Let’s start with an excerpt from a comment on last week’s article “Trading after Structure has Formed – 3“.
“In the winning trade from yesterday’s post I’m wondering why you take partial profits so early. Your eventual exit is maybe five times further. This is not the first time I’ve noticed this in your trades. Would you be better just taking your second exit each time?”
Thanks for your concern about my performance. 🙂
No, seriously, I have been asked this several times and it’s quite a good observation. So let’s talk exits.
This is the trade referred to in the comments:
You mentioned that this is not the first time you’ve noticed this in my trades.
Let’s look back to the article before this to see another winning trade. This time from “Feeling the Uncertainty at Trade Open“.
And if you keep going back through the blog, you’ll likely continue to observe this. When the trade does run, the first scale-out exit does underperform.
So let’s get to the real part of your question – “Would you be better just taking your second exit each time?”
On these individual trades, with the benefit of hindsight, yes absolutely.
Across a larger sample of trades, well it’s not so clear and obvious any more.
Let’s look at a new example, this one being from Thursday 18th of November.
Here is the key point:
Sometimes market conditions will be better suited to taking early quick profits. And sometimes market conditions will be better suited to holding the position and taking larger profits.
If I traded all-in-all-out targeting only my first exit, I’d do so at the cost of missing ALL larger moves. Frustration!
If I traded all-in-all-out targeting only my second exit, I’d go through sequences of losses, where the market did not have sufficient follow-through beyond the first area of potential trouble. Frustration! And greater fluctuations in the daily P&L.
I simply diversify across both exit styles.
Smoothing out the fluctuations in daily P&L. At the cost of underperforming to some degree when the market does offer a larger move.
There’s no right or wrong. It’s just what best suits my personality.
Your own preference may differ from mine. Perhaps you’re absolutely fine with an all-in-all-out approach, comfortably sitting through a string of losses before you get the runner.
Or perhaps you can have the best of both worlds, adjusting trade management style more quickly to suit market conditions. Taking small profits when that is all that is available. And holding a whole position for larger runners when that is available. I’ve tried. I’m better at just diversifying across both styles and accepting potential underperformance.
Trial and error… and review of your own performance stats… it’s the only way to find the right path for you.
On another note, looking once more at this latest trade:
Again, trial and error… and review of your own performance stats… it’s the only way to find the right path for you.
One of your best Lance, how to operate in an uncertain environment targeting high probability trade ideas whilst applying strict R-control, a systematic profit take with the opportunity for greater +R, when bundled (executed consistently) provides the ideal mindset for the Trader.
Great work 👍
That is awesome, Steve. I hadn’t stepped back to take in how many elements of this business were covered in this article. That’s quite a list! 🙂
I’m most pleased to see that someone has recognised the mindset as a key part of this discussion. Thanks!
great article thanks. For me I scale out, which keeps the small profits ticking over but to catch a runner I scale out then move the stop to lock in the last smaller position in profit but with space to breath. Then I can watch to see if it’s a runner, either way I win. I’m really weak at holding out for the runners. Scaling out and moving to BE fixes that to an extent.
100% agree. Holding a runner can be tough. I find the same in my own trading. Trailing to breakeven or thereabouts assists greatly.
You are awesome Lance.It took me some time to understand that by exiting first half you are holing second half for a runner without emotion.
Some people are very capable of managing and all-in-all-out management style. Others do better through scaling out. A key part of that, as you suggested, is management of the trader’s psychology. Trial and error will be the only way you’ll find the style that best suits your needs.
Best of luck,