Posted by: joetradingplace | March 25, 2014

Taking Profits

 

You never go broke by taking profits, Dont let your winners turn into a loser.

 

These two statements are usually misinterpreted by either new traders or even experienced traders. If you take small profits very often, you will go broke if these profits don’t cover your losses…you could take 20 small profitable trades, but 2 big losses or even 1 big loss could easily wipe your gains. Don’t  let your winners turn into a loser…this misleads a lot of traders, they quickly move their stop loss to breakeven when the market has just moved a few points in their favour…these traders fear to turn a winner into a loser. But guess what happens, they get stopped out to the pip and then the market moves in their favour for the rest of the month (like the market is saying “in your face loser”).

The first reason that traders are quick to take profits is because they fear to lose what they have gained already. Another reason is to boost their ego and  to brag about having more  winners than losers. There is no point in bragging about more wins than losses if you have a negative balance at the end of the quarter. I am happy to trade a system that have 20 percent win rate, but profitable. We are not looking for excitement in winning trades, but we are looking to grow our accounts.

Have a valid reason for taking a profit…imagine that you have a boss looking over your shoulders when you are trading. If the boss ask you WHY you took the profit, you wouldn’t say that you took the profit because of fear of losing. The boss will need a factual reason why you took the profit…so if you say you took the profit because price was struggling to break through a strong support…your boss will see that you are trading logically. So each time you trade now, imagine a boss behind asking you why you took a trade or why you took a profit….this worked for me.

Before you place your trades, you should know where to exit for a loss, where to exit for a profit. Do not look for these when you are already in a trade, because the moment you enter a trade you get emotions running all over the place, thus distorting your logical reasoning. Most traders take their profits because of the 2 statements mentioned at the top of the article…but that’s  not a logical reason to take a profit. Profits should be taken for a technical reason…for example price reaching support or resistance. Forex trend a lot and as traders we have to take advantage of those trends….a big mistake by traders is placing trades with 1 lot…this doesn’t give you an advantage to let your profit run. For example if you trade 1 lot and the market moves 100 pips in your favour…you rush to take your profit and you will be proud that you have a profit of 100 pips…but now you are out of the trade and can’t take advantage of the trend. I trade in multiples of 3…so I can take the same profit with you at 100 pips…but i still have 2 more lots to take advantage of the trend…. and if the market moves 600 pips after you exit…i will be still in, taking partial profit as the market moves in my favour.  Check my chart to see the advantage of trading multiple lots.

As long the market is behaving normally, dont be in a hurry to take profits. When my trade is in profit, I am not nervous, I don’t fear to lose money, because I know that I am playing with the house’s money. If price comes back to stop me out, I have only lost money which I never had  in the first place…a profit is only yours when you have closed the trade…don’t count your pips when the trade is still open.  There is no place in trading for hoping, for guessing, for fear, for greed and for emotions.

euraud 25-03-2014

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