Best Way to Take Profits?

[Kermit]

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

I too have read his book (before there was the online pdf version) and debated for the longest time in my mind about how to take profits (for my style, that is). I have come to settle upon a strategy to scale in AND scale out of contracts rather than an all-or-none approach. Basically it’s my way of dealing with not knowing how lightly or deeply the market will probe into my buy or sell zones and, again, how much or how little it will extend profitably from my buy or sell zones.

Kermit

 

[FredBloggs]

lol - trading i believe is more about flexibility and trading the now moment - or in other words what you see.

of course we are going to base methods on what the market tends to do (based on past situations) etc.

it doesnt teach you anything about 'trading' though. its just a very mediocre text on a small aspect of trading, which in fairness to tharp he does acknowledge.

some of the blunders he makes though are just beyond belief - like when he says he is surprised when an institutional market maker didnt think of limiting risk to 2% of his account!! what a joker.

 

[DHOHHI]

Quote from FredBloggs:

what a joker.

I have some appreciation for the "joker". I took a course from him back in 1996 and found some of his approaches quite helpful. And 9 years later I'm still trading for a living ... he isn't the answer to all facets of trading but one needs to understand what they can take away from different "experts" to improve their trading.

 

[BrooksRimes]

I think you misunderstand. I didn't mean to move it away, but instead in the direction of the trade. From the initial stop which would limit to a small loss to a stop where it would be a breakeven on the 5 contracts you held for a larger gain.

Quote from jaronimo:

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.

 

[jaronimo]

Quote from DHOHHI:

I have some appreciation for the "joker". I took a course from him back in 1996 and found some of his approaches quite helpful. And 9 years later I'm still trading for a living ... he isn't the answer to all facets of trading but one needs to understand what they can take away from different "experts" to improve their trading.

I think the problem is common when someone is trying to learn from a book. Most people read it once and cast judgment. Sometimes you need to read something a few times for it to really sink in.

I am working with someone now and reread all his stuff over and over. Its amazing that you can pick up something new every single time I read it.

Van Tharps book sounded familiar and I found it in my "already read" pile. I don't remember much about it. Maybe I read it during my drinking phase. Oh wait, I'm still in that phase.

 

[jaronimo]

Quote from BrooksRimes:

I think you misunderstand. I didn't mean to move it away, but instead in the direction of the trade. From the initial stop which would limit to a small loss to a stop where it would be a breakeven on the 5 contracts you held for a larger gain.

Maybe I am confused. If the initial stop was 1.5 pts on 10 contracts and we get out of 5 contracts once the market moved in our direction 3 pts, then if the remaining 5 contracts get stopped out at the initial stop of 1.5 pts, then that leaves us with a 1.5 pt profit. To make the trade breakeven, after getting 3 pts on the first five, you would have to move the second 5 stop to -3pts.

As I am typing I realize what you mean. Took 3 pts on the first 5, and you are thinking of the second 5 as a different trade, so you want to move the stop from -1.5pts to 0. Thats valid, as long as moving it closer does not put it into the random noise area.

 

[electron]

Tharp's approach is very valid for trending markets or for the entries that aim at exploiting bigger moves. If you are scalping you may not find this approach useful, but if you target bigger moves, say 5-10 pts in ES intraday, this is the correct approach. Obviously you also want to have a reasonably small stop loss.

As with everything, just because you cannot find implementation of some idea for yourself, does not mean that the idea is bogus. ProfLogic's idea of trading with the trend is very valid even if trivial, but the guy has no implementation of it in the form of some valid verifiable profitable strategy, so charging $3000 for the seminars is a total rip-off on his part... I have such implementations, so how much should I charge for them if this guy charges $3000 for just small talk? Well, you get the point how some people operate...

 

[FredBloggs]

Quote from jaronimo:

I think the problem is common when someone is trying to learn from a book. Most people read it once and cast judgment. Sometimes you need to read something a few times for it to really sink in.

yea - im guilty of this. read it once, thats it.

 

[BrooksRimes]

Everyone is entitled to their opinion.

"Van Tharp, Phd. has been a consultant to traders and investors for over 15 years and has studied over 4000 traders during that time. He is internationally recognized as the number one psychologist and coach for traders and investors. Dr. Tharp is a sought after speaker, developing courses and seminars for large banks and trading firms around the world".

Jack Schwager and Ed Seykota endorsed the book. I've read dozens of trading books and found it one of the best.

Brooks

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

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.