Apart from trial and error and loads of backtesting, what are the general principles or rules of thumb about when to exit a profitable trade?
I get this wrong again and again.
Exiting too early leads to loss of possible profit, and too late leads to winners becoming losers.
Is it normal or unusual that I seem to find judging this much harder than where to put the stop loss, and even much harder than when/how to move the stop loss?
Is there a right answer? Or some clues, please?
Fit your trading to your personal risk tolerance. Trade entries and exits are purely discretionary. If/when price hits your target, exit and don’t look at what happens afterwards. Journal or note it if you’d like, but it’s all hingsight.
Akin to poker, if you have flush draw with one card to come out (25% chance), another player bets 100% of the pot, it will not be advantageous to call such a large bet with a small chance to win. Seeing what would of happened at the end is like trying to use hindsight… creates poor play and poor trading.
This is the hardest problem in trading. Keep asking when to exit a winner. You won’t get the answer because there isn’t one right answer, but keep asking the question - ask yourself, ask your own trades, where should I exit, where should I have exited?
Yes, the rule of thumb is you exit the trade when the price chart signals a trend reversal.
It’s difficult for you because your exit decisions are based on the open profit/loss and your feelings of fear (of winner turning into a loser) and greed (not wanting to exit too early) instead of what the chart is telling you.
Yes there is a right answer:
Ignore the open profit/loss and your feelings, focus on what the chart is telling you. The whole point of having a system, doing TA, using indicators, price action etc is to understand what the chart is telling you.
Thanks for the helpful and thought-provoking answers above, guys.
True enough. And I’m only on demo!
So what about the possibility of closing some (half? another fraction?) of the trade at a pre-specified point and trailing a SL on the remaining part? Sounds like you’re saying “no” to that idea, seeing as it can’t really be “what a chart’s telling you”? Or have I misunderstood?
You misunderstood. I’m referring to your state of mind, focus and thinking process when trading, NOT how you exit. Your problem isn’t how to exit, it’s your emotions causing you to make poor decisions.
If the trader has actual trading skills (= the ability to quickly recognize losing trades & minimize losses + the ability to recognize trend continuation, allowing winners to run) then he/ she will do very well with a partial profit and trailing SL (or any other entry / exit strategy). A trader with poor trading skills will easily get stopped out and the market continues without him because he set the SL too tight or ends up giving back a large chunk of profits because he set the SL too wide. With no trading skills, you’re back to square 1 with the same problem.
So the question isn’t whether taking partial profit and trailing SL is a good exit strategy or not. The better question is how can a trader improve his / her trading skills (so he can be profitable with any entry / exit strategy he chooses)?
Hint: Chart reading
Sorry but there is no right or wrong answer to your question.
First, before you enter, just like sport, you need a game plan.
Within the game plan every detail needs to be determined before the entry. And preferably back tested to prove it has statistical edge over the long run.
Then according to this, you exit as per your pre-determined game plan.
Nothing more, nothing less.
When you should exit a trade depends on market movement and situation. When the market is on one-way movement, you can keep a trade open but when the market is on unstable movement, you should close a trade.
I see that that’s a better and more important question. It’s also a much bigger one, isn’t it?
That’s probably a better, more important and much bigger question than almost all the beginner questions asked here, really, isn’t it?
How did people who are now experts generally begin to decide which profitable-trade exit-methods were worth testing, while they were working on acquiring chart-reading skills?
From my experience, people are quick to provide useless answers because no one has the time to ask proper questions. IMO, taking the time to figure out the right questions to ask is the difference between success and failure.
IMO, you’re getting ahead of yourself here and overcomplicating trading.
Profitable trading is very different from what most losing traders think it is and requires a completely different mentality than what most people are used to.
Rather than me repeating myself, please read this thread:
Profitable trading = profits > losses
Most losing traders think they are not profitable because they aren’t making enough profits when in reality it’s their losses that are too big, eclipsing their winners.
