After observing many traders over the years both on the prop trading floors I traded, the CME exchange floor I visited as well as students of the markets they all seem to have one few thing in common.
No matter what strategy, time frame, technical or fundamental strategy they use, they / we all suffer from the same issue of Fear that the current open position that is initially profitable “could” turn against us or come down to breakeven (the later is a great success on behalf of the trader who can execute and move their stops to breakeven).
I myself over the years have worked on variety of creative ways to exits trades and after thousands of hours and thousands of trades setups I came to the conclusion that we simply DON’T KNOW and surely CAN NOT know nor do we HAVE THE POWER to move the markets and therefore we must ACCEPT that the outcome of the trade that we are in could either:
A) Continue further in our desired direction, hence reaching our Target(s);
B) Price reverses and touches our entry/breakeven (if we are advanced enough and are able to understand that Breakeven and locking-in no loss is as good as taking a small profit (The difference between the original STOP and the ENTRY. That money is literally made here and now but too many of traders are so fixed on the big target they miss the breakeven “gift trade”);
C) The market turns and it starts falling through our original stop and hence turning our little profit into a loss, further throwing our psychological state of mind into a what I call a “mini trading depression” as our mind gets stuck and fixed on being “green” from just a few minutes ago and now its a loss.
So, what is a simple trick and how to get better at managing this so common challenge?
My trick is to exit gradually at many smaller and predetermined profit targets.
Yes, the overall trade profit is a bit smaller but only if the trade worked out 100% and providing I was able to actually HOLD to the target. However in many other cases (if the trade reverses before meeting our “big” Target, this method will sure make you more profit on the books while keeping your mind at ease".)
Knowing that the markets will challenge our conviction 100x a minute, the chances are that gradual exits “MINIMIZE” the psychological pressure quite effectively and while booking some “actual profits” our mind is more relaxed while waiting for the “big” target.
The second trick is to obviously use more then One (1) contract to make this dynamic exit strategy work.
Micro contracts come very handy in order to help. Micros are 1/10th of the size of regular Eminis and hence offer us a brilliant way to use Dynamic Exits and to start trading with using the Psychology behind the trade to our advantage.
Keep booking partial profits and I am certain many of traders could experience a small nirvana and be able to hold their trades much, much longer then ever before.
After trying this exit method I could never go back to “holding” all of my positions till the Target.
It makes no sense, both statistically and more importantly psychologically.
I hope it helps some of you on your trading journeys.
- Project 11