How do people take profits?

[munchiedude]

yeah i will rewrite my plan after i know what im looking for its a tricky one cos most ppl come with a plan, i def need one.

its an interesting adaptation of your trades, it is these things that you pick up in trading that really helps to develop one's strategy.

how do u record trades? do u normally save a picture in MT4 before/during/after each trade to review later?

 

[munchiedude]

Van Tharp would have it:

"It is superficially attractive to have entered a full position and scale out at various levels to “lock in” profit at various stages, but what you are doing is ensuring that your losses will be large (full position) and leaving yourself with your minimal position when you make your largest gains."

He goes on to say than when he has asked clients to review their "scaled out" trades and imagine that they only took either a full loss or a full profit they were amazed at how much more they would have made holding on to a full position.

Just an alternative perspective

jon

nice perspective barjon, and a very valid one at that. only thing i would say is that whilst maximising profit is important managing risk is equally important or even more important would you say?

the scale out method is for managing risk as far as i can see rather than eaving a full trade to goto the end, you may win loads more by not scaling but equally you do stand to lose more.

so would scaling not be the halfway house between managing risk and maximising profit?

 

[leonarda]

nice perspective barjon, and a very valid one at that. only thing i would say is that whilst maximising profit is important managing risk is equally important or even more important would you say?

the scale out method is for managing risk as far as i can see rather than eaving a full trade to goto the end, you may win loads more by not scaling but equally you do stand to lose more.

so would scaling not be the halfway house between managing risk and maximising profit?

I suspect if you use scaling out also with scaling in, then you avert the problem barjon is referring to. Which sort of makes sense as symmetry is usually a good thing.

 

[Jason101]

Van Tharp would have it:

"It is superficially attractive to have entered a full position and scale out at various levels to “lock in” profit at various stages, but what you are doing is ensuring that your losses will be large (full position) and leaving yourself with your minimal position when you make your largest gains."

He goes on to say than when he has asked clients to review their "scaled out" trades and imagine that they only took either a full loss or a full profit they were amazed at how much more they would have made holding on to a full position.

Just an alternative perspective

jon

Jon, I really liked this book and thought that everything in Tharp’s book made absolute sense. Apart from the one paragraph you have just quoted.

I cannot tell you why but I feel there is something wrong with this. Maybe it is about taking risk of the table. Or no matter how good anyone is, they will never really know when enough is enough.

Or maybe it is the psychological effect of letting a winner run once you have bagged a profit is much easier.

At the end of the day If price is not trending it is often range bound and price re visits itself so often that a 1:1 seems like the most likely profit attainable, so scaling out from 1:1 (on price movement not R/R, i.e. over 50% of position size.) seems to me to be logical. In other words play for part profit on the mean reversion and play the rest of the trade for the trend.

 

[eegozi]

I suspect if you use scaling out also with scaling in, then you avert the problem barjon is referring to. Which sort of makes sense as symmetry is usually a good thing.

Sorry,...but I think this plan is horrible!! I have tried. What happens is you increase your risk at a higher price and your average price goes up. Then when you scale out your average price of sale goes down. If you want to add to a position it should be about 0.5R position AFTER you have made about 2R. and moved your original position's stop to 1R gain or so. That way even if you lose on the 0.5R position you still have made 0.5R on the trade.

Lets say you buy at $100 with a stop at $99. Then you buy 100 shares for $100 at risk (1R). ONLY when you can move your stop to $101 should you risk an additional $50. I would do that when the price moves to $102 ($2 x 100 shares = $200 or 2R) and I buy 50 shares at $102 with a stop at $101 ($50 at risk = 0.5R). That way you have at least a $50 gain (0.5R) if the price moves against you to $101. On the original position you make $100 and on the second position you lose $50 for a total gain of $50 (0.5R)

Good Luck

 

[barjon]

.....so would scaling not be the halfway house between managing risk and maximising profit?.....

I don't think so, munchie, it's more of a comfort blanket than anything. Not that that is necessarily a bad thing, of course.

Sometimes you'd think to listen to how people think of their trade that each trade is the complete book. Enter, exit - that's the book read, nip down to the library and get another book off the shelves. Maybe better to think of the book as The Complete Move with your trade just a chapter. You might not know how thick or thin the book might be but after you've read one chapter you can always turn over to the next one - a re-entry after retracement from your exit point, or break out from it, for example.

