Trading Profit: How Do You preserve it

Nifty is hitting fresh 52 week highs and small and mid caps stocks have been roaring ahead. Now we had bull run in 2000 and 2203-2208 and the current rally from 5200-5800, As it has before same will happen this time traders will have paper profit and will not be able to realize it and market will start falling.

So how to traders in Commodity,Forex and Stock preserve the profit.Weird question, isn’t it You pocket it, you smile, brag, drink, spend on that even bigger screen TV or even smarter phone… right Well, yeah – under one condition: after making that profit you managed to keep it. If you are anything like 99% of the rest of the players then the following complaint will sound very familiar to you:

I started the day so nicely, got this and that trade right, and if I just fainted right then it would be the best day of the month… but I pushed for more, lost some, felt regret, wanted to get it back, pushed again, lost all my profits… then I just couldn’t accept that it all evaporated, and tried again and again… only to finish the day deeply in red. WTF (which as we all well know means Why The Failure)

If you can’t related to the above, just skip the rest. You are not human, why bother with our human problems. If you can though, here is the advice I regularly give in the room when someone hits great winning streak in the morning. Make it your standard operating procedure, and you will never find yourself in that frustrating situation.

1. Decide for yourself how much of your today’s profit you keep no matter what and put a “stop on your account” so to speak at that level. My rule of thumb is 75%.
2. On all further trades manage the stop level and position size in a way that doesn’t jeopardize more than the rest of the profit made earlier (in that rule of thumb it will be 25%).
3. Each time you make another profitable trade, move your account stop up to protect some of this additional profit as well. My rule of thumb is 50% of new portion. This is not unlike trailing stop, only applied to your trading account.
4. If your “trailing stop” is hit by a losing trade, you are done for the day. Go enjoy life or switch to paper trading if you want – but no more actual trades. Switch to demo mode if your software allows it. Go away from your computer altogether if you suspect you have weak discipline and may give in to temptation.
5. If your winning streak continues, close to the end of the day start trailing even tighter – 75% of all new profits (again, not unlike trailing stop principle where you tighten it more and more as price advances in your favor).

To put it all into numbers for illustration purposes:

Let’s say you made Rs10000 in the morning trades. Your stop is at Rs 7500 now (if you want to go with my management; adjust to your risk tolerance if it’s different from mine). Now, if your next trade loses Rs 1500, you have only Rs 1000 to lose before you stop trading for the day. You lose Rs 2500 – you are done, no live trades today anymore. Your next trade made Rs 3000 – trail your stop by Rs 1500, so now it’s at Rs 9000. The next one made Rs 4000 – trail the stop by Rs 2000… etc, you got the idea.

This approach will save you a lot of frustration and make you much richer. Don’t let the idea of “but what if I miss a great trade” tempt you – there will be a market tomorrow too. Trading is continuous process of many trades, and it’s a combined result of them all that matters. Consistency is a sign of professionalism.

I can’t remember, nor can I find on the fly, who said this: market is the easiest place to make money and the hardest place to keep it. Very true.

8 thoughts on “Trading Profit: How Do You preserve it”

  1. Brahmesh
    Excellent strategy… real paradigm shift in my thinking now… earlier i would risk all my days gain and even some of yesterdays chasing after profits…. now it will be different.
    Thanx for sharing.

  2. Hi Brameshji,

    I visit your site regularly.. and i am in total agreement with you.. its time to start selling your DP holding as well and not wait for new highs everyday.. its better to book your profits and wait .

    This is where the small time investors start getting into the market and the biggies start dumping them the stock they bought earlier in the year. Then the small investor starts seeing gains in matter of days and starts pouring more money and two- three months down the line he sees a big negative. It has happened to me in 2007 and hence telling you.

    I have started booking my profits in DP holdings. I dont trade much, but its ok if i miss the last 5% profit but i keep my 50% profit.

    Keep updating your views as it is helpful.

  3. Dear bramesh, i am proudly tell u i have early predict in dec 2011 end nifty should go 1000 rally within feb end. Now last week 5555 within 10 days 6666 within dec end 7777. Lets see.. Ur analyse excellent keep it up

  4. its not the correct place to ask but I am asking you a Question Bramesh Sir,

    Which websites and blog you like to visit on regular basis for different opinion and knowledge enhancement about market and trading.
    Please suggest.

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