Managing Profit

                                 Complete trade management should include guidelines to enter a
trade, manage risk, and manage when to take profit. Many traders
focus on entering and managing risk but leave managing profit open
to subjective decision making, which is a mistake. Knowing when to take a
profit is important enough to include managing profit as a core trading principle
for bargain hunters. In this chapter you will learn to manage profit

systematically and make the process as automatic as managing risk. You
will learn how common techniques, including a breakeven stop loss, can
actually hurt profitability. Finally, you will learn three techniques to manage
profit based on market principles, including support or resistance and
Fibonacci ratios.

                            Profit is a fickle thing to manage. Unlike risk, profit is never a guaranteed
part of every trade. Floating profits are often vaporized in less time
than it took to earn them, leaving traders to wonder why they didn’t simply
take the profit when they had the chance. Traders also want to earn as
much profit as they possibly can out of every trade; after all, we are in this
for the money, right? Often traders leave profit management open ended,
assuming that it will allow them to be flexible and capture as many pips as
possible out of every trade; unfortunately, it doesn’t always work in their
favor. The problems in managing profit are exacerbated by common trading
adages such as “Cut your losers short and let your winners run.” I’ve
worked with traders who believed taking their profit should be delayed as
long as possible, trying to “let their profits run.” Unfortunately these traders
often leave their trades open longer than they should and earn little to no
profit after the market conditions radically change against them.Taking profit also carries a heavier psychological burden than managing
risk.
                                               Traders seem to accept that losing money is a part of being in the
business of trading, but missing out on profit drives them to frustration.
The market regularly taunts traders with profits they could have earned
if only they had left the trade open a little longer. Participating in the “if
only” game is a complete waste of time, but that doesn’t stop traders from
noting the profits they could have made on each trade. The “if only” game
becomes dangerous when a trader allows his regrets from a previous trade
to influence his decisions on the next trade. Each trade is a new trade,
and what happened on a previous trade has no influence on what happens
on the new trade. Each trade should be treated individually with a plan
to manage profit. If you fail to create a systematic way to manage profit,
you’ll make decisions on a whim after the trade is opened, which is never
a good position.