when to take profit?
- Thread starter dafishman
- Start date
Depending on your style of trading, you can usually tell where the market is likely to reverse.
he's correct once the premise for getting in is no longer valid get out.
no, you are probably very observant
he is dumping his losers and letting his profits run till he reaches a certain point when he needs the money.
Holding and hoping without a stop loss makes no sense. There's a level beyond which your thesis is no longer valid and if you weren't in a position your blinders would be removed and you'd likely be on the other side of your own trade. If you've ever taken large losses as a result of having strong opinions about where price "should" go, then you'll probably find yourself cutting winners short because you don't have experience being on the right side of a well-defined trend. Your negative experience will influence your behavior.
Unless you have massive capital and trade small size, it's best to have a method that utilizes the risk:reward ratio and win rate % based on a study of various methods of entry and exit.
I know in advance of taking a position where a reasonable stop loss needs to go and where price is likely to travel if enough traders share my belief. If the risk:reward ratio is appropriate for my win rate (all this is based on statistical analysis of thousands of trades), I take a position and let the trade run its course unless a new opposing signal sets up.
I watched a guy trade for most of a year who based his entries on price action (he used stop orders to enter positions in the direction of relative strength or weakness during a small pullback), determined where his stop loss would be (I think it was slightly outside the pullback extreme), calculated his position size based on the size of the stop loss, then set a profit target that was double the stop loss. His win rate was just about 50% and he was consistently profitable ( realized a gain of well beyond 50% on his trading capital that year).
http://www.elitetrader.com/vb/showthread.php?t=148752
I believe it's important to understand the price levels beyond which a previously dominant side would a) begin to lighten up, b) look to liquidate a position in an orderly manner, c) reverse to an opposing position, and d) panic.
Such an understanding of price action helps guide you to high expectancy/low risk entries and reasonable profit targets.
You buy stock XYZ on Tuesday at 10 PM because earnings reports are very positive and the stock takes off like a NASA rocket.
So where/when do you get out (exit the winning position), according to your "logic" ? When earnings become negative on the next report, I suppose ?
This thread is not about stop loss, but profit target.
Buying at support (or shorting at resistance) is easy, but when to exit a winning position is the mystery here. There are only a few ways to enter a winning position, but thousands of ways to get out.
The problem is that the exit strategy is the key to real wealth, because it is my strong belief that if the trader could spend more time investigating/backtesting the optimal exit strategy (letting the profits run to the max) for his particular system - instead of worrying about the entry - he would be set for life.
NoDoji, how do we break preconceived views of stocks/options/futures we trade because we think events will keep repeating themselves. I trade STZ almost everyday and build a position before the earnings run. STZ has been hitting it's highest point at or quicky after the Consolidated Opening Print and than STZ falls by $5 to $8. Since the $20s I have followed STZ and their pattern has been adjusting, I am afraid of getting slammed because I see repeating patterns on the stock.
This Q stock opens at $95 and falls to $89.5 (I had put the order in and got near the high) and took a Short.
Last Q STZ opens at $85 and falls to $76.7, I sold near the top and shorted the same way, it's how my friend taught me to trade stocks like this. If a dummy like me is seeing these patterns the professionals are definitely far ahead of me. How do you fight your minds desire to see a consistent pattern because I think STZ is going to change, you don't keep having situations without others finding it. Thanks!
This Q stock opens at $95 and falls to $89.5 (I had put the order in and got near the high) and took a Short.
Last Q STZ opens at $85 and falls to $76.7, I sold near the top and shorted the same way, it's how my friend taught me to trade stocks like this. If a dummy like me is seeing these patterns the professionals are definitely far ahead of me. How do you fight your minds desire to see a consistent pattern because I think STZ is going to change, you don't keep having situations without others finding it. Thanks!
Hi NoDoji,
If you were talking about scaling out of a position using first profit target, second profit target and so forth and then raising your stop to close the remaining portion of your open position later I couldn't agree more.
Otherwise, there is no such thing as a "reasonable" profit target, the trader has to follow the trend until the end.