Monday, 3 February 2014

Booking Profit is Important

What if you get out too early and leave some upside on the table......

This is the classic trader’s worry. Here’s the best counterargument I can think of: What if you make a profit more consistently, reduce your incidence of losses, and sleep better at night? Trading with a plan helps you establish more successful patterns of trading and keeps your worries more in check
Whether you are buying or selling options, an exit plan is a must. Determine in advance what gains you will be satisfied with on the upside. Also determine the worst-case scenario you are willing to tolerate on the downside. If you reach your upside goals, clear your position and take your profits. Don’t get greedy. If you reach your downside stop-loss, once again you should clear your position. Don’t expose yourself to further risk by gambling that the option price might come back.
The temptation to violate this advice will probably be strong from time to time. Don’t do it. You must make your plan and then stick with it. Far too many traders set up a plan and then, as soon as the trade is placed, toss the plan to follow their emotions.

1 comment:

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