Taking Profits Too Early

Discussion in 'Psychology' started by cszulc, Mar 22, 2008.

  1. cszulc


    I always find myself taking profits too early. For example, I bought 100 shares of SPY at 131.05 last week, sold it that day at 131.30, event though I had the intent of holding throughout the week.

    Sometimes I even find myself doing this with short-term trades too, even though I don't classify myself as a scalper. Going long 1 ES and immediately putting a sell order 1 tick above once filled.

    Anyone else here do the same?
  2. 1) Actions speak louder than intent.
    2) You may be a perfectionist.
    3) You're probably undercapitalized.
    4) You may be better off trading a less volatile market and/or a smaller position size.
    5) You may not actually have a trading method that you can consistently execute.......you're just taking random trades.
  3. Sure I can relate. All unprofitable traders take their profits early. They key to success is finding setups you have confidence in and then hold until your reach the target.
  4. cold


    aaa uuummm what he said :)
  5. the most golden quote in the history of trading:

    "One common adage...that is completely wrongheaded is: You can't go broke taking profits. That's precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits."

    -William Eckhardt

  6. This is the age old trader's dilemma, right after not cutting losses soon enough. In reality it is also based on FEAR, pure and simple. Fear of being wrong in the end. Or fear of having the trade turn into a loser. etc.

    What works for me? Scaling in/out of positions - especially out. I like to ring the profit bell with about 1/4 to 1/3 of my position fairly quickly - in my case, a few ES or ER2 ticks.

    3 things happen when I do this:

    1) it keeps my hit rate % high, which is good for confidence - it seems to help me stay in the balance of the trade longer

    2) when I take 1/3 profit, I have automatically cut 1/3 risk so I become more comfortable with the smaller size and more willing to try to let it run

    3) my willingness to get stopped out improves because I have a profit cushion on the trade now. I can usually move my stop at least a couple ticks closer, which further reduces risk

    So face the truth about this issue, sir. It is fear driving you to do it over and over.

    PS I learned this technique from mark douglas "zone"
  7. Well, it only shows that you don't have a complete strategy. Because if you did, you would know exactly when or at what price level you're suppose to exit at.

    You already have an entry strategy. Now, you need an exit strategy.

    Before entering each trade:

    1) Where is my stoploss?
    2) Do I have a breakeven stop? If so, at what price level?
    3) Do I have a time stop? (e.g., exiting trades after 10 minutes whether or not the profit target or the stoploss has been reached).

    If you don't have concrete answers to the above, then you haven't backtested your strategy properly.
  8. ammo


    this often happens after u traded without discipline and rode a loser,then another and another,you may drain your acct but the bigger damage is to your head,its easier to get your money back than it is your confidence, when u took that 1 tick winner,u either wanted a winner just for confidence or can't afford to lose any more and are afraid to trade,both head problems,time to walk away and come back after a break from trading
  9. Tums


    that's because you do not have confidence in your analysis.
  10. Well said!

    I think it's imperative to know where and when yuo're going to get out before yuo put the trade on. I'm still working on this one, too, and find I do much better on trades with a planned exit strategy than those where I get in and then realize I'm not quite sure where to get out. I trade equities (no leverage) on a very short timeframe right now being new to this, so there isn't a lot of time to mull things over once in the trade.

    I also think the comments about fear are right on target, too. My experience has been that when yuo're new, and still working on perfecting strategy, yuo have much less confidence and tend to run for cover fast. I don't worry about this one too much because I cut losses every bit as fast. So it tends to be small profits, but also small losses while I practice, practice, practice.
    #10     Mar 23, 2008