Thursday, October 25, 2012

Trade Management - To Take Profit or Not?

One of the personal struggles I face when having a profitable trade is when to take profit. From spending plenty of time thinking through how to maximize the most out of a trade to conducting simulation analysis and asking other professional traders, I concluded that there's no right way to take profit.

So now i would like to pen down my thoughts on taking profits (something that you will realize is very important once you are able to put on a string of winning trades).

Let's take a big winning trade that I just took as an example:

This is a typical setup in which I trade. I had initially plan to take profit at predetermined levels (see below).

This was my predetermined profit levels.
 "A battle plan rarely survives first contact with the enemy"
Just like any plan, a trading plan must be flexible and altered as the trade carries on.

Question: Wouldn't you miss out if the resistance is broken?
Answer: That is very true. But based on market condition, market looks indecisive. I never ever want to be in a situation where market is indecisive.

In the end, it boils down to two different type of mindsets:
 - I want to ride out a trend and I don't mind losing out on small gains. (In short, I prefer breaking even than missing out on a trade - regret)
 - I admit I don't know where the market is going so I take profit whenever the market tells me to (In short, I rather take money on a trade and not be too greedy and regret taking too little profits)

In the many trades I have done, here is my discovery:

 When you are unsure about taking profit or not, it is highly likely you should take profit.

Here is the rationale:
Often, your view is not objective when you are in a trade. Hence, you are highly likely to dismiss information that is contrary to what you expect. This results in a confused state, leaving you unsure what to do. 

Advice for the day >> Whichever style you choose, make sure you use it consistently so that you will be able to tell if it is working or not. 

No comments:

Post a Comment