Does anyone practice managing their winners by taking profit early?
Yes - many people do.
People vary greatly in the relative extents to which "fear of losses" and "fear of missing out on potential profits" affect their decision-making.
I take at least
some of the profit early, on
almost all my profitable trades, sometimes by closing the whole position "early" and at other times by scaling out ... on the respective types of trades for which I've reliably proven each method of trade management to be beneficial overall, naturally enough.
I quite often close a proportion of the trade at a level which locks in some collective profit
on the whole trade, and let the rest run (if it will) adjusting its stop-loss manually as it does so. That applies, for example, to some of the trades I make which might catch the start of a new intraday trend, following a reversal.
The three main reasons (all three of them interconnected, really) I do this are: first, it's what I'm used to and what I've almost always done; secondly, I trade OPM and it's what my employers want to me do; thirdly my principle objective with each day's trading is simply to be able to do the next day's trading without having experienced any drawdown on the day (whenever possible), rather than trying to make the most profit I can, each day.
Van K. Tharp, in his (excellent) book
Trade Your Way to Financial Freedom, presents the view that scaling out is, broadly speaking, a bad idea, because it tends to lead to having most at risk at the stage of the trades when the odds tend to be least in your favour. IMO there are definitely some exceptions to that - including some of the methods I routinely use, myself. So it's the one thing in his book over which I don't agree with him. Here's the thing: many people scale out as a fundamental and essential part of the way they make their livings through their trading, but that's because their analysed results have proven that doing so maximises their
overall edge or profit factor. In other words, they're doing it because it's the proven, right thing
for them to do.
I don't worry about missing out on some potential further profit by partially closing my profitable positions, for two reasons: first, it minimises my drawdown risk (the single most important thing, for me); secondly, I take the view that if price movement develops in such a way that I "could have made more" - and it sometimes does, of course - then that was an opportunity
for someone else, who has different methods from mine,
not an opportunity
for me. And I know that there are also plenty of
other times when I take a profit and "he" ends up taking a loss.
So, these things are a little more complicated than one expects from any superficial perspective, and the reality is that a whole range of interacting variables can sometimes be involved, even occasionally in ways that change the decision.
One size decidedly does
not fit all.
