Thursday, February 19, 2009

Step 2: Locking in Profit

Today I was in a trade and Emini Player (Awais) and I were chatting at the same time. At this point the trade had gone +4.5 point in favor in the ES ($225.00) and I had my stop at par + 1 tick as per my rules. My target was up higher at a little over $325.00/contract. Price stalled out and was giving indications that it was vastly oversold. I held out and let the $225.00 dissolve into $12.50. Awais called me out on it and he was right. Its one thing to hold for targets but sometimes you need to lock in profit on trades as well because as I know all too well - targets aren't hit that often. Had I been a bit more vigilant and accepted that my indicator was vastly overbought I could've easily and systematically reduced risk and locked in profit on the trade and walked away with +3 points ($150.00).

Awais made the point (and rightly so) that its more important to take whats offered and walk away with something rather than nothing more often than not. Backtesing supports this furthermore. Yea, you'll miss out on some of the big winners, but what you give up there on occasion you make on the day to day range bound conditions that exists more often than not. So when I get a reading that a move has overextended itself now rather than getting to par, i'll start trailing my stops to 2 ticks off the high or low of the last candle. This can keep me in minor pullbacks in a trend but will jettison me when price stalls. Its the best compromise I can come up with.

It is frustrating to see my results this week. I know i'm not performing as well I should be. I left SO much on the table. My only excuse is that just like the first week in January when I started trading the first version of this method there were things I needed to tweak, to learn, to adapt to. The same is true this time around. This should've been a wildly profitable week for myself. The moves were there. But until I learned what flaws were still in my trade plan I couldn't capitalize on them.

So we are moving forward and hopefully in a much more profitable direction!

Trade Results:

ES: -50.00
NQ: +60.00

1 comment:

Michael said...

Looks like we took the same trade again today, too bad it rolled back on you. Figuring out an ideal strategy for when to move a stop and to what level is tough, but it sure can save you some of your profits over the long run.

Your pretty quick at adapting so I'm sure you'll get it all figured out.