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There has been a lot of discussion on profit taking and the limiting of losses.
To limit loses you establish your money management system and it tells you the
amount that you can risk. Whether it be 2% or 5% or some other percentage of
your account size, the amount is established. After this is done you select
what you want to trade. What provides the volatility and liquidity needed to
enter and exit without extreme slippage or floor control of the item. After
that is done you select the time frame that you will trade based upon your money
management system. This is not a percentage stop, a money stop, but a stop that
is created by price action and tells you that you have made a mistake.
A system should give you specific entry prices, stops and price objectives. If
you are a disciplined trader you will exit the trade at the price objective and
look for the next move. If this move is part of a larger move and you wish to
stay in the trade and maximize the profit then establish what it would take to
give you an entry in the opposite direction. If I am trading a time frame to
enter a trade and use the next larger time to continue the trade, I would go to
the next time below the one I am trading to look for the Entry Price in the
opposite direction. This would be my stop under those conditions. You don't
want a dollar stop, a percentage stop you want price to tell you it is all
over. The one minute chart will turn before the 5 and the 5 before the 15 etc.
. If you are trading technically, then both entry and exit should be based upon
the same premise so that there is continuity in the system.
The system that I use gives a Entry price and 3 Price objectives. If I am
trading multiple contracts or round lots in stock I can liquidate 50% of my
position at the first Price Objective and raise my stop to the Entry Price and
then liquidate 25% at the second Price Objective and the last 25% at the final
Price Objective. If I am in a trade and there are higher price objectives on
longer time frames and I decide to stay in the trade and just raise my stops, I
drop down a time frame and look for an entry price in the opposite direction.
These different trading entry and exit techniques are based upon volatility and
probability of reaching each of the Price Objectives and not a random number. .
Before entering a trade you should have a plan of action. If this happens I do
that and if that happens I will do this. You should have as many contingency
plans as there are possibilities. Hope that all had a good week end. Ira.
James Alvis wrote:
> It may be well to consider that, particularly on "trend days" which often
> provide greater opportunities to "let your profits run", some of the
> strongest moves occur when larger (other) time frame players enter the
> market during the second half of the day, adding volume and momentum. A day
> trader who walks away from such days after a small early profit could be
> unnecessarily limiting their overall potential gains.
>
> Regards,
> Jim Alvis
>
> ----- Original Message -----
> From: "Howard Hopkins" <hehohop@xxxxxxxxxxx>
> To: <realtraders@xxxxxxxxxxxxxxx>
> Sent: Sunday, November 18, 2001 11:51 AM
> Subject: Re: [RT] Re: Profit Taking
>
> > Hey Brian,
> >
> > Though the taxi driver example sounds like a good reason to trade all day
> it
> > is not applicable to trading for the following reasons:
> >
> > 1) Once the taxi drivers make $200 do they stand a chance of having to
> > return part of that $200 (besides gas costs) if they don't generate any
> > additional fares or have a couple bad fares (unhappy riders)? The answer
> is
> > no. In trading you can give back your profit of $200 AND go debit! The
> > taxi driver example doesn't take that into consideration.
> >
> > 2) Though I've never driven a cab I have run retail businesses where you
> > are deciding how many hours to put in to maximize revenues/profits. You
> can
> > stay on the job longer as a taxi driver without losing money due to loss
> of
> > focus or fatigue. Loss of focus and fatigue are destroyers of a trader.
> >
> > 3) The taxi driver example is focused on maximum profit/revenue without
> > regard to what satisfies the desires of the taxi driver. If he is happy
> > with his $125 he will probably be a better taxi driver. If he's happier
> and
> > nicer to riders he will probably get better tips and reach his goal that
> > much faster. Plus don't forget an important thing, if he does his job
> well
> > and riders reinforce the fact by giving better tips AND verbal
> appreciation
> > he will probably take pride in what he's doing and feel good about
> himself.
> > Why is this important for a trader to understand? Because I've been there
> > many times mentally beating myself up for quitting too early and missing
> > opportunities, staying around too long making mistakes and losing money,
> > etc.. If you set a daily goal and reach it then you've done your job
> well.
> > You can feel good about your trading and yourself and THIS is what the
> > ultimate goal should be.
> >
> > 4) This then leads to the real question we all must answer... What is our
> > goal??? I've struggled with this in the past and am still struggling
> with
> > it. I daytrade the S&P's and puke trades too quickly. The way that I've
> > tried to overcome that is with exit rules (which I am still trying to
> > consistently follow). FOR myself (and EVERYONE is different) I found that
> > taking a multiple contract position is the best way to go. I usually take
> > three contracts per account and peel them off one at a time. It feels
> great
> > when I lock in a handle to handle and a half profit on my first contract.
