Managing with Windfall Profits – Week 56 – 4-Minute Drill for Traders

I’m dedicating another week to the topic, capital preservation, “the traders best friend.”  My next point is, to lock in at least a portion of “windfall profits.”  I’ll explain how to do that and remind you that good long term trading success is about moderation…being smart, sticking to high probability trades and taking what the market gives you!

What are your thoughts on “windfall profits”?  We want to hear from you… just hit the comment link below!

Hi, Norman Hallett here with your NEXT 4 minute drill for traders.

Let’s pick up again on our discussion of Capital Preservation… the trader’s best friend.

Here’s my next point…

Lock in at least a portion of windfall profits.

If you’re fortunate enough to catch a substantial move in a short amount of time, liquidate at least part of your position.

This is especially true for short-term trading, where large gains are few and far between.

Look… part of the whole notion of reducing your risk is to do this because you want to stay positive as a trader… with positive expectation…

… and when you have a windfall profit in your open position and let that big profit slip away to a small profit … or even worse, a loss…

…well. THAT spells a huge blow to your positive attitude.

Thoughts like… “I HAD a big profit… I can’t BELIEVE I didn’t take it, or at least part of it!”

All I’m saying is Do Not Hesitate to take PART of a windfall profit.

This way, if the position continues to more profit, you’re capturing some of the additional move with the remainder of your original position…

… and if the position turns around and starts moving against you, you’ve already captured some profit and you’re likely to still have a very nice ending to the trade.

Taking part of your windfall profit is really a WIN-WIN.

The only way it’s not a win-win is if you hang on to the notion that you want the FULL POTENTIAL out of EVERY TRADE, and by taking part of the profit…

… you’re limiting your gains.

Well, that’s NOT the attitude that long term successful traders share.

Think of all the times you had windfall profits at hand and let it slip away… and compare that to the amount of times you took all the profit there was to take.

The “let it slip away” times probably outnumber the “got it all” times TEN TO ONE.

The long term successful trader scoops in profits at as many turns as possible … leaving some risk in open positions and reducing portfolio and multiple-position- risk by sweeping profits into the account.

And when you have a windfall profit… well, that’s candy to a baby… sweep some profit into your account.

If you lean toward being greedy in your trading … and want it all out of every trade… you have to accept the other side too… giving back big chunks of profit when it was there to take.

This is not a trade-off you want to make.

Good, long-term trading success is about moderation. Being smart… sticking to high probability trades and TAKING WHAT THE MARKET GIVES YOU.

Pushing for extra profits usually turns to certain disaster.

OK… that’s it for this addition of 4 Minute Drill for traders..

so.. Until next week…

Stay Disciplined!

Category: 4-Minute Drill for Traders