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nobody went broke taking a profit

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SimonPB
Valued Contributor
this oft made comment is indeed true .. but the flip side is that nobody made a killing taking a profit to early .. if we're to eager to exit winners we'll never get the huge profits that occasionally result .. I spent 4 days looking at my lazy system exit startegy last month as sometimes I go from great profit to very modest profit (or break even) .. but any change to make a tighter exit stratgy and try and lock in more great profits meant I lost the awesome profits and the pay off was that awesome profits make a real difference ..
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35 REPLIES 35
SimonPB
Valued Contributor
we tend to take profits quickly and losses slowly .. naturally this makes us poorer .. also we take profits quickly as we lack confidence overall ..
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ACEP_
Regular Contributor
... and then there was African Dawn!
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SimonPB
Valued Contributor
don't get me wrong. I am not saying don't have a stop loss, in fact I only run a stop loss. Issue is sellign to soon. An in that sense ADW is a good example, from 4c to over 500c .. imagine selling too soon ??
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saash
Super Contributor
How about working out a 20% exit strategy. On a new high - take 20% of the exposure. Next new high, take 20% of remaining exposure .... etc. That way, you are always exposed to the trade.
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SimonPB
Valued Contributor
fair shout .. your trade has to be large enough so that selling 20% isn't just a cost killer .. and then what happens when your trade hits +165% and you only hold 20% of the original ?? shouldn't we rather add to a winner rather then reduce a winner ??
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sponono
Super Contributor
According to Jesse Livermore one should only close a position if a your stop loss triggers (he places this at 10%)or if the instrument flashes a warning signal. A small profit can become big if traders have patience to wait (ask me, I bought KIO at R160 and closed it too soon, look at it now) and a small loss can become big if not closed quick enough. After analysing my trades I realised that my biggest enemy is FEAR: fear that my small profit would disappear if I dont take it (bought AGL at R15400 and closed at R17700), fear of making a loss in the first instance (according to my method GND is a buy but fear stops me from making the commitment), fear that if I take a small loss the stock would turn around and go up (in most cases it never does SAP is an example),fear of buying a stock trading at a new 52 weeks or historical high (I watched CPI fly from R40 to R60), FEAR OF THE MARKET.
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SimonPB
Valued Contributor
good post, fear of the market .. and a fear of heights ..
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Not applicable
Yet nothing stops you (other than costs) from re-entering a trade that bolts after you take profit. I know some would say never re-invest or chase profit but sometimes your exit was spot on and Mr Market decided something else. Re-asses and re-enter if the signal still holds positive and costs can be justified. You might loose a few extra percentage points/profit but you still ride it up and make those extra point you missed
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louisg
Super Contributor
Rather sell too soon than too late. "Picking winners is the hard and most important thing to know. If selling too soon is your only problem you will do well in the market. When asked how he had accumulated so much wealth, Napoleonic era London trader Nathan Rotschild replied "I sold too soon".
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jack12
Super Contributor
Yes and no. Most time a winner bolts away I am to scared that the entry will be to late (high RSI, Stoch, upper Bollie etc) so I don't enter, and rather wait for a pullback before entering. But the psychology of missing the boat makes me nervous. So a) I enter to early on the pullback or b) I enter to late and it is already in the 2nd phase. KIO and AGL were good examples for me.
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Not applicable
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KPnewbie
Contributor
me too, hit my target and then try and ride the wave but always get kicked out with my stop loss
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SimonPB
Valued Contributor
an Rotschild is not being exactly accurate .. he made his money by gettign the news of the Waterloo victory before everybody else ..
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Not applicable
Simon, I am increasingly convinced that an entry strategy is close to irrelevant. i believe that less than 2% of traders have the mathematical ability to properly statistically model the success ratio of their entry strategy. I believe that the bulk of entry strategies have between 40%-60% chance of gaining 4% as they do losing the same amount. I believe that the average trader needs to be able to define himself/herself on their EXIT strategy. And I totally refute the statement, nobody went broke taking a profit. If you take profit too early, you will go broke - period!
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SimonPB
Valued Contributor
I agree .. an "I believe that the average trader needs to be able to define himself/herself on their EXIT strategy" .. absolutely 100% agree .. it is the selling not the buying that matters ..
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john_1
Super Contributor
basic truth here is nobody gets anything from the market unless you sell...anoth truth about markets is that time is not a function of price untill you buy and sell..then the timing of that entry or exit is what makes the diffrence...
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louisg
Super Contributor
Hi Skaaptjop. Assume a 50/50 gain/loss on 100 trades. A stop loss of 5% (which is of course the best case scenario for the losing trades). My question is: What % gain would one need to achieve on the winning trades to break even after all costs (trading fees, slippage, spreads and taxes) are taken into account? (If I've missed a parameter please advise.)
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louisg
Super Contributor
Simon would it be correct to state that one could successfully trade using random entry points?ie using a dart board scenario for ones entery strategy.
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NJ_1
Frequent Contributor
Your max loss won't be 5% - that will be your smallest loss. It can be a lot higher and you can expect a good few around 10%. Costs depends on the number of trades in total.
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