I got a lot of responses to an article about stereotypes in trading . People write that this is exactly what is listed in the article they did, and money became less and less. Therefore, today we continue the topic of stereotypes in trading and move on to the issue of how to fix profit.
Where they taught to always put feet, not to “catch knives” and not to average, they usually said that losses should be quickly fixed and profit should be increased. Course like and previous postulates, this has nothing to do with real trading.
An attempt to work with a short table and with a long profit will lead to the fact that positions in 90% of cases will be closed in stops, which will slowly destroy your deposit. Such tactics can work only on a long recoilless movement, which is rare on the market, and it’s not at all a fact that you will be in a position to its beginning, given the constantly triggering stops.
What to do with profit ?
When deciding whether to fix profit or not, the trader chooses between “I will close, and the price will go on rising” and “I will not close, and the price will go down.” That is, between the fear of not getting the possible profit, and the fear of losing the existing one. The option “I closed, and the price immediately turned around” is the only option that the trader wants, but the chances of him are much less than the previous two.
When deciding on fix profit, consider the following:
- You can catch a reversal and fix profits at the peak (or at the bottom, if we are talking about a short position), near the previously confirmed resistance or support levels in case the price again cannot quickly go through these levels. For example, if now the price approaches 10300 and rests at this level, it makes sense to fix profit, in whole or in part.
- Evaluate your entry point (average entry price). If it is far and objectively unlikely to be able to re-enter at such a price, the position must be protected. If it is not clear whether to close or not, lock in part.
- If the entry price is good and the volume is small, wait for a small pullback and get from the market. The entry price will become worse, but the volume will increase, which will provide good opportunities for partial fixation.
- If the entry price is not particularly attractive, it’s better to fix or put a short stop on profit, otherwise a profitable position can quickly become unprofitable.
For example , if you now have a Bitcoin long with an entry price of 8,200, then there is not much chance of repeating such an entry, so you need to follow option 1 (keep the position or increase the volume). And if the entry price is 9300, then it is better to close the whole, as soon as there are concerns about a possible price reduction.
Profit stops are a useful tool.
In the event of an unexpected reversal, they help to save profits and get an opportunity to improve the entry price. It is also useful to separate short-term and medium-term trade. In the first case, we take local movements, in the second strategic.
For medium-term trading, a good safety margin and a constant position in the direction of global movement are important. The main priority here is to always be in a position in the direction of global movement (of course, if you correctly identified this direction). Important for short-term trading good entry points and timely profit fixing. We will talk about this topic separately.
If you have multiple coin positions, consider the correlation between assets. There is a long Bitcoin and Ether, both positions are in profit, but you do not know whether to fix or not, close one, hold the second, with a table for profit. The same goes for altcoin positions against the dollar. The entire top altcoin is growing and falling against the dollar almost simultaneously, which gives freedom of maneuver.
Profit-fixing throughout the position raises the price of error. Therefore, with the exception of some unambiguous situations that are not often on the market, partial fixation is always better. You should not relax when the position is in profit. Real profit is when it is already on the balance sheet. Therefore, do not let go of what the market has already given you. But do not go to the other extreme, fixing microprofits, otherwise you will simply lose good entry points. Exit from a position is no less important than entry, so pay due attention to this.