I think a complete strategy includes entry, exit and re-entry tactics.

jon

 

[barjon]

................. Maybe it is about taking risk of the table.....................

Jason

I don't see it that way. When you take the trade you have set your risk and what you want out of it. It's the old evils of fear and greed. If you get what you want you should be happy (that's your business plan after all) and it's greed that drives you to leave a bit on "in case". Somewhat akin to a market trader happy to sell his wares at £10 a pop but hanging on to 20% of his stock despite offers of £10 each for it in case some silly sods come along who will pay £12.

Or, if you chose to exit before you've got what you want, it's the fear of losing what you've got so far that leads you to take most of it off the table. Same market trader selling a load of his stock for £7:50 because he loses confidence in getting £10 despite knowing that his expectation of getting that is well judged.

jon

 

[Bint_Crusher]

yeah i will rewrite my plan after i know what im looking for its a tricky one cos most ppl come with a plan, i def need one.

its an interesting adaptation of your trades, it is these things that you pick up in trading that really helps to develop one's strategy.

how do u record trades? do u normally save a picture in MT4 before/during/after each trade to review later?

I snapshot my trades using snagit.
I record entries, I record reasons for entries, Irecord stops, I record reasons for stops. I record targets I record reasons for targets.
I try to record a lot of other things but I am terriried of the t2w polis passing on my details to the vice squad#
whistlingwhistlingwhistlingwhistling:whistling

If I have taken a trade and it goes the wrong way then I have something to measure myself against either my own incompetence or thr British Government that I believe have a personal grudge against me.

 

[Bint_Crusher]

Barjon is a **** trying to silence the greatness of the crusher

 

[Jason101]

Jason

I don't see it that way. When you take the trade you have set your risk and what you want out of it. It's the old evils of fear and greed. If you get what you want you should be happy (that's your business plan after all) and it's greed that drives you to leave a bit on "in case". Somewhat akin to a market trader happy to sell his wares at £10 a pop but hanging on to 20% of his stock despite offers of £10 each for it in case some silly sods come along who will pay £12.

Or, if you chose to exit before you've got what you want, it's the fear of losing what you've got so far that leads you to take most of it off the table. Same market trader selling a load of his stock for £7:50 because he loses confidence in getting £10 despite knowing that his expectation of getting that is well judged.

jon

Arhh, I have not, I am a long term trend follower and do not know where my take profit will be, the longer it lasts the better.

I see this the other way round,ie, "take a bit off in case" (of not getting in on the long term trend).

I see the smaller profits more as foot soldiers to go forth into and find the bigger trends.

Horses for courses I suppose.

 

[barjon]

................Arhh, I have not, I am a long term trend follower and do not know where my take profit will be, the longer it lasts the better...............

Ok, Jason, I don't approve of that from a business plan perspective but just review what happens to your trades after that first exit. If, most of the time price goes on to higher things, then you'd probably do better holding on to the full position. If, most of the time price falls further and further away, then you'd probably do better by having closed the full position in the first place. If, most of the time price goes nowhere, then you'd probably do better having closed the full position and using the profit to trade a more active trend.

Same as I said in a different thread on the topic, I'm not sure that running your winners is all about hanging on to a single trade (or part of it) through thick and thin, suffering mouth-watering retracements and tying up capital/margin whilst those retracements work themselves out.

To my mind it's about riding a trend with a variety of trades once you're off and running. Sensible additions, exits and re-entry, hedge on and off etc, etc. The important thing is to stick with the trend you've got, not necessarily the individual trade(s) that you put into it.


jon

 

[gurutrader1]

I reckon the best way to trade is trading with a systematic method which can bring you profits. Handling an exit of your trade is as important as your entry point, which I find trading software do well and consistently. Try this one in indextradings.com, it's free too.

 

[munchiedude]

I reckon the best way to trade is trading with a systematic method which can bring you profits. Handling an exit of your trade is as important as your entry point, which I find trading software do well and consistently. Try this one in indextradings.com, it's free too.

interesting to say the least, the website looks a bit shonkey to say the least, from what i gather, these guys have a super profitable trading system and they are giving the signals away for free, when people trade then they hand over a portion of their profits?

whilst it is very systematic, if it is as good as that, then all we do is follow instructions?

