Taking Profits – Adjust to Suit the Environment

Reader Question:

I've got a question related to taking profits. I'm having some great success with entries (finally) but am always torn between taking profit at 1:1, 2:1 (which I've found to be more common lately) or holding out until the next S&R.

I know you take 1 profit off the table at 1:1, move your stop to B/E & hold out for larger gains. From your experience was there any other methodology or have you found yours to be the most profitable?

I'm trying to read the price action after entry and it doesn't give too many clues, other than in hindsight.

Response:

Have a read of the exit strategy ebook again (link below). Exits are one area of trading that can NEVER be perfected. There will almost always be a way that they could have been better managed over any sample of trades. My belief is that it's best to optimise your exit strategy to that which suits your personality, rather than one that is mathematically superior but difficult for you to trade. And then just accept imperfection. Of course, that doesn't mean we don't always try to improve!

My approach is not as fixed in stone as it sounds in your question. It's not a fixed 1:1, then stop-loss to breakeven and leave it to run for the second target.

1:1 is simply a minimum for the first target. But typically both targets for parts one and two will be price action based.

Using price action placement for targets allows the approach to be adjusted to suit the environment as well. For example, in narrow range sideways markets such as CL has been offering lately, better results are obtained through sometimes taking both parts off at the first target.

In any one sample of trades I'll find that sometimes part one will provide the bulk of profits; sometimes it's part two; other times it's a combination of both.

Unfortunately I don't have any stats to be able to tell you which approach will be the most profitable in the future. It's not really how I view trade management. My beliefs are that any fixed rule approach will outperform in some environments and underperform in others. As such, I prefer a discretionary approach to attempt to adjust to suit whatever environment I have.

Sorry I can't help more. Hopefully that somewhat answers your question.

Link to the exit strategy ebook – http://www.yourtradingcoach.com/products/ebooks/The-Importance-Of-Exit-Strategy.pdf

Lance Beggs


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