The Lost Art of Discretionary Trading – I

“Limits limit profits”. I had not thought of that saying in awhile. It’s a trend traders mantra and refers to the hardest thing in trading to do, which is let a profit run. If you place a limit order to exit the trade then you must not have a conviction that you are going with the trend.

I do a lot of work with clients in live markets and the question I inevitably get from a new client after pointing out a set-up and trigger is “where do I take a profit?” I shake my head every time because it tells me the individual is more familiar with a mechanical system than a behavioral method, and may not understand how to differentiate between a trending market and a counter-trending market.

There is nothing wrong with taking a PORTION of your position off at predetermined structure, or even at a specific pip amount, particularly if you are day-trading. But even as a day-trader if you are taking signals in the same direction of the intermediate or long-term term trend, or in the same direction as the current trend on the next higher time frame, you need to consider only taking a portion of the trade off on the limit order and allowing your profits to run. Something we all understand is that markets often move further and faster than the crowd initially thinks. My job is to get you thinking about taking advantage of that tendency, and that starts with planning for a succesful outcome ahead of time.

Jay Norris is the host of Live Market Exercise, at Clovernest Financial Group, and the author of Mastering Trade Selection and Management, McGraw-Hill, 2011, due in book stores this spring.  

DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Risks include the potential that changing political/economic conditions may substantially affect the price/liquidity of a currency. Investors may lose all or more than their original investments.