Finding The Right Balance

The idea is to capture getable gains and to repeat the process the next day. Shooting for homeruns feels great, but at times can be very frustrating and cause drawdown as open profits repeatedly evaporate. The mind will naturally remember the instances the homeruns could have been caught. But considering I am in the business of spotting patterns it is clear that as my entries have improved so have the potential profits. The part I am capturing is right at the beginnings of moves.  Once I am out the markets continue on with several pullbacks along the way offering other traders places to get on.  Once a move has been well underway the R:R doesn't make sense, at least for me to capture a 2R win.

Don Miller tackles the dilemma between taking high probability trades AND capturing a good portion of the move by trading "sequences".  Don enters a buy sequence by starting a position and as the trade proves his trade is correct he adds on along the way.  As the move gets "high" (which he calls "retail") he takes profits but keeps part of his long position.  Each add is done at "wholesale" areas (retracements to MAs or to price supports). Mathematically a trade would make more if he put on his full size at the beginning and exited it all at the end.  But since nobody knows the end in real-time he lets the market tell him whether to get larger or not. Each of his profit exits tend to be small i.e. "getable" (Don trades the emini S&P and tends to go for 1-2 points generally).  Eventually a whole buy sequence will be exited in full and Don's activity was in and out for loads of contracts for very large profits. He makes money without concern whether he did it perfectly.

Don's approach isn't for me mainly because I am trading larger timeframes and I cannot be at my computer for all the best entry spots or to exit at the best target.  I enter at the best location I can identify and then I try to capture the gain at the most logical spot.  However, I could also use scale outs at retail areas looking to add on pullbacks.  Another idea is to exit a good chunk of my position, say 70%, and let the remaining portion run.  That way I capture profits but also participate in risk-free moves which occassionally will run much farther than I anticipated.  Those outlier runaway markets can pay big even on the small remaining position which is all I can hope for considering I find it difficult to re-enter on runaways.

Taking half off and allowing the 2nd half to run could result in many wins being only on half size if the 2nd part keeps getting stopped at break-even.  Whereas with the 70/30 idea the 70% exit is a good payout and the remaining position is relatively small enough to not cause much concern.

Range trades can be exited in Full.  But trend trades with the larger TF or where the entire group is correlated should be allowed to run.  There will never be perfection, but making these adjustments is done to maximize returns of my business and worth the extra effort.