How to exit a successful trade!

Traderji · #1 21st October 2004, 01:45 PM

How to exit a successful trade!

Do you stay with your profitable trades as long as possible because the trend is likely to continue and make your profits even larger?

This is easy to understand but not so easy to do when real money is involved. The difficulty is that although your profit may become much larger if you stay with a trade, it may also decrease and even disappear. Human nature is such that it values a sure profit much more highly than the probability of a much higher profit. Thus, traders are inclined to take their profits too soon. This can be fatal to long-term success because big profits are necessary to overcome the inevitable collection of small losses.

There is a good way to let profits run while still guarding against the possibility that prices will turn around and take away much of your accumulated profits before the trend actually reverses. It is called a trailing stop. You include in your plan a method for moving an exit point along some distance behind your trade. As long as the trend keeps moving in your favor, you stay in the trade. If the market reverses direction by the amount of your trailing stop, you exit the trade at that point. You would also offset your trade and reverse position if the trend reversed.

One way to set a trailing stop is to protect a certain percentage of the accumulated profit. That will always insure that you keep some profit on a good trade.

jaideep · #2 21st October 2004, 07:58 PM

Thanks Boss Traderji,

Really, the most complicated & tense decision for me to make when I have to exit a profitable trade. Tendency is to hang on in the hope of making that "some more", but for late-in-life traders like me (I am not 99 yrs old yet, only far less) the running profit constantly hangs over my head like a sword. SELL now or NOT; that's the question always for me.

This trailing stop loss thing is a well-known & accepted strategy I believe. Am following this strategy for some time now quite succesfully but I am always very tense because it does nothing to assuage the constant fear of sudden reversal of the profitable trend. Guess I will have to walk many more miles in equity trading & get anywhere close to being like you pros. Thanks once again.

bojjasivakumar · #3 26th January 2005, 07:42 PM

Sir,
I am very thanks about trading technics in capital market, when we trade always book profits and exit at low loss, according to trading we also should change our directions.

kodange · #4 29th January 2005, 11:19 AM

Dear Traderji,
An excellent write up to answer the basic query - When to sell?!!?. Hope all read this and gain from it.
Regards
Kodange

Traderji · #5 29th January 2005, 11:24 AM

Quote:

Originally Posted by kodange

Dear Traderji,
An excellent write up to answer the basic query - When to sell?!!?. Hope all read this and gain from it.
Regards
Kodange

If the market/stock reverses direction by the amount of your trailing stop, you exit the trade at that point.

rajendra · #6 29th January 2005, 11:38 AM

Actullay when stock gets downword direction if i exit from that stock then when to enter in that stock?. Sometime what happens when i get exit from stock then that stock trends in upward direction. In that situation what to do ? . I faced lot of panic in such situation. Instead of such traling stoploss my idea is to hold it for longtime or decide the profit one should want from that stock and then exit from that stock rather than doing such risky business.

sharv · #7 29th January 2005, 08:00 PM

if automatic trade facility like europe and usa took place in india then this
formula can prove wonder!

Saint · #8 5th May 2005, 07:23 PM

Nice write-up,Traderji...as always.So very true about human emotions.... a definite profit is better than a possible larger profit.The strange thing about the mind is that when one takes regular small profits,the mind is lured into not accepting losses.....When that big fall comes,one then will refuse to accept it and goes into hope mode.To cut one's profits and let the losses run is destructive not only to one's account but to the psyche as well.

abhinav · #9 1st June 2005, 09:42 PM

I often read the ***** finance column (for USA) by Dave Landry. He is a great swing trader, and that is what I try to be too. He has a great strategy for exiting trades, and I like it a lot. He says that when you enter a trade, define the risk (i.e the distance between your entry and stop). If the trade is successful, lock in half your profit as soon as the trade moves in your favor by the amount equal to the risk level. After that move your stop to breakeven (I usually put it slightly above breakeven), and then use trailing stops. In this way, you can earn your daily bread and butter by ensuring some profits, and at the same time, in his words, "have the chance of all of your trades turning into a home run." However, one more advise from him that I follow. If the trade moves in your favor too fast, just take the profit and run. This is what I did when I entered Rel Cap some days ago at Rs. 172, and next day it touched 192. More than 10% profit in 1 day, so I locked it all.
Hope it helps. Thanks.

billauday · #10 4th June 2005, 09:34 AM

The holy grails of trading are as follows:

1)keep your bets small
2)cut your losses short
3)let your profits run
4)follow the above rules with out question.

if you follow above rules then there may be a chance of sucess in your trading

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