Market Watch – The importance of letting profits run…

As the great George Soros famously quoted “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

 

So a key component of trading success comes down to keeping losses small and letting winners run. In this week’s video we look at the trades we are currently in and what we need to do to allow our trades the potential to give us the best possible ROI.

 

Apply this approach to your own trading and the probability of seeing much greater gains in your trading is greatly increased.

 

7 Comments

  • David

    Hi Tom. Another 2 winning trades this week 1.2% & 1.2% last week, no losers! 4 trades placed 4 trades won! All based on your Stochastic tips and Price action. Thanks again! I must ask your opinion, if I could achieve this 1.2% every week on average around 5% a month with starting capital of 10k, That’s over 50% a year. By the time I’m 43 (11years time) Is it unreasonable to have a 1.5 million account? Or am I just dreaming? After your videos I now look at charts and I ‘get it’. It seems natural now.
    Another question about your two trades you place, when your 1st position hits it 1% do you close that trade and bank the profit or do both trades run until the very end? I know you bring the other one up to break even but is the other closed at this point? I’d a little baffled.
    Thanks in advance. David.

    Reply
    • Tom

      Hello David

      Great news about your current form, excellent, and I love the big ambition’s you have. I don’t see why you can’t be trading over £1m in 11 years time but I don’t want you to think that every month is like January and February. I don’t want to dampen your enthusiam as this is much needed in traded but it is important to accept that inevitably we will encounter some choppier waters throughout the year and your long term success will come down to how you best manage these periods (keeping drawdowns low) and how you come through them from a emotional stand point. But keep up the good work, you are well on your way 🙂

      My advice would be to focus your initial goal on finishing the year above +20% (as the first years are the toughest as we lack experience) and then kick on from there. You get 2/3 years of +20% and you certainly won’t be short of investment offers.

      Yep regarding position 1 its 1% profit taken and the trade closes out. Position 2 is left to run, with the stop moved to break even once the 1% mark is hit.

      Hope this clarifies

      Best wishes
      Tom

      Reply
  • garrett

    Hi Tom

    I was looking at your latest video, and have a question on your Gold position. You keep referring to ‘let your profits run’, which obviously makes total sense. On your Gold chart, you had a 4:1 RR line, where you will raise your stop to 3R.
    My question is, is there ever a scenario where you will take profit manually / set a target on the second part of your position that you let run, or will it always be closed out by the trailing stop (at 1% RR below high watermark)?
    Thanks in advance
    Garrett

    Reply
    • Tom

      Hey Garrett

      Good to hear from you and thanks for the note. Great question.

      So I tend to stick to the RR line for the initial move however once past the 3% mark I am looking to really keep hold of most of the profits so will bring in some discretion which will allow me to override my automated management system with a tighter stop. Take the FTSE100 long position we took in December, we went past the 3% mark and then the market put in technical clues it wanted to head lower thus the reason why I posted about trailing our stops under the lows. The market had given me evidence that it could retrace strongly, and wanting to lock in as much profit as possible I used a discretionary stop.

      That FTSE100 trade was a good example however, on others I don’t get the timing so sweet and I miss out on further profits. Swings and roundabouts. However I think the key message to get across is that I become more defensive of my profits once I get past +3% and will on occasions over rule my automatic % trailed stop. I am watching gold this week as we have now put some divergence in, so its starting to look weak so this could be an example of where I start to move stops closer to price. It will be on a trade by trade basis. I generally don’t set targets.

      Time trading and experience comes better timing of stop management. It almost becomes an instinctive process bought about by many hours on the charts.

      Hope that helps.

      Best wishes

      Tom

      Reply
  • Gavin

    Thanks Tom , very interesting, along with the above comments. Also wanted to add that have just got a copy of the book you mention – The New Market Wizards, and it is definitely an inspiring read. Thank you for the tip off.

    Reply
    • Tom

      Wise choice Gavin, it really is a great book and one I must have read over 10 times.

      The thing that fascinates me most about this book is that it is clear to see that a trading strategy is not the vital ingredient in making a trader successful over the long term. It is the combination of many factors surrounding the strategy that is vital. The glue which holds the strategy together if you will.

      The book helped me focus more attention on these key elements surrounding my strategy (discipline, emotional control, risk management etc…) and really helped me progress and I am sure it will do the same for you.

      Happy reading 🙂
      Tom

      Reply
  • Gavin Kingcome

    Thanks Tom

    Reply

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