Letting Your Winners Run

M

Money Trust

Since I've become a profitable trader, I've always had a problem letting my winners run. I have no problem selecting good trades, my problem is sticking with them.

For instance, I remember a trade that I took last year in Live Cattle futures. I closed the trade out after making only $500 per contract, yet my analysis showed that a much bigger move was likely. Had I stuck to my analysis, what would my profit have been? $3500 per contract. I had a recent experience in Wheat futures. I took a $700 per contract profit when my profit could been several times more.

Time and time again, I have correctly forecast where a market is likely to go and I would bail out way too soon. I've analyzed myself and discovered that I have a "take the money and run" mentality. I'm guessing that it stems from my days as a losing trader.

My solution is simple but I authored this thread more so for those traders who may not believe that this exists.
 
Hi Money Trust,

I can try to answer because I faced several times the same problem :
Find a nice entry point, money flows, I begin to say to myself, OMG, i need THIS MONEY in my pocket before market takes all!
Half time it is a good decision
Half time I can't believe that after I sold, everybody is buying after me, and I had the feeling I took all risks, and win less than the crowd or the average !!!! LOOOL?! :mad::oops::confused::(

What I discovered (on the LONG side, reverse for the SHORT side):

In the first scenario : I cut because I know it is SPECULATIVE. For example, obviously a stock is oversold. For good reasons. But it is a nice opportunity on a ST basis.
I buy it, it makes +20%, I get out : Bingo, bearish trend is back and I was right.
In the second scenario : everyone is bear (and wrong). I find a good entry point, money flows... fast ! really fast! So I am too afraid losing part of my gains. I sell first half then second half. And of course I am wrong, because I didn't anticipate that all lemmings on earth would like to eat part of the Cake and will push prices higher and higher.

Conclusion:
When you trade, you need to know first if you are doing a speculative trade or a fundamental trade !

1 Speculative trade : trend is not that clear, you are really contrarian, you want to trade something nobody follows or likes to trade. So you must get out as fast as you can when there are some weaknesses!

2 Fundamental trade : trend is rather clear, on a short term basis, lemmings are a bit afraid but they will participate again because it is a well-known bet (Apple, Nasdaq, real estate...), there are some pullbacks, and you "just" need to place stops below pullbacks and reduce your exposure with your stops. Stops should permit to keep majority of your profits (at least 50%).
You got another possibility : you sell half when you think you got a nice exit price, and place a stop buy above the higher high in order to jump again in the trade. Problem : works mainly with futures, not with stocks or option. But in your case, it is okay, right?

Hope it helps.

Chris Mac
 
It's been 40 years or so, but as I remember, in the beginning similar to your "take the money and run" mentality, mine was 'ya never go out of business making a profit' . But I dumped that after I learned to read the price movement, finding that there are only so many things that can happen at the end of a run, be it big or small. If the contracts you mentioned, or any others, are not fly-specked unreadable charts, the indication to exit is usually there to be read. True, the PM in a run can cease to be clear. But that in itself is a reason to exit, even though it may be well before the end of the run. I originally used those end of run indications, and often still do, to solve the problem. But my main method now of reading the PM and exiting in the direction of the move and reentering if there's a favorable reaction usually gets the same results. And in the vast minority of the cases when the move continues way on after I exit, it ain't no big deal, and I don't look at it as being a loss!

End of typing practice. Still using two fingers!
 
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Money Trust said:
Since I've become a profitable trader, I've always had a problem letting my winners run. I have no problem selecting good trades, my problem is sticking with them.

Time and time again, I have correctly forecast where a market is likely to go and I would bail out way too soon. I've analyzed myself and discovered that I have a "take the money and run" mentality. I'm guessing that it stems from my days as a losing trader.
More...

Money,

Re: forecasting where market will go ... are you using TA? If so, TA can be helpful but has its flaws IMO.

Regarding your less than optimal profits ... a few things to consider (1) you can't go broke taking profits (2) I've seen (and done this myself) traders have a nice profit and then a trade starts to pull back and they say "I'll wait until it hits $X again and then get out". (2) An office traded in one told me that if you hit your daily profit objective then go home (and don't risk losing some/all of it) (3) Going home flat at the end of the day or with minimal overnight exposure isn't a bad thing if you're doing this full time.

I started in 1996 full time and certainly had my ups and downs in the first few years.
 
easy solution=when you have a nice profit, put in a trailing stop for a half or a third. You will never get top dollar, but you may get more than you anticipated.