I can promise you that it’s much easier to cut losses than it is to squeeze more profits out of a market. Most traders lose because they are doing it the hard way: trying to squeeze more profits out of the market. You are also making this exact same mistake by focusing on how to squeeze the max out of a profitable trade, when the key skill you should focus on developing is minimizing losses.
If I were teaching my kids to trade, I would start them on the losing end. Once they get good at minimizing losses = they become very good at quickly recognizing when the market is going against their position. This alone will make them profitable, see the thread I linked.
Then using the same set of skills, they can maximize gains by letting their positions / profits run until…hopefully you guessed it: they recognize when the market goes against their winning position
that lose of possible profit got lots of traders in trouble, and lots of accounts burnt, early on i stuck with one principle which i hope helps “even at break even its still considered a win” if you are able to exit a trade in profit thats good enough, especially if uncertain of when to maximize a trade, i tend to simply let go of the thoughts of what ifs if uncertain. 
Thank you. (I think I finally got the message, now). I’ll try to concentrate on that, and then probably be back later to pester you with more silly questions. But I appreciated your helpful replies, thanks!
How would you teach this exactly? Like if a trade starts going the wrong, making sure a SL is set? Review loser trades to see if cutting early/late was the right decision?
Pretty much as I described in the linked thread in my previous reply you’re quoting from.
Manual trading / backtesting on historical data with random (coin flip) entries and 1:1 R:R, i.e. set SL and TP equidistant from the entry. Then turn it into a game of recognizing losing trades and cutting them before it reaches the SL. Ignore the winning trades, let them hit the TP. They can use whatever tools or methods they like: moving averages, trendlines, candlestick patterns, volume weighted price action at major S/R levels etc. Then practice, practice, practice until it becomes second nature.
The point of the game is to continuously get better and more creative on managing the downside and for them to eventually develop their own process for doing so.
Even after they get good at it, the practicing and desire to improve continues and becomes a part of the process they follow for the rest of their trading lives, exactly the way a professional athlete does. I’ve said in another thread, anyone that is serious about thinking like a professional trader should get familiar with sport psychology.
The goal is for them to develop a mindset / mentality where the measure of success and failure is based on how well they adhere to their very own process (not on profit / loss results).
I remember being told of a technique to protect winning trades - not one I have ever used but it’s rational enough it might be worth a try.
Assuming you are long, move your stop to just below the last candlestick’s low. Easy for me as I work on D1. As price rises, raise the stop-loss level, but it’s generally safe to ignore inside days.
Remember that in a trend, every time you’re stopped out you have a new entry opportunity.
A simple profit taking technic based on risk to reward:
. Before entry determine your stop.
. Set your contract size based on your risk tolerance and stop size
. Trade with multiple contracts (2 contracts minimum)
. Take 50% off at 1 to 1 Rvr … This means even if you get stopped out you are Break Even
. If the trade hits 2 to 1 Rvr move your stop to entry Price … Now you have a free trade on… If stopped out you still bank money
. Trail your stop from this point and it is all icing on the cake…
Just a thought .
I have a used more advanced version of this basic trade management on the S&P and Oil futures for the last 9 years. I trade 10 to 15 contracts per trade.
Hope this helps
Good trading to All
Forget about the possible profits; that’s being greedy, and greediness is one of the most frequent reasons traders blow up their accounts. Just do what your initial analysis said.
I actually see this on Youtube and Telegram signals a lot. SL and TP are exactly the same. I thought they were being lazy, or just throwing something out there.
IMO, most traders on YouTube and social media are amateurish at best, so I can’t really comment on what they are saying or recommending.
Just remember that what you’re quoting from me is about how to practice and improve trading skills and confidence. It is not a trading system. In the exercise I recommended, the point is to generate a lot of losing trades to let the trader develops the skills to get out with minimum damage. It’ll also teach the inexperienced trader how to think and develop the right mental focus on first cutting losses and managing the downside without worrying about profits.
Once a trader has the skills to effectively manage the downside without thinking, only then should the trader remove the TP, to practice letting the winners run.