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Paul Cote wrote:
> What I am starting to believe is
> it is best to exit with a profit.
I suppose it is <g>
> This means taking smaller profits and
> not letting any get away from you, it also does not mean trailing a stop
> because if you do, you will get an even smaller profit.
Not sure about that. This will get you out early too much. One of the
difficult things to properly realize is that the performance of an
instrument does not bear any relationship to your specific entry. By
concentrating on its current characteristics in relation to your entry
point, your exits will suffer significantly. You must let the instrument
tell you when it is time to exit. Simply put, this means - the point when
you can calculate that your capital would be better off in cash or in
something else. Patterns, ranges, and TA can give us valuable input to
where this point is, but one thing's for sure, it has nothing to do with how
little or much you've made so far on the trade. As far as moving stops go,
at least this is relevant, but they are still somewhat arbitrary, and at
best are an over generalization (i.e. always exiting on an X retracement
without regard to the peculiarities between patterns).
This is a complex matter, and one's approach will vary according to what is
traded and one's preferred style. However, there are a couple of principles
that would apply universally. In all cases one should seek price
confirmation for one's decisions. Ultimately, price patterns are king, and
it is wise to at least wait for a reasonable indication that the trading is
starting to go the wrong way. As well, while we need to spend a great deal
of effort on trying to formulate efficient exit strategies, all this is
wasted if we don't stick with whatever rules we have formulated. This isn't
always easy in the heat of a trade, but I've found that more often than not,
sticking to our well thought out plans will prove to be more profitable.
> So, what I am
> thinking is to exit when the trade is moving in your favor and as long
> as you made money, be happy.
You'll be happier, though, if you can develop more efficient exits. In
terms of risk, i've found that the old adage of giving your profitable
trades a little more leeway (not too much of course) makes a lot of sense.
It's important, though, that you consider the option of re-entry into your
calculations, which is a tool that can allow you to tighten up your exits a
little more while still capturing a large part of the bigger moves.
> I would like to hear from experienced traders on this philosophy. I have
> had many times where I have had 500 profit into a trade and did not take
> it only to have the trade fail to my stop. I am a one lot trader so it
> is hard to scale in and out.
I never let profitable trades go south. You need to tailor you exits a
little more to performance, as for sure there isn't any way that one should
go from a good profit to a good size loss. Having separate objectives is
usually the main culprit here, as is setting your exit criteria too
loosely. Ideally, an exit strategy should be totally removed from your
entry, and just focus on the thing being traded. As simple example, let's
say that you plan to exit whenever a set of MA's cross. So - either they
cross, or you're still in the trade - regardless of your P/L at any point
(which must be kept separate). This doesn't mean that objectives shouldn't
be considered - but in terms of the instrument's performance, and not
yours. For instance, if you can sense that a meaningful retracement is at
hand, on the basis of its recent range of similar moves, and the price
pattern suggests that it is underway, you could consider exiting, but this
still has nothing to do with where you entered.
> I don't let 500 get away from me anymore, but then I am not letting
> profits run either. I suppose a solution would be to build up the acct
> with one lots and later use three lots to scale out and leave one on for
> the big pull.
I'm not a big fan of this approach, simply because the odds are either with
the play or they aren't. Therefore, there is a right and wrong answer in
terms of whether to hold or not, and the task is to try to determine which
is the case. Whenever you focus on P/L, you will tend to be overcautious,
and believe me, I've learned this the hard way. It is much better to focus
exclusively on the present (the short term odds), while putting the past
behind you (where you entered, and thus your current P/L), and letting the
future take care of itself.
Regards,
A.J.
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