> > With a little profit in under my belt I'm more objective and less
> emotional.
> > I then bring my stop up on the other 2 and look for my next
> > support/resistance target to exit another one. Then I TRY to hold the
> last
> > one for a big gain.
> >
> > 5) I read a quote last night off www.innerworth.com. I don't have it in
> > front of me but to paraphrase: 'The difference between a professional
> > gambler and a professional loser is that a professional gambler gets up
> and
> > leaves the table when he has reached HIS goal. The professional loser
> stays
> > at the table until he's lost all his money and has got to stop gambling.'
> > Taxi drivers don't have to combat the inner demons that may cause a trader
> > to force himself out of the game.
> >
> > Just my thoughts,
> > Howard Hopkins
> >
> >
> > >From: Brian Keith Voiles <admagic@xxxxxxxx>
> > >Reply-To: realtraders@xxxxxxxxxxxxxxx
> > >To: TaoOfDow <TaoOfDow@xxxxxxxxxxxxxx>
> > >CC: realtraders@xxxxxxxxxxxxxxx
> > >Subject: [RT] Re: Profit Taking
> > >Date: Sat, 17 Nov 2001 22:50:40 -0700
> > >
> > >Richard!
> > >WOW!... thank you so-o-o-o-o much for your thoughtful, meaningful reply.
> > >I really appreciate your insights, and I know they will benefit me
> greatly.
> > >Warmly,
> > >Brian
> > >
> > >At 06:20 PM 11/17/2001, you wrote:
> > > >Dear Brian, Rich, Group, et al.,
> > > >
> > > >Brian, your note brought up for me an academic study that I read
> several
> > >years
> > > >ago about taxi drivers in New York City. There, the economics of being
> a
> > >taxi
> > > >driver is that one does not own one's own cab. Instead, one becomes
> > > >associated,
> > > >as an independent contractor and not as an employee (for reasons of
> > > >minimization
> > > >of the risk of legal liability), with one of several taxi companies in
> > >NYC.
> > > >Then, whenever one wants to drive a taxi (which, because the driver is
> an
> > > >indep
> > > >contractor, is entirely in his or her discretion), one reports to the
> > >taxi
> > > >company and leases a cab for what I recall is a 12-hour period, at a
> > >fixed
> > > >rate,
> > > >something like $75 for the period, on the understanding that the driver
> > > >keeps all
> > > >the fares he or she collects during the period. So, the deal is: A
> fixed
> > >cost
> > > >for the use of the cab during the period + 100% of whatever you
> > > >collect. These
> > > >economics for taxi drivers are similar to those for private traders,
> such
> > > >as us.
> > > >We put up $$$ for our equipment and real-time data for the day (in
> fees,
> > > >rent, or
> > > >amortization of expenditure) and keep all the profits (or losses).
> > > >
> > > >What the academics found when they interviewed the drivers was that
> upon
> > > >leasing
> > > >a cab for the 12-hour day, the drivers largely adopted one or the other
> > >of two
> > > >strategies:
> > > >
> > > >1. Drive all 12 hours, in the attempt to maximize their total
> > >collections for
> > > >the day.
> > > >
> > > >2. Drive until they collected an amount that each driver, on his or
> her
> > > >own, had
> > > >predetermined, after which they would turn the cab back in and call it
> > > >quits for
> > > >the day. Here, for example, if the driver's goal was to collect $200
> > > >during the
> > > >day, if he did so before the end of the 12-hour period, he would quit
> > > >early and
> > > >take home $125 for the day, after having paid the taxi company $75 for
> > >the
> > > >day's
> > > >lease of the taxi.
> > > >
> > > >The academics then analyzed the statistics of who made what and how.
> > >What
> > > >they
> > > >found was that the drivers who drove for the entire 12 hours
> consistently
> > >not
> > > >only made significantly more money on a daily basis but, as I recall,
> did
> > > >so even
> > > >on the basis of hours driven. (This possibility arises because the
> > > >drivers who
> > > >drove until they collected their predetermined amount necessarily quit
> > > >before the
> > > >end of their 12-hour period if before then, they had collected their
> > > >pre-determined amount). While the academics could not prove it, they
> > > >speculated
> > > >that these results arose because of what they saw as a random
> fluctuation
> > > >in the
> > > >demand for taxis from day to day --- specifically, they speculated that
> > >such
> > > >demand is largely a function of the amount of tourism in NYC: when
> there
> > > >are lots
> > > >of tourists in NYC, the taxis are full and vice versa. This is random,
> > >in the
> > > >sense of being unpredictable, in that no one really knows when the
> > > >tourists are
> > > >going to descend on NYC. Some days, particularly when there are lots
> of
> > > >conventions or some other big event, like the World Series, they're
> > >there;
> > > >other
> > > >times, they're not, leaving the taxis are largely empty. The academics
> > >also
> > > >speculated that demand turned as well on the weather, which may be even
> > >more
> > > >unpredictable --- when its cold and rainy, people want taxis; when it
> > > >isn't, they
> > > >don't.
