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Trading Mistakes: failing to take profits on a trend


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IG client Kassar Khan talks about the mistake in not taking profits along a trend. As a trade develops Kassar highlights the importance of bringing in your stop loss along the way.

 

 Jeremy Naylor | Analyst, London | Publication date: Tuesday 05 September 2023 

He says the temptation is to put all in, but feeding your business with profits along the way is essential to build your cash to be able to trade other markets.

(Video Transcript)

Managing risks and profits

Okay, so this is key. For example, if you're on the Dow and you've had a good run, you might have been in it for three days, and it's been three green days on the Dow, now you believe it can run some more, but why not bank some profits?

So let's say you're £50 a point, now you've had a great run and Dow over the last three days is up 900 points, but you know it's got room, it's got legs here, everything's good in the market and you know it can maybe go another 500, 600, 700 points, but you're leaving everything on the table, where anything could come up, a split second and all of a sudden now the Dow's hammering down and you're not sure, do I get out, do I wait, is it going to bounce, you're praying for it to spin round, what you could have done, when it's had that run, take £25. So you bank those profits and leave £25 on the table and as I said, do it as a business because then now your business has made money.

So regardless of what happens, if you're right, don't look at it as, oh, I was right, I should have left the whole 50 on because it went another 600, 700 points, because another time it won't do that, but it's better to, a good friend of mine said it, he doesn't even trade the market, he said, no winner is a bad trade in a certain sense because you've made money and that's the most important thing, that you've made money here now.

Scaling in and out

And scaling in, so that was scaling in, scaling, sorry, scaling in is, that was obviously scaling out, scaling you would do, now you want to risk, you want to risk a bit more. Let's say you've had a good two months and you feel like, okay, out of some of my profits, I want to risk a bit more now, and you've maybe sat down, done your charts and looked at a trade for, you might even, sometimes you can be patient, I've been patient before as well and I've waited a couple of weeks, I think, okay, this is the right time to get in, it's at an area, it doesn't want to break this area, I think it's going to bounce here, but you know it can go a bit more, that's just the way the market is, no one can be 100% that it's going to go up or down.

Scaling in

Now instead of jumping, only jump in 50%, and then if you've charted well and it's going to go on the run you think, there'll be areas it gets to, maybe consolidates a little bit and then goes on a run again, you can now scale in there and get in more, maybe go in another 25% and then as it's running you can get in more and more and catch the whole move, if you've got it right you can catch the whole move and if you've got stops on you can just trail your stops with it, where some people are like, no I want to get in, I want to go all in here at the bottom, because I think this is the bottom, and then what happens is it's not the bottom, and now what you'll find is the market's actually trending downwards.

Understanding risks

And now they're just getting in more and more because they're waiting for that bounce and now all of a sudden they're going from risking 5% of their account, or the 5% of the profits they had made over the last two months, they're now risking 40% of the profits they made and this one trade can absolutely ruin you because now, I don't think you think the same, where had they just scaled in, had they got it wrong, they'd have only missed 50%, had they got it right they can just get in and they're still going to make, and they're going to make good money and they're going to feel more comfortable within their trade.

 

 

 

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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