Is Taking Small Profits Bad Habit In Trading? – 3/27/2019

Is Taking Small Profits Bad Habit In Trading? – 3/27/2019

Answer is, it depends! ( no surprise here 😉 ) So now let’s talk about, it really depends on what factors. 

What does taking a small profit means?

If we talk about Forex trading then, taking anything less than 5 pips of profit is generally considered as small profit where usually people target roughly 30+ pips of gain in normal circumstances ( or taking profit well below the so called risk/reward ratio in range of 1:2 at least or healthy 1:3).  

Why is it not good?

Keep on taking tiny profits compared to the strategy’s original profit objective is certainly a path of destruction,  sooner or later.

For example, your trade plan is to short EURUSD risking $50 and trying to make $100 ( 1:2 risk/ reward ). Here you enter short @1.1350 and expecting the downside of at least 1.12. Now suddenly trade starts moving in another direction and it goes up just near your stop-loss of 1.1400. But luckily trade survives and now it is trading around 1.1350, right where it all started and testing your patience.  Now volatility dies down and it just stays there and in the excruciating moments of impatience and despair, you close the trade @1.1348 with great sigh of relief.

Here the problem is that if you keep on trading this way then one day, your account will be empty for sure.  Because, here taking 2 pips of profit and keeping 50 pips stop-loss guarantees that you are paving the path of ruining your account, unless, you are sure that you are never going to lose a trade in your life!  Because simply, just one bad trade will ruin your accumulated profit from 25 trades. 

So in any scenario where your risk/reward is not optimized with trading strategy, you are never going to win the game.

Not all tiny profits are created equal !

If a trade plan is to take 100 pip profit and you have entered the trade from multiple entry points and taking tiny profit whenever market is giving you a good chance to cover tiny positions while keeping the core position active then of course it is good way to keep making money.

What’s my take.

All things which makes your trading rigid are problematic IMHO.  Those rigidities can be from anything, e.g. your trade plan is not flexible enough to account for change in circumstances, fixed entries, fixed exits and fixed stop-loss are equally harmful.

Especially in current atmosphere of very low volatility and lack of meaningful long lasting 1000 pip trends, it is imperative to take small profits and there is a way to do it!.  My own trading style is neither purely positional nor quick technical trading, it is kind of combination of many things.  One thing to keep in mind is that most important thing is the ‘Strategy’ and everything else should evolve around it and not vice-versa.  Because if you decide that my stop-loss is just 30 pip fixed and bla bla bla then you lose the flexibility in trading.  A strategy should be in accordance with your personality, so that it keeps you at peace and in rhythm. Everybody’s risk tolerance and personality traits are different and so are the trading styles. Copying some so called pundit’s advice ( who him/her-self is not making money from trading ) of ideal trade plan and all other nonsense is totally useless.  These preachers have put on so much BS all around that the beginner trader is surely going to be lost.  To be a better trader, listen to eveybody but copy nobody.  Keep knocking different doors until you find that magic!

My take is – One learns from one’s own inner quest.  Trading is transcendental.  The more you know yourself, the better trader you become.  Everyone can be a good trader but very few will because, few are ready, prepared and patient to toil to find the true depth 🙂