How to establish your best way to take profits

Taking profits. That’s the name of the game, right? I mean, sooner or later you have to take ’em. Although you can get a lot emotionally out of ramping and watching things rally up and then sitting there and watching the decline, that’ll certainly give you an emotional system that will jack up your system. Doesn’t really work for me, but I know there are some relatively well-known people who have been in those situations. When you talk about taking profits, the tactical parts are easy. You have protective stops in. The trickier part is how do you feel around putting those stops in and where you place them? How do you deal with regret?
Do you mourn the loss? Do you mourn your winning trades? So question came in. We get a lot of questions on this one, and I think it ties into a person’s inability to feel the uncertainty around trading. These are probabilistic outcomes. Probabilities could also change. We talked about this in terms of what is the math that you need. We talked about conditional probability, and most people aren’t really good at that because they’re looking at charts, they’re not looking at the numbers, so they can’t really see the percentages. So first thing is, again, the language that I use might be different from the language that you use. So let me define a term. When you say tighten your stop, that to me is a person putting a stop in that’s closer to the current market value than where they would normally put it. Adjusting your stop is kind of keeping it in lockstep.
Let’s say that you have a trailing ATR stop one ATR. Keep it super simple, so you move every time the security goes up, a certain percent. It could be half ATR, you could do it every 10 cents. That’s an awful lot of work. That turns, again, trading into retail, small-minded stuff, but say that every time it moved an ATR, you adjusted your protective stop up and A-T-R-A-T-R can be one R. It can be two Rs. It depends how you price your risk. You can figure that all out and then what are you comfortable with? You’re only going to get comfortable with it from doing it. Everyone thinks that there’s an intellectual answer to this that’s going to solve. The emotional part doesn’t work that way. I’ve mentioned that before. There are no external solutions to the internal things that you’re feeling around trading. You’ll have to find a way to get used to the uncertainty and the probabilistic outcome of trades, and only after doing it many, many, many, many, many times, dozens of times, maybe hundreds of times, can you get comfortable with a process that works for you? It’s not going to come from thinking about it and doing it two or three times.

You might have an inkling about something that feels good, but it’s only going to be through massive repetition. The good news is you’re making money, so that should help. I am not one to necessarily trim, right? I don’t scale out. I figure the moves have economic powers that I can maybe understand, but I might not even know all the reasons why a trade’s working out. All I can see is the price is going up. If you sit there and say, oh yeah, it’s of course because this AI thing is booming and this and that, you’re just parroting shit. You heard other people say, you don’t have any damn clue, and so I don’t even bullshit myself and start talking. I know what’s going on. All I know is I put the risk on if it goes up, I’m going to adjust my protective stop, try to stay out of my own way and let the thing go.
Why does it go and move or trend? I don’t care. I don’t care. I don’t need the emotional feedback on that. All I care about is the price. That’s how I manage the risk. I can always learn why the move happened after the fact when I’m not in the risk and I don’t have to worry about it and be like, oh, yeah, that’s kind of interesting to read that, but who cares? Because again, I’m not trying to be right. I’m trying to make money. You need to know what you’re doing it for. Sometimes you look at a winning trade and you’re like, I was right, so now I’m validated on a few fronts. To me, that’s the wrong way to do it. Don’t worry about being right. You have to be relatively right. If you’re right, 40%, you’re doing pretty damn well. The key is keep your losses small.
I don’t know that the winners take care of themselves as evidenced by the fact that we even have to talk about this, but again, what you can do is say, what other criteria that you would exit the trade after you just put it on, what’s your risk? Are you trading structure or are you trailing with some number as a percent, right? If it’s can slim, what do they give you? Seven, 8% of the price of the security is the pullback, and then somehow you can position size on that. Take a half a percent and then figure out what the price is of the instrument. You can tell by looking at it and then say, okay, I’m going to give this thing whatever the canceling method is. Then you could trail with one ATR. You could trail with a half an ATR. If there’s some tight consolidation or a base inside of a stage two breakout, maybe you put your protective stop and you price your risk when it trades through support. There’s a whole bunch of ways to do it, but knowing your goal is like what is it that you want your money to do for you versus what are you willing to do for your money? To me, it’s adjusting stops. It’s kind of easy, really. It’s not that terribly difficult for the love of God. Entering

