"greed"

[WallStGolfer31]

Quote from illiquid:

Rather than the usual 'losing-trade-turned-investment' syndrome, I find myself lately with the opposite bad habit: overestimating profitable positions. Once a trade goes into the green, I have a bad tendency after a time to start pulling out onto the next time frame and trying to surmise its full 'potential' beyond anything I'd had in mind when I first entered the trade.

Yes, I realize that the frustration that arises here is as silly as the mirror-image of leaving profits on the table -- a kind of "holders remorse" that is just one in a long line of mental pitfalls we tend to get caught up in. But I'm finding that continually trying to hold out for more can also be more costly, both mentally and financially, over the long run in comparison. Thoughts?

My advice. Stick to your original price target. Put in a limit sell order at your target price if you have to. Before you step into any position your mind is clear and fairly unbiased. In this state of mind you can use your best reasoning. After you have entered the position, you have so many non-trading variables to deal with, it's best to just stick to your original plan. Everything from your ego, to greed, even to second guessing the chart. I think it will just take a strong will.

 

[romik]

if you know the daily pattern swings of the instrument you are trading, you can expect at what %age/price level profit taking is about to kick in and therefore you can adjust your profit targets accordingly. 90% of the time I would simply sell my position on a small swing, locking in smallish profits (small - would depend either on amount of contracts traded or %age of trading capital). My trade target is 1-2 points trading ES, if I believe that my entry was really well timed, I'd sell 1/2 lots at my normal trade target, 1/4 at medium swing target and the last quarter @ large swing target. If the price goes back to my entry level or just below, I'd sell that remaining 1/2. I believe this to be quite a good system to tackle greed.

 

[WallStGolfer31]

Quote from romik:

if you know the daily pattern swings of the instrument you are trading, you can expect at what %age/price level profit taking is about to kick in and therefore you can adjust your profit targets accordingly. 90% of the time I would simply sell my position on a small swing, locking in smallish profits (small - would depend either on amount of contracts traded or %age of trading capital). My trade target is 1-2 points trading ES, if I believe that my entry was really well timed, I'd sell 1/2 lots at my normal trade target, 1/4 at medium swing target and the last quarter @ large swing target. If the price goes back to my entry level or just below, I'd sell that remaining 1/2. I believe this to be quite a good system to tackle greed.

Good Point Romik!


If you really feel there is more upside upon hitting your price target there are many strategies one can use to limit risk while leaving upside open. I'll post up a .doc file on the subject that includes 3-4 good strategies once I get home.


One thing he can do is buy some medium term puts equal to his position size. If his stock goes goes above the price it is not + the per share premium of each put, he gain unlimited profit. If the stock drops or stays where it is, he only looses a small premium he paid for the put, which is more than covered by his stock profit.