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Taking Profits vs Letting Winners Run
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Taking Profits vs Letting Winners Run

  #1 (permalink)
Elite Member
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Taking Profits vs Letting Winners Run

Was hoping to have a little conversation about taking Profits vs Letting Winners run. I apologize for the wandering nature of this post.

The situation I am in is back in late March I bought into SPXL with the idea the market would retest highs. I added to my position in the next months. The trade idea was a 6 to 9 month trade to see if market would retest highs.

With the market coming very close to that I am wondering how I should manage the trade.

My previous experience with trading the e mini I was unable to properly use scaling because my limited account did not allow for multiple contracts to have more then a couple entry / exit points.

The trade is up just over 25% but with the inherent inefficiencies of holding a leveraged ETF I am loathe to leave it all in it's current form. Yet I am reasonably bullish on the US economy for the next year or so.

Please note this trade represents a majority of my self directed funds. I have kept this account active to help me assuage my trading bug and keep learning since my day trading adventure days (and have learned a TON since switching to swing trading).

So I'm kind of in the dilemma that if I hold true to the original idea of the trading I should end it. If I hold true to my more macro perspective of the economy I should leave it. But I am not sure I want to leave it in a leveraged ETF.

Since the whole point of my self directed trading account is to keep learning how to properly trade I guess I'm more concerned with simply the proper trade management with the whole scaling out vs all out vs letting it run. Just interested to hear some other perspectives.

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  #2 (permalink)
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  #3 (permalink)
Market Wizard
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A lot of info...


required to adequately respond. So generally speaking. If this thing trades puts, why not lock position gains at say a 20% return through the time frame on which you remain bullish? Worst case lock 20% gross. Second to that if puts are not available of if vol creates too big of a give up, sell half of the leveraged product to book a 10% gross...that is still a good trade at 10%. You could be long put diagonal using regular SPY as well if you want to protect gains while staying net long.

When i can log in I will take a look.

Dan

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  #4 (permalink)
Market Wizard
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These leveraged ETFs should be used for day trading or short duration only. In terms of scaling out vs all out, the biggest consideration is market impact and spread. Scaling out at limit is more efficient in futures due to the high cost of crossing the spread. This is also true on BTC exchanges because there is no cost to limit but very high cost for market orders. Scaling out is also used to dynamically adjust leverage based on confidence.

As for whether to seek bigger gains vs more consistent winners, if you can capture higher R's then your win rate can fall quite a bit and still be profitable. With 1 R, if your win rate falls then your return drops very low. However, many systematic systems have R's below 1 if they are active in highly mean reverting markets.

Perhaps, scale out to something you are comfortable with at relative highs or wait for a change and a "reason to sell".

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  #5 (permalink)
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I guess maybe the better question would be what are good reasons to exit a trade?

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  #6 (permalink)
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Great Question. An expert who is paid to write (sorry don't remember who or where I saw it) said that every day you hold a trade you are making the decision to enter it all over again.

You really haven't put things in context except to say you have too much of your discretionary trading capital tied up in this. So obviously you must have a stop on the investment. But you do not say if you have an alternative plan for the funds if you get out.

Your comment on the Futures market makes me think you must have been holding outside of regular or New York pit hours when they make everyone prove they have exchange levels of collateral, i.e. when your trading carriage returns to pumpkin status. That was confusing because you said scalping, which to me means small fixed profits and several trades a day.

If your long term hold is an ETF I agree they are not designed for long term as they deteriorate, by design. If you are with Interactive or another broker who doesn't change highway robbery for short positions look at the difference in performance shorting the inverse version of that ETF can have. Plus you do get much better leverage freeing collateral for those scalp trades.

There is always an options strategy. Calls are supposed to be cheep right now. Get out, put some profit money in longer dated calls. Just keep track and remember to roll then forward every month or two if the trade is going your way. Of course those call strategys can get complicated fast if you write a closer to in the money call against your portfolio and use those funds to buy the further out of the money call.

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  #7 (permalink)
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DeadCatBounced View Post
With the market coming very close to that I am wondering how I should manage the trade.

That is something you should know before you enter the trade.

I suggest you refer to your trading plan.

When you talk you are only repeating what you already know. When you listen you might learn something new
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  #8 (permalink)
Market Wizard
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DeadCatBounced View Post
Was hoping to have a little conversation about taking Profits vs Letting Winners run.

Is there a reason to sell.

I long term swing trade and will adjust my exit point the longer I hold a position as long as it continues to trend in my direction.

I use daily charts to determine my exit point for the first few months then change to a weekly chart. For long positions I exit if position makes a new lower swing low. I change to weekly charts if the position continues to trend.

I never hold a losing position in my portfolio.

When you talk you are only repeating what you already know. When you listen you might learn something new
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  #9 (permalink)
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Well the best advice I got on this as to cut back on your position as it goes up until you're less emotional about it. For instance if I own a 1000 shares and see an outperformance if my expectations in the stock then I'd start getting antsy about a possible downturn in sentiment. So I'd sell a portion of my position until I felt better about the position. May be half may be a third or may be four fifths. It just depends on your emotion about it in the moment.


Sent from my iPad using Tapatalk

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  #10 (permalink)
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deiphage View Post
It just depends on your emotion about it in the moment.


Sent from my iPad using Tapatalk

It is better to have an exit strategy in your trading plan than letting your emotions rule your trading.

When you talk you are only repeating what you already know. When you listen you might learn something new
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