An order is a lot easier than even trying to put in an email. You get the sender’s address, you get the subject, you got the body. Boom. Putting in an order for trading is kind of the same. What’s the ticker? What’s the quantity and what’s the price? When you adjust stops, obviously make sure you remember to cancel the previous one. Sometimes you could do cancel and replace because you don’t want two sell orders on the same inventory, but me, myself, I don’t typically trim. You can wait for the market to turn and learn to see the signs. Are the tops failing? That might be a sign, but I think a lot of you come to this with a greater sense of urgency than you need the market. If you just sit and live and breathe, the market will tell you when the move is ending.
There are signs, right? And again, I don’t want to get into trading lessons here. That’s not what we’re here for. Go look it up. If it’s important to you, you’ll find the answers. Look for market turns, look for reversals and just realize that there’s going to be volatility. There’s going to be noise perhaps, and again, there is. You’re always going to have the uncertainty. It’s never going to go away. The only thing that you can do is figure out what it is that you are going to do under those circumstances. Now, if you’re afraid to be proactive, sure you can have something that’s ar, but to me, if you’re at eight R in unrealized gains, again, you can emotionally determine ahead of time what you’re willing to walk away from, or excuse me, walk away with. How much of your unrealized gains are you willing to risk?
Think of it maybe in terms of units of R, right? If you’re really willing to risk one R on the trade with your initial protective stop when you get in, maybe that’s where you start and you trail with one R so that this way if it does eventually by luck or by randomness or by skill, go to eight R, then you’ll get stopped at seven. Seven is still better than three, so you can think about that ahead of time and say that no matter what, these are the rules that I’m going to follow, and if it goes to 10 R, I’ll stop at nine. If I’m lucky enough to be at 20, I’ll stop at 19. Also to consider, are you adding to your winners or are these just trades that you’re putting on for the sake of putting it on? Because when you say things like it sucks watching it come all the way back, well, what’s the cause of that? That to me is the runny nose of the cold. It’s a symptom of not

Action. It’s of having regret. It’s of like, I don’t want to get stopped because then if it rallies back in my face, I feel like an idiot, but you don’t really know any of that stuff at the beginning. This is why people trim or only take part, right? They have regrets and they don’t want to have them, so I’m going to get, keep a piece on, and so I mean, that’s not my style. My style is more to get out when the risk is going the other way and the momentum turns, and I wouldn’t say I’m a momentum trader, so don’t infer anything. You need that to be happening in the direction, but momentum kind of can move in ebbs and flows. It moves and fits and starts, so you want to just be trading along with the direction of the overall move. Some of you can look at moving averages, right? Have a shorter one. Some of you on the completely short end are looking at intraday timeframes and divergences. Again, in the short term, I’m not even going to talk about it. I just think, again, it’s more about the feel at that point than it is about a technical indicator. So anything in and around trading, it’s very frustrating for all of you because there is no definitive answer for most of these things. You really need to try it on and see how it fits.
You really have to try it on to see how it fits and just realize that when you trade long enough, you will find yourself in those situations where you have those big gains and then have those rules set aside. So if something does go parabolic, you know how to read the market and know how to adjust your protective stops. A good place to start, like I said, is if you’re willing to risk one R, then you can keep that constant just to start and then develop it from there so that in those instances when you do have your asymmetric setup that you follow where you can express a trading edge, you don’t want to trade when you don’t have an edge watch the thing take off, gets to three R, stop it at two. If it gets to four, stop it at three and just see how that feels because the math is easy. Your goal here is to be a scientist and to uncover the data and see how the data feels because so much of this is experiential. I can’t give you a straightforward rule that says, this trading rule, if you follow it, is going to alleviate this emotional situation in your world. So unique from me. I’m so unique from you. There’s not one rule, so experiment. There is a lot of science going on here. Experiment with your behavior, see what feels good.

Then at the end, you can go back over the course of the year and say, you had, okay, you had two dozen of these trades. I didn’t like how I handled them. I freaked out when I shouldn’t have. So now instead of having regret on one particular trade, you could look back and say, I don’t really have regrets, but I know I can improve my exits. You see, so don’t be fooled to think that there is one definitive answer for this. To me, I admit it’s probably the hardest trade, right? Because at least at the beginning you put your trade on, maybe you have a buy stop above the market, you get filled, you put in your protective stop. That’s so super easy. You can keep it as easy or you can overthink things.
Maybe it’s because you’re not in the situation where you have those gains all the time, so you kind of freak out because it’s so new to you. It’s like being naked in bed with somebody for the first time. You’ve seen it on tv, but what do you do that could be part of trading too. At any rate, I appreciate y’all being here. These are great questions. I promise to continue to evolve them. If I think of something that can help answer this question better, I certainly will add it in future episodes, but a lot of things that are around trading, you can sit and talk about the intellectual side till the cow comes home, but till the mad cow comes home. But really the thing is, is just put the trades on for size and see how it feels, and then go from there, evaluate, keep good notes, and just document everything. Okay? That’s all I got for you today. Have a great weekend and I’ll see you Monday.