Taking partial profits

[sammy84]

Hi all

Who here takes partial profits off the table when a certain price is reached? I remember reading in one of Dave Landry's books that he takes half profits of the table once price reaches 1R. He viewed this as essential to cover all the ancillary costs that accompanies trading. Nick Radge on the other hand never seems to take profits of the table, but has installed profit targets on various occasions, and will take the whole trade of the table when that point is reached..

I never used to take profits, however after after having to give back a decent share of paper profits on a few occasions I changed my system. Now I take half profits of the table when price hits 2R, them trail the remainder. I wish I could say this has solved everything, but it hasn't. The problem is now the big paper profits I was previously accumulating are no longer doing so, as the trades that go one to become big winners have already had their position size cut. I'm at odds what to do. Would love to get an insight into other people systems and what they do?

Cheers,

Sammy

 

[supermatt]

I don't do it in shares because every time I need to sell it costs the brokerage fee so it ends up being to expensive, even with a discount broker. Therefore I just bite the bullet at an area where there is resistance or something that could stop price then take profits. I cant really see any other way in stocks but if there was I would certainly get some money in the bank so the trade was zero risk. Maybe with IB you could seems its cheap as.
In forex on the other hand its a good money management technique because you dont have to pay brokerage and can scale out of positions with ease.
Mark Douglas in trading in the zone goes on about it and sure is mentally easier to know your risk reward is either break even or reduced or maybe even a sure winner by getting money in the bank when price has hit x amount.

Perhaps what you could do is take enough profit off the table so your stop is at break even. That way you can let your trade run to the moon or if it goes pear shaped you cant lose. Doing it that way you can still utilize all of your position size and still have a fairly non risk trade. Then you can decide when to take full profits or take an educated gamble and let it go and if it hits break even it hits it and move on to the next trade.

I think what your saying is if you take to much of your position off the table then if it runs to the moon you wont make as much?

You should just play around with taking less off at the start and then let the majority run so your risk is reduced.

just some thoughts im no expert by any means

 

[OzTrader]

Sammy,
You can not go broke taking profits provided your risk reward and money management are reasonable.

When I started trading I was always looking for that magical trade that would yield me a fortune and I soon discover that trading was a lot harder than it seemed. I watched good trades go bad and then thought I'd hang in there as this was just a minor set-back and prices would go back up again.
I think many inexperienced traders have done the same.

I guess the important thing is not to overtrade? which opens another bag of worms? IMO taking profits is okay as long as you keep a positive expectancy and positive risk reward scenario with your trades. At the same time taking profits early reduces your ratio's hence becareful.

I know a friend of mine who trades and once he takes a position it's WIN or Loose? Me on the other hand I like to take something off the table at a level where I think the market may turn, and if it does turn I scratch the trade and still end up in front for the experience.

At times I kick myself but my account is much healthier now than it was before.

 

[Nick Radge]

Sammy,
I'll only use profit targets when trading on the short side or when trend direction is not overly strong. Otherwise I will always run positions as much as possible - my background is trend following so its a real struggle to take profits but its something that I've had to learn to do in certain market conditions, even though it makes me feel uneasy.

Once you ride a big big trend you wonder why you even considered profit targets. You'll never make big profits by taking small ones.

I wish I could say this has solved everything, but it hasn't

There will never be a right answer. You need to find a method that suits you and then accept its nuances. Don't beat yourself up about it. Trading is not a game of perfect. Its a game of finding comfort in order to profit.

You can not go broke taking profits

Maybe not, but riding big trends will make you a lot more money over the longer term with a lot less stress.

Nick

 

[plankton]

Isn't adjusting your stop loss to breakeven and beyond the same thing as taking part profits but better beacause you're keeping the whole position exposed to the upside?

Adjusting a stop locks in profits without reducing position size?

 

[Mr J]

You'll never make big profits by taking small ones.

A scalper does :.

Taking profits versus riding the move, well it's something we can really only judge in hindsight, and that will be result-oriented anyway (the result may have been of a lower probability). I think it's valuable to be able to take profits and ride the move, so I don't restrict myself to one or the other. It will depend on how the trade plays out. I don't tolerate much heat (in my limited experience the better trades usually don't have much heat), so I probably have a 'take profits' mindset early on, but the more it moves the more room I'll give it to keep moving. Catching those large, long trends is insanely profitable.

Isn't adjusting your stop loss to breakeven and beyond the same thing as taking part profits but better beacause you're keeping the whole position exposed to the upside?

