Let your profits run?

[SamLau]

Hi all,

So i have read this line in many books and in forums "let your profits run"

I bought some GPT one month ago @ 49c and it has hit highs of 56c and then floated in between those 2 points. So I was at one stage about $1200 in front and today only $400 in front. After 1 month, i've only gained 4%.
My question is:

* Should i sell off and find some other stock that is moving. eg (GMG) or be patient? Im letting my profits run but it aint going anywhere :|
What would an experienced trader do?

Thanks in advance

 

[tech/a]

An Experienced trader would most likely set a trailing or time stop.

 

[NeuromanceR]

Im letting my profits run but it aint going anywhere :|

But it DID go somewhere.....about 15% up...in 1 month! I'd call that a pretty good run.

"let your profits run"

Now for more adages:

“No one ever went broke taking a profit.”

&

Leave some for the next guy.

 

[skc]

Marcus Padley talked about stop loss in an article on the weekend SMH.

Stop loss will limit your risk.
Trailing stop loss will lock in your profits.

But if you want to capture something like FMG, which went up 700x between 1990 to 2007, it is unlikely that you can capture that kind of run in full with a reasonable stop loss. (Ignoring about exit, re-entry etc for the time being).

So the answer really depends on what you tried to do in the first place...

Short term trade or investing for the next FMG? Difficult to have it both ways sometimes.

 

[Fishbulb]

Stick to your rules whatever they may be, and adjust where necessary to suit.

 

[Mr J]

Trailing stop or moving stop up to points of significance.

Should i sell off and find some other stock that is moving. eg (GMG) or be patient? Im letting my profits run but it aint going anywhere :|
What would an experienced trader do?

An experienced trader would know what they want to do. If you're going to trade, you're going to have to rely on your own analysis. Are you bullish on the stock? If not, then I don't think you should stay in. If you are bullish, then at what point are you no longer bullish? You should have had a plan going into the trade. Don't hold onto it just on the hope that it rises.

 

[Aussiest]

Stick to your rules whatever they may be, and adjust where necessary to suit.

I don't think this person has any rules with exiting a trade, hence the post.

Whilst you held on to position, i have the opposite prob. Exiting too early..

What i've done in past is let it run (before i developed 'early exit' affliction), then sell on small move down. Eg, bought CBA at 39 around a year ago. It rallied to 45. Should have sold at 44 or even 43.50, got out at 42.60ish. Always thought shares would always "move up". Well, they don't. It's a balance between being ready to sell (or stopped out by trailing stop) and letting it run.

Sometimes i also set a profit target, based on support or resistance and then monitor the trade heavily. But, as tech suggested, trailing stops may be a good idea. Only trouble is, deciding how tight to set them: perhaps based on 1R, or ATR?

 

[Fishbulb]

I don't think this person has any rules with exiting a trade, hence the post.

Thank you for making my point

 

[vincent191]

Depends on what your expectations were when you bought GPT.

Personally, I bought GPT with long term views. I expect the value of commercial real estate will go back up in the next 12 to 18 months.

Therefore I did not sell even when GPT showed a profit within 3 months neither will I panic when the share price drop because I think the REIT will start to recover by end of this year.

It is all about EXPECTATIONS and RISK.

 

[Aussiest]

Depends on what your expectations were when you bought GPT.

...

It is all about EXPECTATIONS and RISK.

I think what this person means is, it all depends on your timeframe and 'risk appetite'. Please see chart below for some examples of different timeframes and levels of risk.

You need to determine your timeframe - do you want to hold for short time periods, or longer time periods?

If you look at the chart below, you can see an overall upward trend, made up of smaller up and down movements.

What you need to determine is whether you are a long term holder, or a trader who rotates in and out of trades a little quicker.

It's up to you!

 

[Julia]

Stick to your rules whatever they may be, and adjust where necessary to suit.

This is a contradictory statement.

 

[Aussiest]

* Should i sell off and find some other stock that is moving. eg (GMG) or be patient? Im letting my profits run but it aint going anywhere :|

PS. Just in relation to this question, this again relates to timeframe. What are you more comfortable with? Did you buy GPT with a view to investing and holding for longer? Or were you in it for a quick buck?

If you are trading full-time, your approach may be different to if you're full-time employed.

Personally, i like a shorter timeframe, but you miss out on the big moves. But, then again, you can capture many small - medium sized profits by rotating in and out of trades quite fast (day - few days - weeks).

It sounds like you need to do some re-thinking as to your trading objectives. Is it for investment? Or, short term profits?

And remember, don't forget to set stop losses

 

[Fishbulb]

This is a contradictory statement.

No it's not. But quick explanation - As a trader, if you have no rules, or stick to bad ones, then that's self explanatory. Can I go now?

 

[Aussiest]

No it's not. But quick explanation - As a trader, if you have no rules, or stick to bad ones, then that's self explanatory. Can I go now?

Instead of saying ambiguous things and expecting us to read between the lines, maybe you should make yourself clear .

Yes, you can go

 

[Fishbulb]

Instead of saying ambiguous things and expecting us to read between the lines, maybe you should make yourself clear .

Yes, you can go

I wasn't asking you, but hey, whatever. I'm outta here.

