It helps you prevent unnecessary losses, encourages you to analyze the risk you are taking when buying, helps manage your capital and allows you to lock in unrealized gains
while letting your profits run.
Not exact matches
The big money knows to hold on
while a steeply profitable move is in effect (as seen in the trader saying, «
let profits run») and to patiently stay in cash in the grip of a market panic («don't attempt to catch a falling knife»).
But eventually, through the school of hard knocks and learning from my numerous mistakes, I began to develop a winning trading strategy that enabled me to
let the winners
run,
while also knowing the proper time to take
profits before the inevitable reversals and pullbacks.
As we can see in the hypothetical track record above, the math shows us that even
while losing 57 % of our trades, if we
let our winners
run to around 2 to 1 or better and cut our losses at -1 R or less, the
profits will take care of themselves.
We all hear the old axioms like «
let your
profits run» and «cut your losses early»,
while these are well and fine, they don't really provide any useful information for new traders to implement.
Where trend following says
let your winner
run, mean reversion says get out
while you have a
profit, because it might be short - lived.
The bonus is that using a trailing stop allows you to «
let profits run»
while at the same time guaranteeing at least some realized capital gain.
But if you insist on doing it anyway, it makes much more sense to follow the old advice to «cut your losses
while they're small and
let your
profits run.»
The goal of a trailing stop is to
let your
profits run while protecting most of them in the event of a change in the stock's trend.