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Registered User
Joined: 11/14/2008
Posts: 17
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OK, I just did my taxes (Schedule D) and looked at my profits and losses. Although I did pretty darn good last year (mostly between March and August), I have been pretty much treding water the remainder of the year.
Memory of and close examination of my trades makes me realize that I am trying to take profits like I did in the second quarter of last year (i.e. bagging whales where you wait for a 10% pop or more to take money off the table). I have had many many decent trades that hit 4-5% and quickly went back down (I was waiting for the BIG POP).
My question to the more experienced traders......
How do you take your profits?
- Hit X% and take Y% off table, setting a stop on the remainder and letting the rest of the position ride
- Hits 5% (example) and take profits
- Hits target exit and place a tight tight stop
- Time limit for proifts
- Set a low resistence point and just wait and let ride until stopped out or hit some profit target (see above)
- Use different money management and exit techniques per goal of stock (long term vs. short term holdings)
I believe I have can pick some decent stocks so my picker for my ticker is not broke, I just don't think I am taking my money off the table soon enough (maybe being greedy, I don't know).
Any insights on the above would help. Money management is not as sexy as picking winners but is just as important and usually overlooked.
Thanks a million (hopefully my million in few years)!
Azureflames
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Registered User
Joined: 10/7/2004
Posts: 2,181
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QUOTE (azureflames) My question to the more experienced traders...... How do you take your profits? - Hit X% and take Y% off table, setting a stop on the remainder and letting the rest of the position ride
- Hits 5% (example) and take profits
- Hits target exit and place a tight tight stop
- Time limit for proifts
- Set a low resistence point and just wait and let ride until stopped out or hit some profit target (see above)
- Use different money management and exit techniques per goal of stock (long term vs. short term holdings)...Money management is not as sexy as picking winners but is just as important
Pretty much right on all counts. Yes, do them all.
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Registered User
Joined: 6/6/2005
Posts: 1,157
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I have spent a great deal of time on money management and continue to look at all of the ways this impacts equity growth. It's thrilling and very important.
My first thought is that you can't have the best of all worlds when trading. You will experience drawdowns and you will experience certain markets when your method works better than other markets.
Switching from one money management method or profit taking method to another (for me) has given me the same results as switching from trading system to another system when one method seems more favorable -- you always seem to switch at the bottom of your method's effectiveness and the top of the other method's effectiveness.
Have you ever been stuck in traffic and you switch from your lane to the faster moving lane just to watch that lane slow dow and your lane start up again? So you switch back and the same thing happens.
For me, the best results have come from matching what I'm looking for and aligning it with the opimum environment of the system I'm trading and sticking with it.
If you think that taking profits sooner is better for your method maybe you could test that out over a 10 year period.
You could also trade two system side by side. One where you take profits quickly and another when you let them run.
I'm looking for the bigger gains and I have seen from my trading and my research that those kinds of trades come in waves and that it is impossible to predict the waves so you have to continue trading through the choppiness. This does mean watching gains evaporate. This does mean strings of losses. The key is to know, with a reasonable degree of ceretainty, what you can expect from your method, that way you can get an idea of when it has stopped working altogether.
Aligning this with your personality you have to ask -- are smaller, higher frequency gains more important to me, or are larger, smaller frequency gains more important to me. This year we experienced lager, higher frequency gains. That's not the norm.
If you've even looked at the results of flipping a coin you know that over the long run the results are pretty much 50/50. But you can run into streaks of heads or tails -- 14 is the most I've seen. Same with system results. In 2009 we hit what I would call the equivolent of a killer winning streak.
Those results will even out once we hit the choppy periods.
The important thing is that each of the profit taking tools you mention has a different effect. Figure out what the positive and the negative effects are and figure out the one you can live with.
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Registered User
Joined: 10/7/2004
Posts: 2,181
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An example here might be helpful. I am in PARD, SRS and FAZ. All 3 did very nicely the other day. The floor could drop out Monday and we head for somewhere around 9600 DJ-30, so PARD becomes a questionable hold but SRS and FAZ might be fantastic. On the other hand, bouncing around 10,000 plus wouldn't shock me (although I think we're heading lower not long after), so PARD may be the one to hold and jettison FAZ and SRS (for now). The bottom line is to not lose track of the value of taking profits. My brother and I own a small construction company; we're bidding on a $500K addition, it will take about a year. But we also like $5k - 30k bathrooms, patios, etc that we can complete in a few weeks. We get higher profit from the small projects but more stability and cash flow from the larger. Thus my answer in the previous post, you benefit from both, not either/or. For me, in this current market, a candle only has to look at me cross-eyed and I'll take profits. I can always buy back in later.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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I don't think you can have a "one size fits all" stop.
Typically what your objective is plays an important role.
(typical profit/hold time)
The rule of thumb would be the faster you take profits,
the faster/tighter your stop.
One thing you can monitor is your commissions vs profits.
(the sum of commissions vs the sum of profit/loss)
The level of commission rising is a sure sign that your
spinning your wheels.
Just my 2 cents but I would also look at the end of 2009 trades
and see if anything could have been done to improve things.
March 2009 to summer 2009 was a "rare breed" in the markets
and I wouldn't want to be basing a lot of results on that.
Thanks
diceman
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Registered User
Joined: 12/31/2005
Posts: 2,499
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QUOTE (davidjohnhall) I
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Have you ever been stuck in traffic and you switch from your lane to the faster moving lane just to watch that lane slow dow and your lane start up again? So you switch back and the same thing happens.
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Wrong lane switching, I once was an expert a picking wrong. I have discovered at least regionally if you are behind a merge left backup, staying in the left lane thlast 3/4s to 1/2 a mile of the pinch works best. It seems in general the right lane is polite and lets people in. Thus the left lane moves along faster. Kind of counter-intuitive, at least from my point of view.
Stops are an interesting area. For timed hold period backtested systems that make a solid profit, stops often are really "Loss capture" mechanisms. Disregarding the emotional turmoil, (hard to do), the sum of the recovered loss by not exiting exceeds the savings using the stop on the loosers. Another counter-intuitive notion.
For systems that are not solidly profitable stops can keep the leaky boat floating longer. glug... glug.....glug.
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