Taking profits is harder than cutting losses, because cutting losses means overcoming fear, while taking profits means overcoming greed. The better the market is doing, the less you want to
sell—and when it pulls back, you regret not getting out. Here's the scaling-out strategy I've been using.
【Three stages】Stage one: when it reaches the first target (for example, a 1:1 risk-reward ratio), reduce your position by 1/3 and lock in some profits,
At this point, the trade can no longer lose, and your mindset immediately changes. Stage two: when it reaches the second target
(for example, a 2:1 risk-reward ratio), sell another 1/3. Stage three: trail the rest with a moving stop-loss; if it falls below the moving average
or the previous low, exit and let the profits run.
【Why this works】If you sell your entire position too early, you'll kick yourself. If you hold the whole position, you often end up right back where you started.
The point of scaling out is to turn the impossible task of “selling at the top” into three pretty good decisions.
[Key move] After reducing your position, move your stop-loss up to your entry price. That’s what they call a “free trade.”
The biggest risk with a profitable position is holding it until it turns into a losing one.
What do you think? Share your experience in the comments.