There is a process in trading which allows traders to flourish or flounder in their own emotions.
The market brings forward our strengths and weaknesses.
One of those weaknesses is not allowing your profits to run.
Not allowing profits to run
Most seasoned traders are aware of the validity of cutting your losses short and letting your profits run.
My slant on the later is allowing your profits to run.
The allowing becomes a problem once we have entered a trade and it flows nicely in our favor for five or six days.
This may result in say 150% return on investment (ROI) and then commence a normal retracement.
This becomes a worrying time for the trader as they witness the ROI dwindle to perhaps 30% ROI.
Fear can then set in with the position liquidated only to then watch from the sidelines as the position goes to say 300 or 400% ROI.
Allowing your profits to run
Another “tactic” our trader may employ is to cash out on the first day of a retracement and take perhaps 80% ROI. Thus not allowing there profits to run.
This is fine except for leaving a lot of profit on the table.
Many traders justify this by saying you cannot go broke making a profit.
Well if those same traders are happy to cut their winning trades at 30-80% ROI after six losses then it is possible they are in the wrong game.
Do not be fooled you can go broke taking a low profit margin.
Getting past the fear
There are many solutions available to traders for allowing their profits to run to maturity.
One solution is to reduce your contract size to one or two contracts and do live testing.
When the retracement occurs, stay in the trade and feel the fear, accepting it and allowing fear to be part of the game.
Know after a few days, the trend will carry your position into the high ROI zone.
The reduction in contract size is necessary as you will not experience any fear (emotions) in paper trading.
Less contracts is well within comfort zone levels for most traders whilst still learning from the experience.
Use fear in your favor to grow instead of continually allowing fear to control you and your circumstances.
copyright © 2012
John Davis
Letting your profits run in commodity trading is one of the most basic attributes of trend following. Commodity traders that adhere to this tenant put themselves in a position of potential long term success. The problem is that many new or inexperienced commodity traders do not have either the patience or discipline to let profits run. They are afraid that the trend might turn around or that they will give up profits. This is one of the major reasons commodity traders fail. When one uses a mechanical trading system ( if they can follow the signals) it forces the commodity trader to follow the trend…and let profits run.
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Valid points raised. Unfortunately about 90% of traders never learn this so when the commencement of trend arrives they enter the trade and bail out early for fear of leaving profits on the table. Hence their profits are not enough to offset their losses.
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