> > > >
> > > >What the academics furthermore found was that but for the periods when
> > >the
> > > >tourists were in town etc., it really didn't make much difference which
> > > >strategy
> > > >the drivers employed --- they all made about the same money per hour of
> > > >driving
> > > >--- when you drive more, you make more money, as one would expect..
> > >Where the
> > > >difference was clear, however, was when the tourists were in town, it
> was
> > >cold
> > > >and rainy, and taxis were at a premium, which was largely
> unpredictable.
> > >But
> > > >when one or more of these factors did occur, the 12-hour drivers made
> > > >significantly more money than did the "drive to a pre-determined
> amount"
> > > >drivers,
> > > >which seems to make sense --- one makes make money as a supplier when
> > >demand
> > > >increases.
> > > >
> > > >Now, I am assuming that one's purpose for driving a taxi is to maximize
> > > >one's net
> > > >profit per unit of time expended, and not out of a desire for public
> > > >service or
> > > >meeting people or the sheer pleasure of driving around town, by
> oneself,
> > >with
> > > >others, or whatever. Given that purpose, the first basic question
> facing
> > > >a taxi
> > > >driver is "Am I going to drive today?" If you're not going to "drive"
> > > >today, it
> > > >doesn't make any difference whether the tourists are in town or not,
> what
> > >the
> > > >weather is, or whatever --- you ain't gunna make any money because you
> > >ain't
> > > >drivin'. But as long as a driver has made the decision to "drive"
> today
> > > >in the
> > > >attempt to maximize one's profits on a time basis, and as long as
> nobody
> > >can
> > > >predict when the tourists will hit town, or will it rain and be cold,
> and
> > >if a
> > > >driver has already paid the $75 for today and is now driving, then
> > > >according to
> > > >what these academics found, the driver should continue to drive to the
> > >end
> > > >of the
> > > >period no matter how much fares have been already collected today.
> This
> > >is
> > > >especially true if, during the day, the driver believes that the
> tourists
> > > >are in
> > > >town, it cold, or its rainy. But it also makes sense to continue
> simply
> > > >in the
> > > >hopes that the tourists will show up, or it will turn cold or rain
> during
> > >the
> > > >remainder of the period. Its makes sense at the margin --- it doesn't
> > > >cost you
> > > >any more to continue driving because you have already paid your fixed
> > >cost, so
> > > >all the remaining profits are the driver's without any effective
> set-off
> > >for
> > > >costs. Regardless of whether the driver continues because he is having
> > >an
> > > >especially good day or on the hopes that his day will become an
> > >especially
> > > >good
> > > >day, it makes sense to continue, because that is when the demand for
> > >taxis
> > > >(which
> > > >cannot effectively be predicted) increases and gives the driver the
> > > >opportunity
> > > >to make unusually large profits. This opportunity will be forgone if
> the
> > > >driver
> > > >call it quits early, after collecting a pre-determined amount, and turn
> > > >his cab
> > > >back in. The nut of this situation seems to me to be that the time it
> > > >takes to
> > > >collect some pre-determined amount of profits doesn't have anything to
> do
> > >with
> > > >the demand for taxis today. If anything, those two variables seem to
> me
> > > >to be
> > > >inversely correlated. If demand for taxis IS high today, then one will
> > >likely
> > > >collect one's pre-determined amount more quickly, and given that
> > > >situation, that
> > > >is the very time when one's expenditure of his or her own time driving
> > > >taxis will
> > > >be exceptionally repaid in profits. As such, this is just the time
> when
> > >it is
> > > >the most economically counter-productive to quit driving --- this is
> the
> > >time
> > > >when one should drive no matter what, in order to maximize one's net
> > > >profits per
> > > >unit time, and resist the temptation to quit early, after having made
> > >some
> > > >predetermined amount especially quickly.
> > > >
> > > >This situation with the taxis sounds to me similar to the situation
> with
> > > >trading. Who knows when a trend will begin, but for a trader, just
> like
> > >a
> > > >taxi
> > > >driver, the time to be in the market is when it is trending, as it is
> > >then and
> > > >only then when the market gives a trader the opportunity to make
> > >unusually
> > > >large
> > > >profits, which the trader will forego if he or she call it quits early,
> > >after
> > > >collecting a pre-determined amount, and goes on with the rest of his or
> > > >her day.
