The myth of letting your winners run

Could you give us a simple example please?

 

I buy 1000 shares at 10, 300 more at 12.50 and 200 more at 15

If the trade goes against me I exit 1000 @9 for a $1000 loss
Once in at 12.5 I move the stop to 11.5
If I'm in at 15 I move the stop to 14
If all goes well I'll exit the trade @ 100 in 6 or 7 years. Or maybe I'll let it run till it breaks a long term trend line.

There is nothing set in stone for the numbers. It will depend on the price action and the length of time it takes to get to the next level.

 

Understood.

Now here is my question : How do you know that this scaling in technique will make you MORE money if you keep doing that 1,000 times in a row (with 1,000 different stocks), versus buying 1500 shares right from the start?

 

Sure. Whatever works for you.

However it's akin to circumnavigating the globe without a map, a timepiece and a sextant. You might have a vague idea of where you are going but no idea of exactly where you currently are.

 

letting your winners run means don't sell your winners in stocks.
cut your losses as soon as possible in bad investments or as soon as your can as what Buffet did in selling his airline stocks because airline can become worthless.

letting winners run and cutting losses quickly is trading 101

and besides there are so few winners in stock investments. winners would like micrsoft in 1987, apple in 2000, google in 2004 ..or facebook all were risky investments when they ipo or when they were 'cheap' google, facebook,microsoft were already 'expensive' when they ipo. and got more expensive

the one thing or ingredient success was quality management and the CEO were founders...which is hard to come by in fortune 500 companies.. a lot of CEO are career 'managers' and would qualify for a job at the US energy dept. etc or run for Presidents office or be 'politicians' who are good at raising charity donations as popularity seems to be the reason they are CEO of many of these fortune 500 companies.

 

Care to elaborate a little, your reply is rather vague and generic?

 

Actually it doesn't make more money. I'd be better off if I took a full position right off the bat.

The only reason I scale in is that I only risk 1% of my capital per trade and if the trade moves in my favour I can increase my position without increasing my risk.

 

Excellent!

In other words risking less capital is more important to you than earning a few extra dollars.

Keep up the good work.

 

Capital preservation is my number one priority. If I don't have capital I'm out of business.

 

That's the mark of a good trader.