It's the same thing, but isn't necessarily better than taking partial profits. As Nick says, there is no single method that is perfect, and the better option will vary from situation to situation. Sometimes, taking profits will be the higher probability move. Sometimes, allowing it room to move will be the best. Many people probably apply rules rather than being discretionary, but I think being flexible in these situations can be highly beneficial to a trader, assuming their skill is high enough to make a difference.

 

[OzTrader]

Mr J,
Totally agree with you,
depends on the situation, trading timeframe and market conditions.
Obviously the longer you can let a winner run and the quicker you can chop a looser the better you will be. However that maybe easier said than done? based on my experience anyway?
Ultimatley a trader needs to find what fits his/her personality.
What works for me, may not work for you?

 

[sammy84]

Hey All

Thanks for all the replies. The conversation has given me a good insight into what others do. What does resonate in my mind is the following line by radge;
You'll never make big profits by taking small ones.

I have to remind myself to think the next 1000 trades rather than the next week. Taking part profits is nice, but in the long run I do think it is detrimental to my systems expectancy.

 

[simoncar]

Sammy, don't forget to go back over all your previous trades. What would have been the best way to manage those trades......take some profit or let them ride? You may notice that you are picking good entry points in a stocks that go on to trend in your desired direction for a decent amount of time. If that is the case probably best to let the whole position ride whilst periodically moving the stop up (for a long). Maybe your entry point is condusive to only a short term move before retracing back through your entry/initial stop area. If that is the case maybe profit taking may be the way to go.
So you basically need to manage your trades based on what they typically do after you enter them....develop trade management that works most of the time for those trades. Then don't chop and change trade management techniques. I used to take profit around the 2R area....but regulary found the stock would then retrace almost right back to my initial buy zone before going on to make 5R plus returns. I realised the problem was my psychology. I saw my bank balance rise and I wanted to take some money whilst it was there. Then i would analyse my past trades and realise how much more I could have made by letting it ride with just a trailing stop in place. I realised I was good at picking entries for position trades ( held for weeks) but was managing them as very short term swing trades.

 

[johnnyg]

Good advice Simon, that's what im planning to do once I have 50 trades under my belt, go back over each one, and see if different methods affect the end results.

For myself I move my stop to b/e once the position moves 1R in my favor. After that ill trail the stop up using different methods (something I'm going to look at with my review so it takes the indecision and 2nd guessing out of it for myself), although for instance if a position moves quickly in my favor with a few days (say a spike in price) and I'm sitting around 3R-4R ill take 1/2 off the table and trail the stop for the rest.

 

[skc]

Good advice Simon, that's what im planning to do once I have 50 trades under my belt, go back over each one, and see if different methods affect the end results.

For myself I move my stop to b/e once the position moves 1R in my favor. After that ill trail the stop up using different methods (something I'm going to look at with my review so it takes the indecision and 2nd guessing out of it for myself), although for instance if a position moves quickly in my favor with a few days (say a spike in price) and I'm sitting around 3R-4R ill take 1/2 off the table and trail the stop for the rest.

Do keep a journal for each trade you take so you can remember what your thinking was at the time when you took profit / move your stop etc.

Here is an example from mine...a new entry each time I buy, sell, move stop or move target.

Trade # Active Stock Date Action Price Stop Target Volume (change) Volume (balance) Comment
153 Yes LGL 25/08/2009 Trade entered $2.560 $2.400 $4.000 1250 1250 Reversal swing trade
153 Yes LGL 28/08/2009 Stop moved $2.760 $2.490 $4.000 0 1250 Stop moved to below recent pivot low
153 Yes LGL 31/08/2009 Stop moved $2.720 $2.550 $4.000 0 1250 Stop moved to base of recent gap up

 

[johnnyg]

Do keep a journal for each trade you take so you can remember what your thinking was at the time when you took profit / move your stop etc.

35 Pages and counting.

 

[skc]

35 Pages and counting.

Lol. Do consider the trees and use a computer spreadsheet... Also use a smaller font so you save hard disk storage space (this one from Dilbert).

 

[johnnyg]

LOL Electronic pages that is, using Veranda size 10 for the notes.

 

[yonnie]

I think its quite good to take partial profits when your system only has a win rate of 40% or less.

at 1R you can take 1/2 position off and leave the other half at your SL to give it breathing room.
in the worst case you`ll get out at BE on the total trade.

granted, your end result will be a little lower.
but what this does is that your equity curve is more stable, because your drawdown is a lot lower.

what you can do then is to increase your position size because your risk has been lowered and the end result might be the same as letting the trade run, but without major ups and downs in your equity.