One of the most important part of trading, often overlooked, is taking profits. Everybody focuses on entries, set ups, devoting a lot of time to create “perfect strategy”, yet at the same time rules for taking profits are often left to chance. Frankly, this very understandable. Trading is an emotional endeavour, like it or not. Having a trade in positive territory creates very pleasant sensation. These feelings, like elation and excitement can be as powerful, if not more so, as disappointment and discouragement when taking a loss. In fact, for many traders taking a loss becomes a fact of life and is relatively easy to accept. One admits, “OK, I made a mistake, market proved me wrong. Moving on”. Appropriate note is made in a trading journal and search for next trade is under way. Taking profits is a little different.

When trade moves our way, we always hope it is going to progress even more. We try to squeeze every possible pip out of the market, which is only natural. After all, most of us are in the market to make money, not because we are in need of mental challenge. For that one can play chess or try to decipher writings of Nostradamus. Unfortunately, this amounts to finding a top/bottom, in order to fully monetize trade, which is exceedingly hard to do. This typically creates situations when a transaction, after being profitable for some time, sheds gains and even turns negative. Very unpleasant feeling, yet one that everybody is familiar with. One starts to question own ability as a trader often leading to self doubt and undermining entire enterprise.

What to do, then? There is no simple answer, but for most traders setting targets for trades should be as important as the entry set ups themselves. If market reaches projected value, in most cases trade should closed and profits pocketed. It worked as planned, objective was met on correct analysis, job well done. And yes, very often the moves will continue, making as feel as if we left “money on the table”. While this is certainly strong emotion, it is not nearly as debilitating as the ones mentioned before. Trader’s job is not necessarily to be great predictor of things, or not even to be right, but to make money on those occasions when we are right. Give it some thought.

There are strategies that employ trailing stops, without having objectives. All methods that rely on crossovers of indicators and oscillators fall into this category. Also, tracking market progress with stops just under/above most recent bottoms/tops are like that. I employ some of these kind of methods form time to time. Strategies like that will not capture entire move, something that must be accepted before even starting to trade one. Nature of this kind of methods is such that many trades will end in small gains and losses, but few will deliver huge moves, hopefully making more money than losing. Trading like this is absolutely OK, as long as rules are observed. One just must be aware of limitations.

What about if trade is going along fine, but is short of objective? Should it be closed, because of emergence of negative market news? What if our opinion changes? What if the trade takes too long? What if….? No one straight, fit all answer to this. Trading is an enterprise involving many variable, constantly shifting elements. Some of them can be categorized, while others demand discretion, which gets better with experience. Today I made such decisions for couple of trades mentioned on these pages.

Couple of days ago a buy in GBP-CHF was suggested. Intermediate term chart was used, with entry at 1.6795 and an objective of 1.7000. I just closed this trade at 1.6930, for 135 pips gain, but short of my objective. At this point 2/3 of my targeted gain was realised, good portion. We are approaching a time of the day when trends have tendencies to come to an end. I don’t know if this is what is going to happen, but chances are good for either slower progress today or maybe even some pull back. This chart shows straight run up, without much of a pause, lacking good S/L points. For what I know, direction might reverse now. GBP-CHF could drop to as low as 1.6600 and the uptrend would still be intact. My original analysis would be correct, but trade would be in negative territory. While I’m reasonably confident 1.7000 will be reached, there is no way of telling if this is going to happen today or a week from now. Decision was made to close it here and be happy. After all 135 pips in a day is a good score at current volatility levels.

This daily chart of EUR-GBP produced a short trade. Last week I was taking short term bearish trades, until price reached 0.8830 support. Move under that level triggered above trade at 0.8826. Objective was 200 pips. Original analysis stands, I still think this cross will move lower. On the negative side, it is running into a support at current level. Don’t know if there is going to be a bounce, but it is possible that it will move up to some degree and not make new low for days or weeks. Do I want to stay with with it, or pocket the gains? 100+ pips in 2 days trading EUR-GBP is a good result. Also, short term charts look hopelessly oversold. Trade was closed.

Are these correct decisions? Only time will tell. I’m prone to making mistakes just like everybody else. But steps taken today make sense to me. And that’s what really matters. They fit with my trading style and are not out of character. Should these moves continue in current direction, I will be trying to find convincing set ups on shorter term charts. With gains booked today, position size can be increased for next trades, compounding profits. The real key to making money.

Mike K.