Hello, say for example that you trade intra-day break-outs of range. How do you determine, when to take profits? How do you choose your target? For example some days I shoot for 100 points and take profits, only to find out price moved another 200 point in my direction. Then the next time I decide to leave trade open longer only to find out that profits evaporate and I exit with break-even. Yesterday was a good example on SP500. It broke down nicely, I took profits way to early, but when I looked at the price at the end of the day it was much higher. So I was glad I took profits prematurely. So would it be better to increase position size for 100 % and shoot for 100 points, or keep position size the same and wait longer. How do you decide? If you wait longer then you have fewer but bigger winners and vice versa. But there must be some "optimal" way to calculate. Do you consider average daily range? Last few days? Because volatility can change dramatically. You have days that barely move and then huge up or down days where it pays handsomely to wait.. thanks for help Tomaz
It's not like... "somebody has it all figured out, and here's how you do it". Trading is an art, not a science. Therefore, there are no good answers to your questions. To prevail you need to develop your "style"... discipline about taking risks and defending capital.... then, adapt as you go along.
Run an analysis of the last 100 appearances of this setup (according to your setup/entry rules) and compare the two methods to see which is more profitable over series' of trades. Then trade the most profitable method and do not dwell on the trades where if you did it this way you would've made way more or if you did it that way you would've prevented a loss. Consistently profitable trading is about the results over series' of trades, not about individual trades. If you let individual trades influence your trade management you'll end up with far less trying to outsmart a statistically sound system. I've been there many times. One day I held 4 consecutive trades for bigger profits than my regular profit target and every one of them ended up nil. So then on the 5th trade I took my regular profit target and watched price run more than 10 times further in my favor. I would've been far better off either sticking with my regular fixed target on each trade or continuing to hold trades for the BIG MOVE.
yes, you should always cut losses short and let profits ride. You won't make money every day or even every year, but over a lifetime you will if you just follow that one simple rule. Everybody knows what a small loss is. It is clearly defined in the system. But what is a large profit? If your system has defined what a large profit is I doubt you will make money.
so isn't it a wonderful problem to have? When to take a profit? Beats the heck out of wondering when to take a loss. A profit isn't really a profit unless it pays for all your losses. My #1 rule is "Never take a profit" and that has served me well. The rare times I do take a proft I know I am violating my #1 rule, and I don't take it lightly. Usually, the market dumps so much money on me in such a short amount of time there is no question. I really couldn't care less what happens after that.
Some good advice, thanks to all. It is hard sometimes, because you have some big trending days when price breaks up and just runs. If you take profit early you just watch how much more you could have made and that hurts. Leaving money on the table sometimes hurts even more than loosing. So like No doji said then you change the strategy and wait for big winners only to find out you should take profits earlier.. ! I guess it is kind of like with stops. Sometimes you move them to break-even too early, other times you wish you would move them earlier to avoid turning winner in to loser.. I should probably just define my trading system more rigid. I recently became winning trader, but I trade discretionary. I cut losers short, have no problems with that. My problem is with winner that turn into losers. Then I over trade. I chase trades. I want to make money back... Hopefully I will become more consistent with time, like No Doji did. I read a lot of her posts and it is just awesome how she turned out the way she did. Not sure everyone can do it because trading really is more psychological than it is about winning trading system. Now I can understand why Richard Denis could give his winning trading system to 20 people and only a few of them made it....
"But there must be some "optimal" way to calculate." there is none. been there, done that. whether you trail the stop or take profits... on the long run it will average out. as no doji said, decide for one and stick to it! personally i prefer to take profits rather quickly, for example at the next best resistance. it hurts to see the price breaking out of it and thinking about how much money I could have made if I didn't take the profit. but if I keep the position and price comes back and eats most of my profits, it hurts too. whatever you do, trading hurts lol
If you have a small account, put on bigger positions and take smaller profits i.e targets. Your aim is to build the account as fast as possible. Hopefully you will have a high win rate. As you become bigger, you decrease the size of your positions (proportionally speaking), use less leverage and start letting winners run. Although your win rate will fall and your drawdowns increase, you;ll make more money at the end of the year than you would by having profit targets. I may expound on this concept if you wish.