Active Traders and partial profits

The most common advice in trading world is let your profit run and cut your losses short.

Yet most of the active traders who do very well (I am talking of top traders who extract large chunk of money month after month) use partial profit taking as their main strategy.

What is the reason for that ?

Profitable active traders think very differently from the other traders. As a active trader I want to make money every month and not lose money at all or lose as little as possible.

Partial profit taking helps in that. By putting on large position and then booking profit on part of it and letting the other part run reduces risk and smooths the drawdowns.

When I have opened a trade and it is in the positive territory, my objective is to not allow that open profits to vanish. While trailing stops can help they still do not protect you against sudden reversals.

The advantage of partial profit for me is that I have reduced my risk completely. For example in NFLX I have already booked 10k profits so now whatever I get is extra. My risk is zero.

Partial profits also help in turning around the capital frequently. In 200k account I had 373k position open on NFLX by partial profit taking I reduced the position to around 38000. Partial profit taking allows me to aggressively use margin but at same time reduce risk.

Partial profits in swing trading allow you to do more trades. I could have let my capital get blocked in one trade . Instead by taking partial profits I freed up buying power and did other trades during the day to add more profits.

The disadvantage of partial profits is when you find that you would have made more money if you hadn’t closed the trade.

Not a bad decision though. The advantage of letting it run is that there could be more upside to the trade. The disadvantage is that there could be a reversal that will lead to your profits being squeezed. This is the biggest risk in letting your profit run.

That is why those who use let profit run strategy often have big ups and downs in their account.

The advantage of partial profit taking is that it secures your account in such a way that even when there is a downside, you will still have the money you took.

Unless you have selected stock with significant catalyst and have very high conviction and willing to seat through reversals or failure of the trade, letting profit run or just waiting for stocks to hit stop may not be best strategy.

When you are swing trading moves of 3 to 5 days and 8 to 40% magnitude you always want to protect your money from a reversal.

Remember that reversals happen all the time in trading. That is the main reason why no chart is ever a smooth line. There are tops and dips. Therefore taking partial profits will help you limit your losses in case of a reversal.

The second reason why it is important to take partial profits is that it allows you to open other promising trades. This is particularly useful for traders with limited amount of money or buying power.

When you open a trade and while it’s still on, you spot a new opportunity. If you don’t have enough money, chances are that you won’t be able to open a new trade. Therefore, by partial profit taking, you will be at a position to open new trades.

By choice I trade the swing move and by choice I do partial profit taking . By choice I do aggressive trade management. By choice I do very tight stops. Because I want to make money without taking much risk and I want to make money every month , every week and if possible every day.

But you do not have to do the same things.