 

[munchiedude]

I don't think so, munchie, it's more of a comfort blanket than anything. Not that that is necessarily a bad thing, of course.Sometimes you'd think to listen to how people think of their trade that each trade is the complete book. Enter, exit - that's the book read, nip down to the library and get another book off the shelves. Maybe better to think of the book as The Complete Move with your trade just a chapter. You might not know how thick or thin the book might be but after you've read one chapter you can always turn over to the next one - a re-entry after retracement from your exit point, or break out from it, for example.

I think a complete strategy includes entry, exit and re-entry tactics.

jon

it is a comfort blanket but it would also be good risk management, wouldnt it?

as the market moves in random ways, noone can be 100% sure that the trend they are in will go further than what they have already seen so therfore scaling back as the trend reaches your own R:R ratio would seem suitable?

lol, but im a noob so my views are that weighted but im jus using a bit of common sense.

you place the trade, trade goes to 2R, your anticipated level. now here, you can take out the whole position and be happy with 2R or take most off table and see if some of the profits can go on to make some more profits?

i would agree that its a comfort thing. typical example is if you went to a casino with £300 and you won £1500 in the first 2 mins, you would be more comfortable sticking £300 down on a sngle bet that before, when u only had £300.

 

[eegozi]

it is a comfort blanket but it would also be good risk management, wouldnt it?

as the market moves in random ways, noone can be 100% sure that the trend they are in will go further than what they have already seen so therfore scaling back as the trend reaches your own R:R ratio would seem suitable?

lol, but im a noob so my views are that weighted but im jus using a bit of common sense.

you place the trade, trade goes to 2R, your anticipated level. now here, you can take out the whole position and be happy with 2R or take most off table and see if some of the profits can go on to make some more profits?

i would agree that its a comfort thing. typical example is if you went to a casino with £300 and you won £1500 in the first 2 mins, you would be more comfortable sticking £300 down on a sngle bet that before, when u only had £300.

A casino has little bearing here. If you want to use that analogy make it a valid comparison. For instance,... Each individual hand represents a separate trade. However, if you had a poker hand with a FULLHOUSE and someone was raising you on another round of betting.... would you show your cards to this person so he folds and he stops betting?? If you did you would win less than if he continued pouring money in the pot. I doubtt that you would do that. You would try to maximaize your win $$ per hand. (you maximize profit on a winning hand,...in other words your expectancy) That's because the percentages are in your favor that he does NOT have a hand that beats yours. Your analogy of letting it ride in a casino is saying would you let the maximal amount gained ride on a NEW hand (new trade in this case). I think the answer to that is obviously NO.

Playing poker is a somewhat similar comparison to trading except in trading you can take your money or part of it out of the pot if the hand looks like it is going against you,...by tightening your stop. In poker that money bet is already part of the pot and cannot be removed.

 

[barjon]

it is a comfort blanket but it would also be good risk management, wouldnt it?

as the market moves in random ways, noone can be 100% sure that the trend they are in will go further than what they have already seen so therfore scaling back as the trend reaches your own R:R ratio would seem suitable?

lol, but im a noob so my views are that weighted but im jus using a bit of common sense.

you place the trade, trade goes to 2R, your anticipated level. now here, you can take out the whole position and be happy with 2R or take most off table and see if some of the profits can go on to make some more profits?

i would agree that its a comfort thing. typical example is if you went to a casino with £300 and you won £1500 in the first 2 mins, you would be more comfortable sticking £300 down on a sngle bet that before, when u only had £300.

And if the residue goes to a loss? If your business plan is predicated on making 2R then take it and be happy - keep doing that consistently and you'll do well. So what that there might have been more to grab.

If you come to believe from whatever you use that there is going to be more to the move you can always trade again - ie: re-entry - with a position size of your choice.

With all that said, I'd better cough on what I actually do .

I have an initial target zone (an expectation born from how hundreds of trades have gone over many years). Let's assume a long trade. After price has arrived in that zone I will hedge it immediately it drops back out of the zone (I have the advantage of being able to pro-rata hedge via the index since I trade UK FTSE100 equities). I maintain that hedge as follows:

1. If price continues to retreat.

a) Until I get a confirmed reversal signal of the downward retracement or
b) Until my original stop-loss level is reached when the trade is closed as well.

As far as (a) is concerned it is, in effect, re-entering at a lower price after taking the initial profit.

2. If price goes north. Until I get a continuation signal (different set up from 1a)

In effect I am letting the whole position run and paying a small points premium for the insurance against an adverse move.

