Taking profits?

Hello everyone, I've been investing for about a year now and realized that buy and hold strategy is safe but doesn't grow my account much. I've been getting much better results swing trading. Just wanted to ask when do you guys choose to close out a winning trade? Do you guys look for a certain percent return or dollar amount?

Alexnyc said:

realized that buy and hold strategy is safe but doesn't grow my account much. I've been getting much better results swing trading.

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Yes; if you know how to do it, active management will have bigger returns than passive investment (which is what "buy and hold" boils down to?). The risks can also be greater, for those not so good at it, of course.

Alexnyc said:

Just wanted to ask when do you guys choose to close out a winning trade? Do you guys look for a certain percent return or dollar amount?

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People will have different answers, I think, and it should make for an interesting thread.

Personally, I normally adjust a stop-loss manually above/under the recent swing-highs/lows and let it get stopped out eventually, unless I close it manually because it's run into consolidation/congestion. In other words, I'm closing it when it reverses enough for me to think that the trend's probably over. I'm giving away a bit of my profit in doing so.

The weakness in doing it this way is that I might miss out on a trend-continuation after a correction, but I can sometimes re-enter, if that happens, anyway.

There isn't a "perfect solution".

We've all had situations in which fixed exits would be very beneficial and situations where they're a disaster. We've all had situations in which trailing a stop manually under or above the most recent swing-high or swing low would be very beneficial and situations where it was a mistake. What helps is to acknowledge this reality, and come up with an exit-method which suits your personality, the market you're trading, your psychological approach to trading and your objectives, knowing that it will sometimes turn out to have been a bad choice, and accepting that with equanimity.

People (like me) to whom risk-avoidance is more important than maximizing potential profit will prefer sharper exits. This will sometimes be at the cost of missing a much bigger profit (but one can sometimes re-enter).

This is among the many reasons why I think exits are so much more important, overall, than entries.

Alexnyc said:

Hello everyone, I've been investing for about a year now and realized that buy and hold strategy is safe but doesn't grow my account much. I've been getting much better results swing trading. Just wanted to ask when do you guys choose to close out a winning trade? Do you guys look for a certain percent return or dollar amount?

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What do you trade,stocks,dow,ftse.

I think this question probably sums up for me why there is a world of difference between retail trading and the typical sort of deal that goes through on an institutional basis.

Retail: I think this is going to go up. I enter long. Should I exit here? Where should I put my stop? Should I trail it? Where is it likely to pull back to before I cry uncle? Should I scale out? Which timeframes support and resistance levels matter most?

Institutional: Can I can acquire this at X and I can unload all or almost all at Y right now and the cost of any premium to flatten any net exposure is a fraction of the locked-in profit on the deal? Yes? Trade. No? Don't trade.

I think, from what I've seen, trading from the retail side is possibly one of the most difficult, impossible, wealth damaging endeavours in which you could ever engage.

As alexaherself says above, there isn't a perfect solution. In theory, you should exit when -
* the TA suggests there is a poor probability of the move continuing, and hopefully
* re-enter in the same direction when the stutter ends and the trend resumes.

However, a TA-based exit is probably seriously lagging behind price action so you're probably giving up a lot of profit each time it triggers. Whereas a profit-based exit isn't based on any logic apart from what's in your own head, nor offer the prospect of an early re-entry on TA basis - so you might never get back in to a really fruitful move that continues past your measly 20 quid profit level.

Scaling out or pyramiding just makes the whole question even more complicated, which isn't a vote for clear and conscience-free decision-making.

If there isn't a right answer, can somebody at least prove this is the right question?

tomorton said:

If there isn't a right answer, can somebody at least prove this is the right question?

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That made me laugh. Especially as I couldn't find the question.

Tell ya what me views are and I speak as a non-combatant ya understand. Letting price action tell ya where ta exit will, mostly, cost you a good slice of the action in the lower timefrmes and/or where you're in a largely non-trending phase. Setting an arbitrary target, be it profit or price level is like trying ta hit a bullseye, ya only have to be a fraction off and you're back into the 'what do I do next' situation and none the better off. If I were ta be in a directional trade, me sense of self preservation would have me thinking about scaling out in both loss and profit situations, but the one single tool that seems ta make most sense and paradoxically seems ta get the least mention on here - is trailing stops.

I understand most retail platforms offer this. There is no set formula for any given asset at any given time and forget historical high to low to calculate it. It's random. But it seems ta me that pulling a trailing stop in tight when there is high volatility and relaxing it out a bit when low could make a good go of it. But I'm only guessing here so do your own research.