> > > >
> > > >The concern that Rich expresses in his note, in which you sound in
> > >harmony, is
> > > >the inability to predict whether an incipient market move will peter
> out
> > >after
> > > >3-5 points or extend for 10-15. And the concern that you specifically
> > > >express is
> > > >the efficiency of quitting the market after having made some
> > >pre-determined
> > > >amount of profits. These concerns sound similar to the questions
> facing
> > > >NYC taxi
> > > >drivers: Are the tourists in town? Will it turn cold? Is it about to
> > >rain?
> > > >Does
> > > >it make sense for me to drive today, and especially to continue to
> drive
> > > >once I
> > > >have already paid my daily lease fee (regardless of how much I have
> > >already
> > > >collected today)? If these concerns are similar, then the results of
> > >this
> > > >study
> > > >of NYC taxi drivers suggest that for taxi drivers as well as traders,
> > >higher
> > > >profits per unit time expended can be realized by employing a strategy
> of
> > > >working
> > > >through the day as opposed to quitting after reaching some
> pre-determined
> > > >amount
> > > >of profits.
> > > >
> > > >I hope the foregoing discussion provides some encouragement for you to
> > > >reconsider
> > > >your decision and see if it best fits your goals.
> > > >
> > > >Sincerely,
> > > >
> > > >Richard
> > > >
> > > >
> > > >
> > > >Brian Keith Voiles wrote:
> > > >
> > > > > Rich,
> > > > >
> > > > > I am in the exact same boat as you. I think it's a personal matter,
> > > > really.
> > > > > My daily goal is to make 4 handles... $1000 less commissions. I
> break
> > > > > my daily goal into two, two-handle trades. Then I turn off the
> > >computer.
> > > > >
> > > > > If I lose 4 points, I call it a day, as well. That's the max I'm
> > > > willing to
> > > > > lose on any given day.
> > > > >
> > > > > As my account builds, it's my intention to trade 2 lots, 3 lots, and
> > > > > eventually 4 lots. (Right now I can't "see" past 4 lots -- maybe
> when
> > >I
> > > > > get there...).
> > > > >
> > > > > I think the reason I've chosen to do it this way is because I don't
> > >really
> > > > > perceive myself as a "real" trader. Let me put it differently:
> > >trading is
> > > > > not who I am -- it's what I DO to facilitate the living of my
> dreams.
> > > > >
> > > > > In other words, I don't want to eat, sleep, and breath trading 24-7.
> > > > > I use the $1000 a day (soon to be $2000, then $3000, and then
> > > > > eventually $4,000) to allow me the time freedom and money freedom
> > > > > to live my dreams. Which for me is:
> > > > >
> > > > > 1) being a great "stay at home" dad for my kids
> > > > > 2) writing and studying music
> > > > > 3) writing inspiring stories and books about life
> > > > >
> > > > > Having said all this.... it would be really nice to let the profits
> > >run
> > > > > on occasion. I haven't found a "real" answer to your question. For
> > > > > I, too, have had the same experience in the past as you have... that
> > > > > of:
> > > > >
> > > > > "It seems that every time I grab the 3-5 point profit the trade
> > > > > goes on to 10-15 points and every time I let profits run, the 3-5
> > >point
> > > > > profit disappears. I am not particularly found of trailing stops
> > > > > because I have to be willing to give back a fair amount of profit."
> > > > >
> > > > > This is my experience as well. BUT... that's what led me to the
> > > > > decision I've come to: "Make 4 Points Today, Then Go & Play"!
> > > > >
> > > > > I'd love to hear what other feedback you get. Please keep in
> > > > > touch... I'll add you to my list of S&P traders whom I try to keep
> > > > > in contact with.
> > > > >
> > > > > Warmly,
> > > > > Brian Keith Voiles
> > > > >
> > > > > At 08:34 AM 11/17/2001, you wrote:
> > > > > >I am an S&P day trader and keep going back and forth in my mind my
> > >exit
> > > > > >strategy. There are 2 schools of thought 1)let profits run 2)don't
> > >try to
> > > > > >be a pig on every trade. It seems that every time I grab the 3-5
> > >point
> > > > > >profit the trade goes on to 10-15 points and every time I let
> profits
> > >run,
> > > > > >the 3-5 point profit disappears. I am not particularly found of
> > >trailing
> > > > > >stops because you have to be willing to give back a fair amount of
> > >profit.
> > > > > >Others use a staggered exit strategy such as take 1 contract off at
> 3
> > > > points
> > > > > >another at 5 another at 8 etc.
> > > > > >
> > > > > >I would be interested in hearing only from successful S&P day
> traders
> > > > which
> > > > > >school of thought they follow.
> > > > > >
> > > > > >Thanks
> > >
> >
> >
> > _________________________________________________________________
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