Run your profits - cut your losses

[Wideboy]

One of the easiest things to say, but actually quite hard to do effectively.

I recently have found a way to run my profits slightly better now. Instead of closing my position early at the first sign of reversal as I previously would have, and then kicking myself as I see ' what I could've had if I'd held'. I now cover half of it to bank a tidy profit, and then let the other half run. If a reversal does happen then I close the remaining half at or just before entry point meaning that I have not lost the gains from earlier. However if it continues to head in the right direction then I've got a big grin on my face and a bigger account balance.

This has been working great for me recently - however I had a major disaster yesterday when I lost my whole weeks gains through one silly trade which I let run...and run...and run

I then continued to fit the market for the rest of the day to try and claw back some of these loses. BIG MISTAKE.
I let my emotion run riot and somehow I entered trades I wouldn't normally even consider, and yes, I then proceeded to lose even more points until I finally called it a day.

The point I'm trying to get across is that its great to be able to run your profits effectively, BUT it is extremely important that you employ an effective and strict stop-loss system to avoid big loses.
Plus, if you do incure a big loss, take a step back, a deep breath, and then put it out of your mind! Don't continue to fight the market on the hope that you will bag a big winner. Emotion can be very dangerous!

Take each trade on its individual merits only.
Cut your losses - quickly.
Run your profits.

Good luck

Wideboy

 

[Riz]

Thanks Wideboy for sharing your experience, I always find reading about real life experiences more useful than a rule from a trading book...

Riz

 

[options]

Thanks for posting Wideboy, we all get it wrong from time to time, sometimes terribly so.
This thread could quickly become one on the topic of what went wrong and how to avoid it in the future.
And I would offer that we have all done exactly the same as you to varying degrees of self destruction; and to those that haven't yet... you will.

I agree it is very difficult sometimes to stick to your predetermined exit point, and sometimes you may even move a stop when you shouldn't as sometimes it can pay you not to be too fixed in your approach to trading. Though the only time this will happen is if you have set your stop too close in the first place and not allowed for the market 'flexing' movement.

And if you use 'mental' stops your brain can go into terminal malfunction as you try to decide should you or shoudn't you.

I always use a stop for shares. If it hits it, it hits it. though for futures trading sometimes I don't have time to put a stop in as it starts to go the wrong way and I have to get out within seconds of opening the trade, and the times when I hang on I end up giving away more then if I had followed my instinct. So now I always cut on my marker. Then aproach the next trade as a clean slate.

But what to do then when you have 3 bad trades on the trot?

That information is still in the back of your brain teling you that you have cocked up today.

The 4th trade has sometimes given back all my losses. and once or twice has added to the loss. Then I pack up for the day regardless, and go and do something else. I don't like to overtrade in any case, a battle weary numbness can start to creep in.

I would say that the true answer as to whether to carry on or jack it in for the day lies with you.
You 'know' when you are calling it wrong. Listen to yourself and come back another day. Even if it means sitting in front of the screen for a couple of days before you see something to take your interest. The next danger there of course is that you can develop 'finger click hesitancy' but that's another problem.

Options

 

[pacofran]

ur right wideboy,
its all down to a question of discipline and of course what news there is out there and trying to second guess the next move up/down/sideways!!