Taking Profit Questions ...

Discussion in 'Strategy Development' started by BrooksRimes, Oct 24, 2005.

  1. I've come to the conclusion that some type of trailing stop is needed in order to capture larger profits (when they are available). I think any type of fixed profit is really scalping in one form or another and, if used as the only profit taking method, goes against "cut your losses short and let your profits run". For those that figured this out long ago, maybe you can help with some answers from your experience ...

    Is it best to combine fixed profits and trailing profit? Or, some other method?

    What works best in scaling out profits? 2 steps, 3 steps? If steps, should it be 50/50 or 67/33 or ?

    What is the best type of trailing stop?
    - an N period ATR +/- the H,L,C
    - an N period SMA of the L or H
    - 1 or 2 ticks above/below the N period highest high or lowest low
    or something else?

    Is it a good rule to always take some profits on a long, favorable bar?

    To avoid being shaken out by a small move against you, is a wide stop the best defense?

    If shaken out of a trade, only to watch it resume, what should be considered in deciding to re-enter?


  2. TickJob


    There is no best way for trailing stop, no point to find optimum one. It is just like only a few lucky one will pick the top and bottom.
  3. Hi Brooks,

    Trade management after entry is dependent upon the strategy that got you into the trade.

    Therefore, it's not uncommon for someone to be using either an initial stop, trailing stop or profit target that's counter-productive to the Pattern/Entry signal.

    I mean...we hear others here at ET say it all the time...

    my stop was too tight...

    my trailing stop too wide...

    market took off after I exited the trade...

    got stopped out for a loss and market reversed and went my way...

    All the above are signs something in the trade management is not in sync with the Pattern/Entry signal.

    My point above...

    To properly answer your questions we would need to know the in-depth specifics of your Pattern/Entry signal.

    Without those specifics...its just a guessing game in trying to get the best out of your trade methodology.

  4. There is nothing wrong with taking target profits. Stocks go up and down. You will be right and wrong at times but taking profits is key. There will always be a new opportunity. The most important thing is a stop is selling you into weakness winners sell into strength. If you want to get married find a girl not a stock.
  5. I doubt there is any such thing as "best". If you and I look a the equity curves of two different systems, you may prefer A whilst I prefer B. When a third person asks us "which is best, A or B?" there is no correct answer.

    Therefore, other people and their opinions can sod off. What matters is *you* and your opinions; all you will get from others is jumbled disagreement.

    Fortunately these questions can be settled by historical computer simulations a/k/a backtesting: Run a system without profit targets. Run it again with profit targets. Look at the two equity curves and decide, which do *you* like better? Now pick a different system. Run it with profit targets and again without profit targets. In this second case, which do *you* like better? Repeat a dozen times with a dozen systems.

    Now look at your own personal scoring-sheet. How many times did you like the results better, when profit targets were used? Was it unanimous? Or were there some systems that pleased you more _without_ profit targets, but other systems you preferred _with_ profit targets?

    I have done this exercise myself. I found that it was unanimous: I always preferred the systems' performance WITHOUT profit targets. But you cannot draw any conclusions from this because it is merely a set of subjective judgements made by a random stranger. Who knows whether you would have agreed or disagreed with my preferences? I don't, you don't, nobody else does either.

    You're welcome.