Maximizing Profits by Overcoming the Fear of Giving Back Small Gains 

Content Details 

• Summary: This article addresses the common fear among traders of giving back small profits, which often leads to missing out on larger gains. It emphasizes the importance of allowing winning trades to run their course and provides strategies for managing trades effectively. 

• Target Audience: Intermediate to Advanced traders looking to improve their trading strategies and profitability. 

Quote: "Fear of giving back a small profit will cause a trader to miss a bigger winning trade. Most profitability is based on the big winning trades. A winning trade should not be exited until there is a good reason to do so." 

Expanded Response: 

• Definition: Fear of giving back a small profit refers to the tendency of traders to prematurely close positions to secure modest gains, thus missing out on potentially larger profits. This mindset can hinder overall profitability, as significant returns often come from a few big winning trades. 

Stages: 

• Initial Gain: The trader secures a small profit and faces the decision to hold or exit the position. 

• Decision Point: The fear of losing the small profit prompts the trader to consider closing the trade. 

• Potential Outcome: If the trader exits too soon, they miss out on larger gains if the market continues to move favorably. 

• Example in SPX: As of now, the current price of SPX is 4,380. Suppose a trader enters a position at 4,300 and the price rises to 4,350. Fearing a reversal, the trader exits, securing a 50-point gain. However, if the trader had held the position, they might have benefited from a continued rise to 4,450, capturing a 150-point gain instead. 

• Practical Application: Traders should establish a strategy that includes trailing stops or other risk management techniques to protect profits while allowing room for further gains. Setting predefined criteria for exiting trades, such as technical indicators or fundamental analysis, helps mitigate the fear of giving back profits. 

Trading Strategy: 

• Identify Trends: Use technical analysis to identify the prevailing trend. Staying with the trend can increase the likelihood of capturing larger gains. 

• Set Trailing Stops: Implement trailing stops to lock in profits as the market moves favorably while providing space for further upside. 

• Risk Management: Define a risk-to-reward ratio to ensure that potential losses are minimized relative to potential gains. 

Risks: 

• Market Reversals: Sudden market reversals can erode gains if not managed properly. 

• Emotional Decision-Making: Exiting trades based on emotions rather than strategy can lead to inconsistent results. 

Indicators for Identifying and Trading a Measured Move: 

• Moving Averages: Help identify the trend direction and potential support/resistance levels. 

• RSI (Relative Strength Index): Indicates overbought or oversold conditions, helping traders make informed decisions. 

• Volume Analysis: Confirms the strength of a trend; increasing volume often accompanies strong moves. 

• Bollinger Bands: Identify periods of high or low volatility, aiding in decision-making for exits and entries.