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When to take profits?
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When to take profits?

  #1 (permalink)
Trading Apprentice
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When to take profits?

I started trading, ETF's mainly, and so far so good, 4 trades still in and each with a small profit. Now the emotions come in.
Is it better to go for a specific gain in each, say 6% or maybe 8%, or else go for say a trend break out..or then again do follow up stop orders..<?>. Sounds like the same feeling I used to get at a Vegas Crap table, when to walk away with a profit, if any <?>.,

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  #2 (permalink)
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  #3 (permalink)
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vicktor View Post
I started trading, ETF's mainly, and so far so good, 4 trades still in and each with a small profit. Now the emotions come in.
Is it better to go for a specific gain in each, say 6% or maybe 8%, or else go for say a trend break out..or then again do follow up stop orders..<?>. Sounds like the same feeling I used to get at a Vegas Crap table, when to walk away with a profit, if any <?>.,

Some exit at a predetermined price target.

Some exit at a trendline break (one hopes the line is drawn correctly).

Some exit via trailing stops.

What you do depends on the results of your having tested all three during your backtesting. If you haven't done any backtesting or tested any of these three alternatives, then you're pretty much in the same position as you would be at the crap tables.

I suggest you spend the weekend with some replay and do some quick and dirty testing of each of these options on "old" charts of whatever ETFs you're trading. Then you'll know on Monday what to do.

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  #4 (permalink)
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DbPhoenix View Post
Some exit at a predetermined price target.

Some exit at a trendline break (one hopes the line is drawn correctly).

Some exit via trailing stops.

What you do depends on the results of your having tested all three during your backtesting. If you haven't done any backtesting or tested any of these three alternatives, then you're pretty much in the same position as you would be at the crap tables.

I suggest you spend the weekend with some replay and do some quick and dirty testing of each of these options on "old" charts of whatever ETFs you're trading. Then you'll know on Monday what to do.

EXCELLENT advice. Test, and let the results guide your decision.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #5 (permalink)
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It really depends on what type of trading you're preforming. If you're simply entering on momentum when a trend starts to take shape it depends on how strong the trend is. If your trading is not reliant on momentum of the trend, but reversion going towards or through the mean, you'll want to look at targets like point of control, and previous swing highs or lows. Remember every trade is unique so simply using an indicator for the answer will disregard a lot of information you could otherwise use to your advantage.

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  #6 (permalink)
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I agree with Itchymoku, it really depends on what your trading.

You mentioned ETF's, but there are still many different types of ETF's that would impact your time horizon impacting profits. For example, are you trading possibly an ETF that is mirroring commodity prices by purchasing futures contracts and therefore exposed to costs of rollover which will intrinsically lose some value month to month as time goes by.

Is the ETF leveraged and therefore exposes you to daily settlement draw downs that will not be recouped? (i.e. -10% one day then +10% the next day tracking the underlying does not get you back to break even given how the ETF rebalances it's holdings to close each day)

If you don't know the answers to those questions, I suggest doing some more research to make sure you have the best instrument to express your trade ideas.

Lastly, I'm going to go out on a limb and assume you're trading on a limited capital base, which is why you're looking at ETFs as opposed to a futures contract. If this is the case, then possibly a wealth building strategy to gradually accumulate assets over time will be more important for you than day trading profits.

IF that is the case, then a fixed profit target could potentially be very harzardous.

1) Imagine saying to yourself that you bought Apple in 2003 back when the the share price was around $20, and you thought to yourself, you'll take profits and exit when you hit a very respectable 100% return, or even 300% return. Well..that would have been quite unwise when a wealth building stand point to say exit at $60 compared to $700+.

2) Keep your trading costs in mind. If you're trading the SPY ETF for example, but you're only buying 100 shares, then even a respectable 1% gain for the day will be completely wiped out by your trade commissions (assuming even $10 per round trip turn - $5 to buy, $5 to exit).

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  #7 (permalink)
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vicktor View Post
I started trading, ETF's mainly, and so far so good, 4 trades still in and each with a small profit. Now the emotions come in.
Is it better to go for a specific gain in each, say 6% or maybe 8%, or else go for say a trend break out..or then again do follow up stop orders..<?>. Sounds like the same feeling I used to get at a Vegas Crap table, when to walk away with a profit, if any <?>.,


Better to follow the 8 EMA (T-Line). Sell on the break below the 8 EMA.

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  #8 (permalink)
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I personally use ema(8&12) cross as an exit trigger

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  #9 (permalink)
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You should know the nature of the instrument you are trading before deciding that. You can learn that by backtesting. Is it a mean-reverting instrument or a strong trendy moving instrument?

Through my research I have found that, for me, ETFs are best traded as mean-reverting instruments. And it makes sense, at least for index and sector ETFs, which are averages of multiple stocks in a group. So they're not going to rip in direction like a single stock because their price is weighed down by the other component stocks that are not moving or moving in the opposite direction. Other ETFs like commodity ETFs or VIX ETFs, etc, may act differently.

So pick a mean (EMA, SMA, whatever, I use a 9-day SMA) and get in on pull-backs/rallies, and get out once it closes on the other side of the selected mean. For stops, I use a larger mean, like the 200-day SMA, but there may be other ways that may work better for you. BTW, I don't use resting stop-loss orders, I wait for price to close below my longer-term mean, then I get out the next morning. There's less overnight gap risk with ETFs than with stocks, and you can often get stopped out of a winning trade with resting orders. You also have to watch your risk/reward as sometimes the distance to the profit-mean is a lot shorter than the distance to the stop-mean so you often have to be willing to risk more than what you might gain. This is compensated by higher win rates (70+%)

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  #10 (permalink)
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Consider the tools that you use to determine your entry. You might allow those exact same tools to assist you in determining your exit. Your chart/bar type can be included among those tools.

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