Maximizing your gains

If your initial entry was successful and you have locked in the first and important part of the daily trend, you can relax and focus on letting your profits run. Successful traders focus on maximizing their gains, not on the number of times they win. Many times this is easier said than done. It is very tempting to lock in small profits for immediate gratification. This is especially true if you have acquired the habit of continuously focusing on your P&L. Knowing your P&L is important; but when you are glued to it, you are essentially glued to what it represents, which is subjective and clouds your decision-making process, encouraging greed and fear.

Rather than focusing on the profit or loss, the best traders stay focused on doing the right thing, and let the profits take care of themselves. Locking in small profits is a fear-based approach. The fear is that you'll lose what you have already gained.

The Wall Street saying that you can never go broke taking profits is false. If you consistently take small profits, commissions and slippage will eventually eat you alive. The larger profits are the ones that will make up for your smaller losses and your cost of doing business. The majority of successful traders are correct on trades just above 50 percent of the time. The reason they come out on top after paying for commissions and slippage is that they let their profits run longer than they let their losses run.

On the other hand, the greed-based approach of never locking in profits can also work to a trader's detriment. The are many occasions when a market maker or day trader enters into a position successfully and lets the profit run, only to watch it reverse and end up with nothing or a loss as a result of not taking any profits.

Giving money back in a stock because you did not take any profits is one of the most frustrating experiences for a trader. It is easy to get stubborn about a position that was working for you and is now a loser. Under these circumstances, regret runs high. Instead of getting more, you got less. Many traders who give back hard-earned gains blame themselves and reinforce their resolve not to let it happen again. If you end up holding yourself responsible in this situation, you will end up where you started by locking in small profits, because you fear giving your gains back again. Take partial profits off the table after a successful entry and let the other part ride.

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