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Profit target strategy
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Profit target strategy

  #1 (permalink)
 Vendor: diversifyportfolio.com 
PTA, Gauteng
 
Futures Experience: Advanced
Platform: Self built + Sierra + TWS
Favorite Futures: Stocks and Options
 
DarkPoolTrading's Avatar
 
Posts: 1,036 since May 2012
Thanks: 1,244 given, 1,304 received

Profit target strategy

Hi All,

What are your thoughts around scaling out of your position precisely when your target is reached? Im specifically talking about either entering your order into the market so that as soon as your profit target is reached you take profit, versus tightening up your stop once your profit target is reached and giving it a bit of room for a possible runner.

I trade with two parts to my position where the first part has a target and the second part is a runner. The way i've been managing my trades is that once my first target is reached I tighten my stop and allow for a VERY small retracement in case I catch a runner on the first part. However what i've been noticing is that I will often get stopped out of my first half for slightly less profit than what I would have gotten had I just put an order into the market at precisely my target level.

I am busy adding additional stats to my trade stats spreadsheet in an effort to try and figure out which is better. However it will take a while to take enough trades to build up the stats to figure out which is better (at least for my style of trading).

Which option do you use? Do you enter an order into the market to be executed as soon as your profit target is reached. Or do you give the trade a bit of room to run but potentially get stopped out for slightly less profit. Ideally I would like to hear opinions from people who trade with multiple parts to their position.

What is your thinking behind your choice?

cheers.

Diversification is the only free lunch
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  #3 (permalink)
 Vendor: diversifyportfolio.com 
PTA, Gauteng
 
Futures Experience: Advanced
Platform: Self built + Sierra + TWS
Favorite Futures: Stocks and Options
 
DarkPoolTrading's Avatar
 
Posts: 1,036 since May 2012
Thanks: 1,244 given, 1,304 received


I did some quick number crunching with my stats spreadsheet and I think i've just answered my own question. I only have data from 50 live trades to work with, but it never the less gave a pretty clear picture. Part of my stats include the following:
  • Initial Stop
  • Profit Target
  • MFE
  • 1st part MFE Captured (ie: the profit banked for the first part of the position)

I used this information to do 3 calculations:
  1. First I calculated the actual MFE captured
  2. Then I calculated what the total would have been if I had taken profit at 1*Risk ie: if the MFE is greater than my stop, then set the MFE captured to the stop size
  3. Lastly I calculated what the total would have been if I had taken profit at my profit target with no wiggle room to squeeze out a few extra points ie: if the MFE is greater than my target, then set the MFE captured to the target size

The results were incredibly clear:
-The worst option is what im currently doing ie: giving price a bit of room once the target is reached in the hopes that it goes a bit further
- The 2nd best option is to take profit as soon as price reaches 1*Risk
- The best option is to take profit as soon as price reaches my profit target ie: dont give it any extra room, just enter the profit target into the market.

Taking profit as soon as my profit target is reached is over 200% more profitable!

This is also no doubt dependent on how good you are at setting reasonable profit targets based on your strategy and market activity. But I think based on the results from 50 trades im going to start entering my profit target into the market.

I would however still like to hear from anyone else on this subject...

Diversification is the only free lunch
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