Taking Profits

Discussion in 'Risk Management' started by LetItRide, Jul 12, 2011.

  1. How do you guys take profit when price takes out your target area and continues to move in your direction? My backtesting shows in situations like this taking profit at the profit target usually misses a huge swing in your favor
  2. It depends on the strategy. I don't generally use profit targets because to improve the expected return on my strategies the profit target generally has to be so far out that it is rarely hit, and then the difference is too small to be meaningful, so it is easier not to use it. I have a new strategy that is improved noticeably with a profit target. For that strategy, when the profit target is hit I will take the trade and move on. I could care less what the stock does afterwards.
  3. You have backtesting results that tells you that your profit targets are too small...

    Easy solution, stay in the trade longer after your profit target area has been reach or revise your profit targets so that they are bigger accordingly to whatever your backtesting results had revealed.

    I myself don't use fixed profit targets. Thus, when my profit targets are reached, I determine then if I should exit when price reaches the target or remain in the trade longer depending upon what's occurring in the price action. This is something traders can't do while using fixed targets that automatically trigger via a trade order.

  4. etile


    My profit target is when I believe I cease to be on the right side of the trade. This is usually easy because I am either (a) at a loss in the position or (b) taken a more than uncomfortable drawdown in the position.

    You can make good money by always missing the top and bottom of moves.
  5. Target shooting and "letting it ride" are two different approaches.

    If you're not comfortable with trailing stops or trading on fundamentals or technicals, then you're left with targets.

    If your targets are getting hit but you think you could do better, the only thing I can think of is tweaking your targets.

    If that still isn't good enough for you, then the only other thing I can think of is switch to a "let it ride system".

    Not all let it ride trades make more than targets. Sometimes the fundamentals or technicals breakdown and the trade is exited, but goes on to hit what would have been the target.
  6. Lucias


    You just have to get back in. Taking profits is based on being consistent over hitting big winners. The goal is just to consistently hit your targets.

    Either of these methods seem to work well:

    * Taking profits at new highs/targets
    * Giving a trade considerable room and be willing to take huge reversals

    What I feel doesn't tend to work as well would be:

    * Trailing stops
    * Moving stops to break even after the least little move

    I'm referring mostly to day trading/short term trading but also tends to apply to longer term trading.

    In general, the guys who set targets will trade larger size. They are making a conscious(hopefully) trade off to take out profits most days while missing the huge rally days versus perhaps losing more often.

    Because this trading style is one that tries to profit from the market on a daily basis: they don't really have a "big" edge. They are just trying to get what they can.

    Many system traders tend to have a real and big edge and often do not set targets for this reason. But, they don't get as many trade opportunities, either.

    So, you see we are talking about different combinations.

    A. I want to be in market most everyday. I'll be setting targets and not worrying about when the market takes off and leaves me unless I can jump in and take that too.

    B. I want to be in the market only when my system tells me, i.e I have a significant/"real" edge.

  7. But I ask myself the same question all the time. Sometimes when the plan is to let it ride I get a strong quick move in my favor and just take it try to sort it all out later. ( a discplined trader wouldn't do that.)

    Back when I knew how to use a computer, I backtested all kinds of random entries using percentage stops. But I never found one that consistently worked.

    The third best trade I ever had increased my account by 60%. But at one time it was up 100%. For some reason I never have emotional or psychological torment or regret over not having taken the profit at 100%, because still, it was a good trade.
  8. So, if you can emotionally turn that around, that means, if your target gets hit and the mkt trends on, you have no regret because, still it was a good trade.
  10. Sorry Lucias, I hit reply before I typed the msg. But no kidding.

    When I put the trade on, this was what I was willing to risk. But now that I've seen a little of that profit I don't want to give any of it back. It's mine all mine.

    "Never let a profit turn into a loss" No problem. I have never let a realized profit turn into a loss. Now as far as the unrealized ones? oh yeah, that happens all the time.

    Choose your poison. Seeing a paper profit get stopped out at a loss, or get stopped out what seems to be a good trade at breakeven.
    #10     Jul 16, 2011