Should price just motor on happily through that expectation zone without dropping back out of it then I go through the same thing at the next "target" zone.

jon

 

[gurutrader1]

interesting to say the least, the website looks a bit shonkey to say the least, from what i gather, these guys have a super profitable trading system and they are giving the signals away for free, when people trade then they hand over a portion of their profits?

whilst it is very systematic, if it is as good as that, then all we do is follow instructions?

Yeah I'm using the system right now, they calculate all my profits and losses and if the overall is a gain then I pay a small proportion to them. When the overall is a loss, then they actually pay me back a small proportion as well. It's pretty straight forward, I've stopped trading my own trades and practically only follow their signals nowadays.

 

[munchiedude]

A casino has little bearing here. If you want to use that analogy make it a valid comparison. For instance,... Each individual hand represents a separate trade. However, if you had a poker hand with a FULLHOUSE and someone was raising you on another round of betting.... would you show your cards to this person so he folds and he stops betting?? If you did you would win less than if he continued pouring money in the pot. I doubtt that you would do that. You would try to maximaize your win $$ per hand. (you maximize profit on a winning hand,...in other words your expectancy) That's because the percentages are in your favor that he does NOT have a hand that beats yours. Your analogy of letting it ride in a casino is saying would you let the maximal amount gained ride on a NEW hand (new trade in this case). I think the answer to that is obviously NO.

Playing poker is a somewhat similar comparison to trading except in trading you can take your money or part of it out of the pot if the hand looks like it is going against you,...by tightening your stop. In poker that money bet is already part of the pot and cannot be removed.

i think that my anaology has been taken out of context lol. the casino analogy was only used to demonstrate the psychology of the punter. i.e. how he would feel if he won £1500 quickly and his view towards betting that £300 before and after the £1500 win.

i think it shows that in most of us, it would demonstrate a change of mentality both in the value of the £300 and the approach towards betting it (conservative before, riskier afterwards).

 

[munchiedude]

And if the residue goes to a loss? If your business plan is predicated on making 2R then take it and be happy - keep doing that consistently and you'll do well. So what that there might have been more to grab.

If you come to believe from whatever you use that there is going to be more to the move you can always trade again - ie: re-entry - with a position size of your choice.

With all that said, I'd better cough on what I actually do .

I have an initial target zone (an expectation born from how hundreds of trades have gone over many years). Let's assume a long trade. After price has arrived in that zone I will hedge it immediately it drops back out of the zone (I have the advantage of being able to pro-rata hedge via the index since I trade UK FTSE100 equities). I maintain that hedge as follows:

1. If price continues to retreat.

a) Until I get a confirmed reversal signal of the downward retracement or
b) Until my original stop-loss level is reached when the trade is closed as well.

As far as (a) is concerned it is, in effect, re-entering at a lower price after taking the initial profit.

2. If price goes north. Until I get a continuation signal (different set up from 1a)

In effect I am letting the whole position run and paying a small points premium for the insurance against an adverse move.

Should price just motor on happily through that expectation zone without dropping back out of it then I go through the same thing at the next "target" zone.

jon

hi barjon,

thanks for sharing the way you do it, its insightful and interesting. undoubtedly, you are much more experienced than me as shown by your methods. would i be correct in saaying that you hedge as well as cancel and replace s/l? or you simply leave the original stop loss there and place hedge positions when price moves to our target zone?

i do find it interesting to hedge the position rather than simply cancel and replace as then it would lock in a profit as well as offset against a reversal.

 

[munchiedude]

Yeah I'm using the system right now, they calculate all my profits and losses and if the overall is a gain then I pay a small proportion to them. When the overall is a loss, then they actually pay me back a small proportion as well. It's pretty straight forward, I've stopped trading my own trades and practically only follow their signals nowadays.

that seems a very mechanical way to do it, although if its profitable then i guess why not.

why not hand your money over to an fx manager to discretionary trade on your behalf if that were the case? as you would be doing all the work and wouldnt necessarily be learning anything new by trading their signals as i assume they do not tell you how they generate their signals?

i must confess, even at this early stage of my learning, i am sceptical of signal generators. though i cannot define why, my feeling towards them is always negative, maybe its something to do with me not being happy with things that i am neither in control of nor understand!

how has the system been performing for you if you dont mind me asking?