Best Way to Take Profits?

[BrooksRimes]

In Van Tharp's well received book "Trade Your Way to Financial Freedom", chapter 10 is "How to Take Profits". Under What To Avoid, he is adamantly against scaling out profits with multiple exits. He claims it goes against cutting losses short and letting your profits run and it results in large losses and small profits. He says you are taking the maximum loss on all contracts but taking maximum profits on just a fraction of the contracts.

It does make some sense, but contradicts most other trading books I've read.

Tharp favors exiting all at once, perhaps with a "profit retracement" type stop based on the amount of initial risk and tightening it as the trade moves in your favor. Or, exiting all at once with a ATR based stop.

It would be helpful to hear from traders who used both profit taking strategies in a live environment or from those who have backtested both methods.

Brooks

 

[Ripley]

It all depends on what kind of a trader you are. If you are a scalper, and a shorter time position trader, then it is best to take profits. But, if you are a longer time frame intraday position trader, there are some advantages to holding onto a partial position. Either way, you cannot be half-assed about anything in trading. You have to act decisively, or else you have to reexamine your strategy.

 

[EdgeHunter]

Quote from BrooksRimes:

In Van Tharp's well received book "Trade Your Way to Financial Freedom", chapter 10 is "How to Take Profits". Under What To Avoid, he is adamantly against scaling out profits with multiple exits. He claims it goes against cutting losses short and letting your profits run and it results in large losses and small profits. He says you are taking the maximum loss on all contracts but taking maximum profits on just a fraction of the contracts.


It does make some sense, but contradicts most other trading books I've read.

Tharp favors exiting all at once, perhaps with a "profit retracement" type stop based on the amount of initial risk and tightening it as the trade moves in your favor. Or, exiting all at once with a ATR based stop.

It would be helpful to hear from traders who used both profit taking strategies in a live environment or from those who have backtested both methods.

Brooks

Yes, i read this too... found it interesting and devised a wee bit of a diff strategy... lets say i put on even number of contracts (lets say ten) and my stop is 1.50 away in es... so i am risking $750... i will scale out half of the contracts if i reach 3 pts profit which matches my loss risk if i had been stopped out... then i let the other 5 ride and try to exit all at a momentum high, breach high or minor retest of a momentum high... anyway... would like to hear the thoughts and strategies of others on what they think about scaling, etc...

 

[BrooksRimes]

Edge,

Thanks for posting.

One thought/suggestion on what you are doing - when you take the 3 pts profit on 5, you could consider moving your protective stop up to breakeven on the other 5 contracts.

Brooks

Quote from EdgeHunter:

Yes, i read this too... found it interesting and devised a wee bit of a diff strategy... lets say i put on even number of contracts (lets say ten) and my stop is 1.50 away in es... so i am risking $750... i will scale out half of the contracts if i reach 3 pts profit which matches my loss risk if i had been stopped out... then i let the other 5 ride and try to exit all at a momentum high, breach high or minor retest of a momentum high... anyway... would like to hear the thoughts and strategies of others on what they think about scaling, etc...

__________________
If You Have The Vision - We Have The Code...

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[EdgeHunter]

Quote from BrooksRimes:

In Van Tharp's well received book "Trade Your Way to Financial Freedom", chapter 10 is "How to Take Profits". Under What To Avoid, he is adamantly against scaling out profits with multiple exits. He claims it goes against cutting losses short and letting your profits run and it results in large losses and small profits. He says you are taking the maximum loss on all contracts but taking maximum profits on just a fraction of the contracts.

It does make some sense, but contradicts most other trading books I've read.

Tharp favors exiting all at once, perhaps with a "profit retracement" type stop based on the amount of initial risk and tightening it as the trade moves in your favor. Or, exiting all at once with a ATR based stop.

It would be helpful to hear from traders who used both profit taking strategies in a live environment or from those who have backtested both methods.

Brooks

Brooks... in total, did you find Van Tharp's book worth buying... or...

 

[jaronimo]

Quote from BrooksRimes:

Edge,

Thanks for posting.

One thought/suggestion on what you are doing - when you take the 3 pts profit on 5, you could consider moving your protective stop up to breakeven on the other 5 contracts.

Brooks

why move it away to breakeven? The only reason would be if the 1.5 pt stop is within random noise. you already took 3pts outs, even if your stop gets hit at 1.5, you still end up with a net 1.5pt profit.

Usually I use this technique or a similiar one and then start moving the stops a few tics from S/R as the trade goes in my favor. Let the market take me out of the trade, cause if I do it myself it always goes higher after I am out.

 

[Trent]

I have read that book and its utter crap and so are the authors arguments against scaling out of a position.

The best way to find out what exit methods work best with your strategies is to test.

Trent

 

[FredBloggs]

Quote from Trent:

I have read that book and its utter crap and so are the authors arguments against scaling out of a position.

The best way to find out what exit methods work best with your strategies is to test.

Trent

i agree 100%

tharp has probably never traded and his understanding of the business seems minimal when you read the book

hes one of these nutters who thinks all trading involves is looking at back data, and coming up with something that works based on that

there are some useful aspects on system design in general, and i would say its worth a read if new to the business to get a flavor.

for those of you who havent read the book - save your money. maestro posted a link to a free downloadable pdf version a while back. follow the link for the url.....

http://www.elitetrader.com/vb/showt...195&highlight=improve+your+trading#post728195

as for scalling out - well it all depends on the individual, their comfort level, trading style etc.

 

[flat5]

Quote from FredBloggs:

i agree 100%

tharp has probably never traded and his understanding of the business seems minimal when you read the book

hes one of these nutters who thinks all trading involves is looking at back data, and coming up with something that works based on that

Honestly, what is the alternative? Looking at future data and coming up with something that works based on that?

 

[jaronimo]

Quote from flat5:

Honestly, what is the alternative? Looking at future data and coming up with something that works based on that?

Future data? Who is your provider for that? I bet its expensive.