Letting Your Profits Run

The widely believed concept of “letting your profits run and cutting your losses” doesn’t really hold good or make any sense in my book and logic for earning a living from the financial markets. Yes! before I move forward cutting you losses and maintaining Stop Losses is definitely needed and very important and does hold good without any doubt. Accepting failure is everything you need to succeed! But letting your profits run without any predefined notion or target doesn’t really hold good, not to me at least.

The Financial markets are an influx of volatility and prices fuelled by human behaviour and emotions almost every time.The actual performance of the underlying in its field of business is really worth little relevance to a day-trader. The markets most certainly appear to every individual distinctly, no one individual can view the market the same way as another, unless they are following some guided rule by a common Market guru’s newsletter.

The majority of us once observing and understanding the movement of the market, usually gain a distinct concept of understanding of the working of the market and are always correct about it. Though it will never be a 100% accurate, this is something I feel is an impossible feat, at least for me it is right now at this stage in my trading career. But we are all correct in the way we perceive the movement of the market, that is for sure!

What I believe and thoroughly follow is to understand what I perceive from the market, knowing it’s not going to be 100%, I backtrack it and get out an average rate of success which is usually over 90% and what almost everyone out there on the internet claim to have. The question that arises is why do the people who claim to get 8 out of 10 trades correct not make consistent gains!

Well here is what I have noticed – Let’s say I have figured out a way to trade SBI and have understood its behaviour and price movement. Now at this stage I would know how to guess which side the price of SBI is going to move I.e either up or Down! so I take trade accordingly with a pre-decided SL as per my observation and conclusion of the price movement, so now when do I take profit when I’m right 8 out of 10 times? Do I leave it and let it run the entire day and exit out of the trade by the end of the day, taking whatever profit I get unless my SL gets triggered? That strategy sounds lazy and absurd to me. What I personally do is when I backtest my strategy and observation, I not only jot down the success ratio but also the average benefit I am guaranteed to get with every successful trade. This way I can guarantee myself a stable source of income rather than the risk of the trend changing later during market hours and turning my successful trade into a loss making one!

So let’s say the average benefit I gain from a successful SBI trade is 20 pts, now there will be days when SBI gives a 100 pts or 40 pts too, but I do not know that for sure, but what I do know for sure is that I am definitely going to gain 20 pts once the trade moves in my direction.

Trading the financial markets is like sitting at a buffet with enough to satisfy everyone participating, Letting your profits run is like wanting to have the entire buffet all to your self and that is just not possible. I am pretty sure all big and successful traders out there , though they may profess in the theory in letting your profits run don’t really practice it themselves.

Umer Malik

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