their overall edge or profit factor. In other words, they're doing it because it's the proven, right thing for them to do. I don't worry about missing out on some potential further profit by partially closing my profitable positions, for two reasons: first, it minimises my drawdown risk (the single most important thing, for me); secondly, I take the view that if price movement develops in such a way that I "could have made more" - and it sometimes does, of course - then that was an opportunity for someone else, who has different methods from mine, not an opportunity for me. And I know that there are also plenty of other times when I take a profit and "he" ends up taking a loss. So, these things are a little more complicated than one expects from any superficial perspective, and the reality is that a whole range of interacting variables can sometimes be involved, even occasionally in ways that change the decision. One size decidedly does not fit all.
And neither do I, just as I don't cry over not having entered sooner, as both the best, or proper, entries/exits are not found at the bottom/top of the trend. From the well known book titled The Roast Beef Trading Theory, 'the best is in the middle'!!
There is certainly nothing wrong with locking in profits by "closing a winner early". Of course, the only way you know a winner was closed early is if after you closed it, it continued in the same direction. We can never truly know when a winner should be closed. There is a psychological facet of this that you have to deal with. For example... 1. I was letting some winners run over the past month. Some I closed to lock in profits, and they continued (by a lot). Damn it! Closed too early! I'm an idiot! 2. Some I locked in and they reversed right away (by a lot). Yay, closed right on time! I'm a market genius! 3. Some I let run and didn't lock in, and they reversed to half the full run. Damn it! Didn't close when I should have! I'm an idiot! 4. Some I didn't enter at all, and price reversed from where I would have gone in (by a lot). Yay! I'm a market direction judgement genius! 5. Some I didn't enter at all, and price went in the direction I thought it would (by a lot). Damnit! I'm an idiot. 6. Some I let run and they didn't reverse, and I got out when the run ended. Yay, market e. coyote, SUPER genius! And so on and so on, you might be getting the point there. And that point being, no matter what you do, you just cannot ever get MFE to exactly = profit, and MAE to = zero. Numbers 1-3 are the easily tackled ones. Also, there is nothing wrong with closing a winner early and then re-entering right away to let it continue on. (That hopefully will lead to number 1, and then 6.) This way you could take that earned profit and use it for something else, like pay a bill. Or, you could just let winners ride by not closing, which will invariably lead to the same results as 2, 3 or 6. Sorry, a bit of a ramble there. AIAO or SISO, it all comes out in the wash. What is probably of paramount importance through all of this is that no matter WHAT happens, winning trade or loser, there will ALWAYS be more trades to take, always more opportunities. Don't get too wrapped up in trying to squeeze every ounce of brain food into the decision of whether to let a particular winner run or not. Take what you can manage, and manage what you take.
Managing winners is no different than managing losers! Its a balancing act which can be successfully perform only with the working method and by the experience trader.
I try to never take profits early. I use technical analysis to determine the exit. Question. What is your exit strategy?
For short premiums, I exit 50% profit on Strangles and 25% profit on straddles. On Bullspreads, I exit 75% profits. On scalping, I exit depending on the instrument.
Thanks. Do you think it is most appropriate to use "let the winner run" if one is doing fundamental investing rather than technical trading? If one's investing horizon is months and years, then I understand it makes sense to hold on to winner and let it run. One mind set I don't get in "regrets" when people exit early is that hindsight is 20/20. People seem to forget that as if they can predict the future. I like your approach of not have to capture every single cents of upside. I realized in life that most of my biggest losses were the result of greed rather than taking profits early. I just banked 0.7% today and happy with the result...
I did not realize that you were an options trader. That complicates my opinion. Lol. I assume that you are also a swing trader? By that I mean that you hold your option positions for several days?