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 then when it pulls back, you regret not getting out. Here's the scale-out strategy I've been using.
【Three stages】Stage one: At the first target (for example, a 1:1 risk-reward ratio), close 1/3 of the position to lock in some gains,
At this point, the trade is already risk-free, and your mindset changes instantly. Stage two: At the second target
(for example, a 2:1 risk-reward ratio), take another 1/3 off. Stage three: Let the rest run with a trailing stop; exit if it drops below the moving average
or the previous swing low, and let your profits run.
【Why this works】If you exit the whole position too early, you'll kick yourself. If you hold the whole position, you often ride the elevator all the way back down and give up your gains.
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 trade is holding on until it turns into a losing one.
What do you think? Share your experience in the comments.