 

[Bowlane]

My own practice is to determine both position size and exit (my initial stop). Then, if the EOD close falls below the $ loss I have previously set (basically, 2% of my trading funds) I exit next day. If I am still in the trade when a 16% conditional exit exceeds my purchase price I set a trailing stop which I monitor amd reset daily as needed. Trailing stops used blindly can produce unexpected exits from winning positions but the figure I use seems reasonably protective.
Good luck, there is a lot to learn.

 

[cuttlefish]

Hi all,

So i have read this line in many books and in forums "let your profits run"

I bought some GPT one month ago @ 49c and it has hit highs of 56c and then floated in between those 2 points. So I was at one stage about $1200 in front and today only $400 in front. After 1 month, i've only gained 4%.
My question is:

* Should i sell off and find some other stock that is moving. eg (GMG) or be patient? Im letting my profits run but it aint going anywhere :|
What would an experienced trader do?

Thanks in advance

The meaning of let your profits run can be explained by the following scenario.

Lets say that you buy two stocks ABC and XYZ.
After one month ABC has gone steadily up by 15% and XYZ has gone steadily down by 15%.

Human nature tends to be to hold onto both - ABC because its in profit and looking like its going to keep rising, and to also hold onto XYZ hoping it will recover back to breakeven. (if either one is more likely to be sold at this point it is probably ABC to take the profit - people don't like realising losses).

But lets say neither are sold, and two months later things change: ABC has pulled back and is now only up by 7% and XYZ has recovered a bit and is now only down 7% from its starting position - what does human nature tend to do here?

It tends to be scared that the profit on ABC will end up disappearing altogether and so to sell ABC to lock in some of the profit, but hang onto XYZ hoping that it will continue to recover so that no losses will be made.

Now three months later ABC has continued its uptrend and is now up by 30% while XYZ has continued its downtrend and is now down by 30%.

Inexperienced trader has locked in 7% profit on ABC and has let their losses on XYZ run to 30% and still has open losses on this trade.

An experienced trader is more likely to have set an initial stop loss on both and possibly a trailing stop once either were in profit. The initial stop will have had them selling XYZ well before it got to down by 15% (so lets say they took a 5% loss on XYZ some time during the first month). If they set no trailing stop then they still have open profits of +30% on ABC after three months. On the other hand if they set a trailing stop they may have locked in a profit on ABC of around say 12% during the second month.

Of course there are plenty of scenario's where the experienced traders approach will happen to produce a worse outcome than the inexperienced trader - but as a general rule the fact that the inexperienced trader is letting emotion drive their trades means they are more likely to cut their winners and let their losers run than the alternative and so overall are more likely to underperform compared to the disciplined approach of the experienced trader.

So as most responses have said, the most important thing is to have a plan around the trade prior to entry that includes your reasons for making an entry, the timeframe you are targeting for the trade and what your exit critieria will be (note that exit criteria can be something technical like a stop loss or a chart signal, or it could be some change in the fundamentals like an interest rate rise or fall or a change in the companies operational performance etc.).

Its your system so the rules are up to you - the most important thing is that you trade it objectively and avoid the emotional pitfalls, and that you review it if it isn't working.

 

[SamLau]

Thank you to all who replied to my post, especially cuttlefish and aussiest!

I have come to a conclusion that I need to develop my trading plan. I guess I made bad judgements in the past which have made me indecisive. I sold PBG @ 86c and now its $1.20. I was impatient and it wasnt trending. Same as ELD.

I'll develop a plan to trade medium term (monthly) and see how it goes

 

[beamstas]

1. Don't curve fit your exit criterea. Don't look back on PBG and curve fit a stop loss that would have allowed you to exit at a better profit.

2. Have a think about mechanical trading. At least you won't have to make bad judgements. It doesn't have to be fully mechanical,but something you can backtest and have a vague idea of performance and how you are going to trade.

3. Base your stop loss on something robust and make it the same for every stock. Don't get into curve fitting swings or zig zags or regular % moves for each stock, just find something that works and use it.

4. Don't worry about losing your open profit. The stock will trend as far as it wants so don't ever sell becuase you are seeing some flashy figures run across your screen. Your opinion on the market means nothing, just because you think a stock will fall, it doesn't mean it will. Wait until you are proven wrong and taken out by your stop loss.

 

[Aussiest]

Not really sure what you mean by some of these Brad. Please see below:

2. Have a think about mechanical trading. At least you won't have to make bad judgements. It doesn't have to be fully mechanical,but something you can backtest and have a vague idea of performance and how you are going to trade.

So you're saying to set a trailing S/L based on some sort of criteria (SamLau's choice: ATR, 1R, something else?) is the best option for SamLau?

3. Base your stop loss on something robust and make it the same for every stock. Don't get into curve fitting swings or zig zags or regular % moves for each stock, just find something that works and use it.

What would you suggest is "robust"? I would say support, resistance, some sort of momentum, the wider market view (where you think it's going to go). My last point (wider market view) conflicts with a point you make in "4" below (our personal thoughts vs. what's really going to happen), but is relavent for longer term time frames.

4. Don't worry about losing your open profit. The stock will trend as far as it wants so don't ever sell becuse you are seeing some flashy figures run across your screen. Your opinion on the market means nothing, just because you think a stock will fall, it doesn't mean it will. Wait until you are proven wrong and taken out by your stop loss.

I agree with highlighted.

So, you're saying a trailing stop loss is the best option here?