Money Management | FEB 2005
Partial Profits = Fiscal Folly? by Austin Passamonte
Stocks & Commodities V. 23:2 (60-63): Partial Profits = Fiscal Folly? by Austin Passamonte Is exiting a portion of your trade before your profit target is hit a viable strategy? Had I known that my career path would wind its way into professional trader status, I might have studied advanced mathematics with much more enthusiasm. After all, math is an exact science that does not lie. The way we assemble and interpret numbers to compile trading data may be subjective, but two plus two always equals four …or does it? Somewhere along the way, many traders have been led to believe that taking partial profits — that is, exiting some part of a trade before the necessary profit target is hit while letting the other part “run” — is a viable tactic. The reasons for this seem to boil down to human emotions. Some followers of this practice suggest that partial gains taken early in a trade reduce stress and allow the trader to ride out the remaining contracts, while others suggest that taking partial profits protects against drawdown (maximum loss), should a trade reverse early to halfway through its execution. NOT AS THEY APPEAR On the face of it, taking partial profits may look like a professional tactic. It certainly has great appeal to new traders entering our game. But is it really as beneficial as it appears? If we can agree that math is an exact science, why don’t we take a few words here to compare partial-profit exit tactics with the straight exit of trades? Assuming each trade’s win/loss results happen in random fashion, we’ll look at three hypothetical trading methodologies whose results over the course of time have win/loss ratios of 80%, 50%, and 40%. Finally, we will assume our profit target to initial stop-loss ratio is always 2/1. The math used in this article is meant to serve as an example only.
by Austin Passamonte
Technical Analysis of STOCKS & COMMODITIES
The Traders’ Magazine since 1982
has had over 1,226,237 subscribers from 174 different countries.
37,000 Page Traders’ Archive for $89.99
To continue reading, sign-up for trial access to Traders.com and the S&C Archive — 37,000 pages of trading ideas!
After verifying your email address, you will have limited access to the S&C Archive, as well as access to a Digital Edition of S&C, and access to Traders.com Advantage and Working Money for 30 days.
Not a subscriber to Technical Analysis of
STOCKS & COMMODITIES magazine?
Click
here to subscribe, or request
a trial subscription.
Log-in now to view articles from the S&C Archive.
Your Subscriber ID is located at the top of your magazine label, highlighted here in red.
Your last name can be found on the second line, highlighted here in blue.
*If you have a company name on the label, that can also be used. It will appear below your name on the label.
If you do not have a Subscriber ID on your label, you can find it on your statement or renewal form.
For help locating your Subscriber ID number, please call us at 1-800-832-4642 or send an email to Survey@Traders.com. If sending an email, please include your name and mailing address.