Monday, May 25, 2009

My Steps in Learning - Letting My Winners Run

Now this is a difficult one. It is all about finding the right ratio: "How much am I willing to risk for how much?".

The market is finally going my way, I want to bank my profits. I want to give them a chance to go further, but I definitely want to take a profit on it. The price flow will naturally hit resistance points. It will either break through or not. Since, I am in the trade, I err on the side of caution, I cut my position and see the market taking off and never come back

It is impossible to give a proper answer to this dilemma, I just want to share a little story with you. At the end of one day I was up relatively nicely, but not if we consider my roundtrip commisions. When I asked my mentor he said I had way too many 1 tick winners and that I should really learn how to let my winners run. I asked him, how? So, he sat me down and put on a random trade. He put a stop 5 ticks away and 3 stops the other way for the purpose of taking partial profits. One at 10, one at 15 and one at 20 ticks away. I was told I wasn`t allowed to stand up or click the mouse. I had to watch it and wait until the market went either direction, and all of my lots were taken out. It didn`t happen quickly for sure, but the market hit my first target. After a while it hit the second one. Later it almost hit the last, but the market slowly turned. Then luckily my mentor came over to me and said we have to leave the office now and so we closed the remaining last lot at a minor profit.

As a result of this trade, my P/L that day has doubled. This trade earned me the same amount of profits, that I earned myself during the previous 9 hours, putting on loads of trades, trying hard, fighting hard and generating lots of commissions. Now I think that I could watch the market move feeling stressed, or stand up, get out, have a lunch and come back to see what the market did. The actual result is the same. it is only me and my perception of the market's movement that is different, stressful or hard.

To me it was eye opening. I realized that it is not the market, but me who is limiting my profits. The market gives those opportunities, it is me who doesn`t find them or once found, unable to take advantage of them.

No comments:

Post a Comment