I keep my losses small and never take a profit. I figure, if I take a small loss because I think if I don't it may keep moving against me, then shouldn't if I am consistent, never take a profit because I also think it will just keep moving in my favor?

If you take a loss because you think it will trend, and then take a profit because you think it will chop, you have negativity working against you on both sides.
 
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DHOHHI said:
Money,

Re: forecasting where market will go ... are you using TA? If so, TA can be helpful but has its flaws IMO.

Regarding your less than optimal profits ... a few things to consider (1) you can't go broke taking profits (2) I've seen (and done this myself) traders have a nice profit and then a trade starts to pull back and they say "I'll wait until it hits $X again and then get out". (2) An office traded in one told me that if you hit your daily profit objective then go home (and don't risk losing some/all of it) (3) Going home flat at the end of the day or with minimal overnight exposure isn't a bad thing if you're doing this full time.

I started in 1996 full time and certainly had my ups and downs in the first few years.
More...
Yeah, I use price action to determine likely targets. I'm right about 80% of the time, which is what really bothers me. LOL, I could probably be a millionaire by now if I followed my trades all the way through.
 
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loyek590 said:
easy solution=when you have a nice profit, put in a trailing stop for a half or a third. You will never get top dollar, but you may get more than you anticipated.

I keep my losses small and never take a profit. I figure, if I take a small loss because I think if I don't it may keep moving against me, then shouldn't if I am consistent, never take a profit because I also think it will just keep moving in my favor?

If you take a loss because you think it will trend, and then take a profit because you think it will chop, you have negativity working against you on both sides.
More...
Which reminds me of this Livermore quote:

"Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit."

I'm gonna print that out and place it on my trading desk.
 
Money Trust said:
For instance, I remember a trade that I took last year in Live Cattle futures. I closed the trade out after making only $500 per contract, yet my analysis showed that a much bigger move was likely. Had I stuck to my analysis, what would my profit have been? $3500 per contract. I had a recent experience in Wheat futures. I took a $700 per contract profit when my profit could been several times more.

Time and time again, I have correctly forecast where a market is likely to go and I would bail out way too soon. I've analyzed myself and discovered that I have a "take the money and run" mentality. I'm guessing that it stems from my days as a losing trader.
More...

Was your stop-loss level you had set for these trades similar or less than the magnitude of the actual profit you took at the time of trade exit ? In terms of my client work, we set our profit targets and stop-loss levels according to a simple rule at the time of trade entry, and then I give my clients holy hell if they unilaterally decide on a "discretionary" basis to get out earlier. The only exception is if the original trade entry conditions in terms of rules and indicator package change during the lifespan of the trade - that's an automatic exit prior to hitting a stop or profit target.

Another thought is that you are likely being unduly harsh with yourself. It takes time and effort and commitment to become a good trader. And you are in the process of evolving into a better trader - the only thing holding you back is the five inches between your ears. You don't become a gifted cardiologist immediately upon graduation from med school. You have a two year residency with a specialist or practice or hospital department in the field of cardiology. Electricians apprentice for a long time before they are allowed to be licensed by a State.

Keep a daily trading journal. Mistakes avoided and lessons learned and sensible sizing changes are the same as positive P&L. And congratulations - you're a big swinging dick and don't let anyone tell you differently.
 
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bone said:
Was your stop-loss level you had set for these trades similar or less than the magnitude of the actual profit you took at the time of trade exit ? In terms of my client work, we set our profit targets and stop-loss levels according to a simple rule at the time of trade entry, and then I give my clients holy hell if they unilaterally decide on a "discretionary" basis to get out earlier. The only exception is if the original trade entry conditions in terms of rules and indicator package change during the lifespan of the trade - that's an automatic exit prior to hitting a stop or profit target.

Another thought is that you are likely being unduly harsh with yourself. It takes time and effort and commitment to become a good trader. And you are in the process of evolving into a better trader - the only thing holding you back is the five inches between your ears. You don't become a gifted cardiologist immediately upon graduation from med school. You have a two year residency with a specialist or practice or hospital department in the field of cardiology. Electricians apprentice for a long time before they are allowed to be licensed by a State.

Keep a daily trading journal. Mistakes avoided and lessons learned and sensible sizing changes are the same as positive P&L. And congratulations - you're a big swinging dick and don't let anyone tell you differently.
More...
Well, I didn't have an exact price point set at which to exit...more like a price area. I would usually have to see how price acts when it reaches that area. I've only executed this once with success, other times, I get out prematurely for no reason at all other than to take the profit and be done with it.
 
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