Thursday, December 21, 2006

Don't Add to Successful Positions?

Brett Steenbarger writes in his blog to take some profits when a trade works out. This seems to run counter to the idea of letting winners run. Figuring out when to take some profits and when to let the trade run is a very tricky judgement. What I've learnt to my expense in the last couple of days is that when a trade works out well don't add to it even when there looks like plenty of upside left in theory. That's a less extreme version. Rather look to see if you should reverse direction and if so, then think of making a larger trade when you reverse direction. The market opened down yesterday and so dumbly I added to my short position and then the market ran up all day. Turning my winning trade into a losing trade. I covered some and then more this afternoon when the market finally began to reverse down again. Took some losses and left some of the position on the table to see if my original concept will work out.

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