MANAGE YOUR PROFIT

Taking profit is often more difficult than taking a loss for many traders.
Unlike risk, reward is not a fixed variable. The market may move 10 pips
or 1,000 pips in your favor, and though you know how much you’ll lose
if the trade goes bad, you have no idea how much potential profit a trade

could bring. Traders often torture themselves when a trade is closed, only
to realize that they could have made more profit if only the trade had been
left open another hour, day, or week. However, in the real world of trading,
a trader has no idea what will happen if the trade is left open; the trader
makes each decision with the information he has at the time the trade was
closed. He could have made more money, but he could easily have lost
money or a significant portion of his profit as well. Hindsight is always
profitable, so playing the “what if?” game will only encourage you to make
a poor profit management decision on the next trade.
When to take profit is a variable that should be planned before you
place money at risk. Once the trade is open, emotions tend to run high, and
it can be difficult for some traders to objectively consider when to take a
profit. Taking a profit should be as automatic as taking a loss, which will
remove any emotion attached to what profit you might have made in hindsight.
This is why the final principle of a bargain hunter is to know when to
sell and how to actively manage profit. The tactics used by a bargain hunter
to manage profit are discussed in Chapter 5.
Generally speaking, your profit targets should give you ample opportunity
to make money over a series of trades, assuming that your success
ratio is above 25 percent. Look for trades with risk-to-reward ratios greater
than 1:3. This means that for each pip you place at risk, you expect to earn
at least three pips in profit. Do not be fooled into thinking risk-to-reward
is a magic ratio that will lead you to profitability. You still need to select
good trades and combine that practice with a healthy risk-to-reward ratio
to achieve a profit in the long run. The larger your average risk-to-reward
ratio, the better the chances that you will achieve profit over a series of
trades. How you select profit targets may vary from trade to trade, but you
should always have a target planned ahead of opening the trade and, once

in the trade, stick to that plan.