If you're trading with net directional or volatility exposure, there is always a trade-off between getting out too early and protecting your profits OR letting it run and risking losing a greater portion of your unrealised. There is no one correct answer.

If it were me up on the parapet takin the arrows, I'd be looking to keep it real simple. One bar goin against me is a sin; a second consecutive one is the nail in the coffin. Surely, on any timeframe?

Never too far wrong to take profits when they are offered imho.
Can always re-enter. Greedy for more, is often the undoing of a good trade.

All good questions. Difficult answers. I generally only enter stocks I at least half believe in. I usually then have a trading parcel and a longer term hold parcel. That way I kinda get the best of both worlds (but also miss a lot of the profit/loss)> it's a bit of a way to manage risk for me.

Classic example for me was AZK back in Australia. The stock ran up 800% and I managed to get a big chunk of the gain by selling my trading parcel near the top using a trailing stop (a generous one). I still have a long term hold and although I'm still up multiple 100%, I've lost a lot of paper profit had I sold the lot at the peak.



Horses for courses really - depends what works for you as well as your risk profile and time frame IMO.

Note: Aussie stocks trade a lot differently to US stocks. Single cent or even lower stock prices are very common and most stocks would trade between 30 cents and $10.

i recognize this

When do I close out?

The main problem with setting profit 'targets', and solely relying on them, is that you can often get a false reading of price action.

So in recent times I just look for the signs of price exhaustion, and once such become clear to me, I'm sometimes out. And, at other times, I'm out and reversed.


HTH.

peakoil said:

When do I close out?

The main problem with setting profit 'targets', and solely relying on them, is that you can often get a false reading of price action.

So in recent times I just look for the signs of price exhaustion, and once such become clear to me, I'm sometimes out. And, at other times, I'm out and reversed.


HTH.

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million times question . I may couldn't provide direct answer upon such question. but when it comes to where to exit, main problem is lays with the initial target we willing to achieve right before entry trade executed.
reasonable solution may : don't trade what you hope, but trade what you know.

Alexnyc said:

Hello everyone, I've been investing for about a year now and realized that buy and hold strategy is safe but doesn't grow my account much. I've been getting much better results swing trading. Just wanted to ask when do you guys choose to close out a winning trade? Do you guys look for a certain percent return or dollar amount?

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I always close my trades manually but I use Fibonacci Retracement to have an idea of the take profit level. These levels are 161.8% and 200% on H1. I always pay attention to these levels and if there's a closing signal, I close the position. If the price goes further I let it run.

Every successful trader I know both of discretion and mechanical, have max gain limits per trade and per day. It's always ideal to set a daily max gain limit, in which once you reach that goal, you lock in those profits and call it a day. I don't use max trade gains, but I do have a daily max gain.

Of course, having say a 50 tick daily max gain trading /CL would cause you to miss out on Friday's great day where you could of made 2-3 points, but that's besides the point. I'd rather have a small goal that can consistently be achieved such as 25 ticks in /CL or 2 points in /ES, and then just add size.

4FXtrader said:

I always close my trades manually but I use Fibonacci Retracement to have an idea of the take profit level. These levels are 161.8% and 200% on H1. I always pay attention to these levels and if there's a closing signal, I close the position. If the price goes further I let it run.

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so basically what you are saying is..
even though you ALWAYS pay attention to these levels and close out, you don't always close out and let it run instead if it goes further

so you don't pay attention to these levels at all then..
jeez i have to say the attention to detail on this site is truly phenomenal

Seconded Malaguti.

malaguti said:

so basically what you are saying is..
even though you ALWAYS pay attention to these levels and close out, you don't always close out and let it run instead if it goes further

so you don't pay attention to these levels at all then..
jeez i have to say the attention to detail on this site is truly phenomenal

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Know what you mean but I see the key phrase as "if there's a closing signal". If there is, close it, if there isn't, let it run.

tomorton said:

Know what you mean but I see the key phrase as "if there's a closing signal". If there is, close it, if there isn't, let it run.

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That's right. :clap:

You should also consider the "pyramid" approach as very few can consistently pick absolute tops and bottoms. I do this a lot whereby I sell a small portion when I get an initial sell signal and continue to sell larger and larger chunks as price moves either way. That way you're essentially "averaging your profit, taking into account you're unlikely to be picking the absolute best time to exit.

The same can also be done for making an entry - stagger your entry position. This usually works best for short (rather than day) to medium term trades.