5 TIPS ON HOW TO LET YOUR PROFITS RUN

5 TIPS ON HOW TO LET YOUR PROFITS RUN

It sounds so easy, but it's very hard: Let your profits run. It's not a technical challenge, it's a psychological one! But remember: You need big profits to pay for all the small losses. That's why letting your profits run is so important.

Here are 5 tips how you improve your "letting your profits run" behavior:

Have clear selling rules That sounds so normal, but the most market participants do not have rules at all. The professional traders have a lot of rules which they apply automatically or intuitively through years of trading experience. As a beginner you need rules and you must stick to them, because you have to learn a complete new profession. Successful trading is a profession, remember that! Create checklists for your rules and use it for every trade. It must contain all the conditions which must be fulfilled to exit a trade. You can go through the checklist every day to check if a trade must be sold. After a few months of disciplined repetition it becomes your second nature. I also recommend to have a diary where you evaluate on a daily basis how good you sticked to your rules. Write down every day if you sticked to your rules. Be very honest with yourself and summarize your success or failure at the end of the week. You will notice that you make progress over the weeks and months.   Gain confidence in your trading Many traders jump into the market and feel the rush of adventure. One day they try one approach, the next day another one. That's ok to find your own trading style, but this will not help you to become successful. You have to specialize and gain confidence in your personal approach and rule set. The best way to get confidence is to apply your trading approach and see the results. Unfortunately this is not possible, because you often need years to see if a trading approach is successful in the long-term. But you can backtest it. Gaining confidence with backtests is a great way. You can use computer applications to do that or manually. I personally don't need a perfect backtest with all the details. For me it's enough to go trough hundreds of charts and apply my rules on it. I always ask myself: What is needed to capture the big gains? Go through at least 1 historical chart per day and apply your rules on it. After a while you get a good feeling for your trading approach and how it worked in the different stocks and markets. Another good method is to go through your past trades and apply your rules on it. Try to answer the question: What if I had followed all of my rules? What would be the result? This was an eye-opener for me.    Shut down your PC The famous trader Ed Seykota said that it's very expensive to have a quote machine on your desk. Why? Because you always look at the prices and the gains. I tracked the time I sit in front of my PC in the past. On good trading days I only needed 30 minutes to do my daily trading homework. On bad trading days I needed 1-2 hours. That's a good ratio. On good days I let the profits run, shut down my PC and do other things. There is nothing to do! On bad days I make analysis, search for strong stocks or watch the market. I often have no position and try to get a feeling for the market. Especially if you have big winners in your portfolio, try to let them do their thing. Don't watch them tick by tick. Use the weekly chart to tune out the noise. You want to let the profits run and only sell, if a sell rule is fulfilled. Don't be a money-driven trader! Instead be a process-driven trader! Ignore money and find satisfaction in following your rules. I now this sounds a little bit crazy, but distance from money will help you to make more money in the long run. It takes out the emotion of the trading process.   Know the source of your profits At the end of the year you look at your profits and ask: Where do they come from? What's the source? In my case it's clear: they come from a few very big winners. If I missed those winners or limit their profits, I had a bad year. So I must do anything to let the profits run. If you have this insight into your trading, it's no question what it's needed to have a successful year. All the small winners will pay for the small losses. The big winners will make the difference at the end of the year. If you have a few big winners which return 5, 10 or 20 times your average loss, you will have a great year. Concentrate on those winners and let them do their thing. Limit your losses strictly, so that big winners don't have to pay for big losses.   Asses the market correctly This is an important part of letting your profits run. A lot of trader ignore that. The question behind: What is the right time to let your profits run? There are times in the stock market when it makes sense to realize smaller profits or cut losses quicker. That's a good behavior in a volatile sideways market or at the end of a bull market. On opposite to this, there is a time when you have to let your profits run as long as possible. That's the right behavior in a young and strong bull-market. You must get a feeling for that (by rules or experience). If the stock market is coming out of a correction, you have a young bull-market. Stocks with fresh, strong breakouts are popping up on every corner. If you don't know which one you have to buy first, because there are so many great setups, it's a good market to let your profits run. ‌ ‌ ‌ ‌ ‌