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Co-Wise: How do you set the stop loss point / profit target ?
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Syuee joined discussion · Oct 16, 2021 23:05

Win the War, Not the Battle

By cutting out “emotion” of the equation. The Stop Loss and Profit Target is extremely easy - as long as you have significant self control.
Whenever you trade, invest and everything in between, have a fixed, rational cut-off. Sell/stop the moment you hit that point. It is truly that easy.

E.g.
An active trader : > 5% level
Long-term investor : 15-20% or more (depending on your risk appetite)

The only reason to not stop - is purely driven by emotions.

Knowing when to cut your losses literally means overriding the irrational part of your brain.

Profit Target is equally easy. When I invest, I have a target in mind - if I exceed that special number, I will take out my profit which I wanted to make. And, let the profits run it’s course. Will it continue to soar to the Moon ...? Awesome if it does, but no problem, I got what I wanted anyway.

It's not about how to program an automated trading algorithm. The phrase is more about psychology. Traders are more likely to be tempted to realize profits earlier than it’s optimal or to hold onto losing stocks in the hope they bounce back. This has more to do with how people think than technical details. Don't overthink it.

A Profit Target or an Exit Strategy? YES, you do need to take profits eventually. While profit-taking should not be concluded by staring at your account's unrealized gains column, you ought to have some sense of where and when momentum's dried up or sentiment's changed. That's when you need to re-assess or get out.

I am up 200% on $NVIDIA (NVDA.US)$ stock. Should I take profits?
What’s my pick? Should I go long, into 2022? $NVIDIA (NVDA.US)$ seem to have a bright outlook and profits are really growing.

However, that’s how trend trading works in principle, and yes - I could hypothetically hold a profit forever (if the market stayed green forever). NO - cancel that; at some point, I would to cash out and buy myself an island - maybe Tasmania… ( totally kidding, I don’t have that much Nvidia )

Do remember, Stop Loss or Profit Target - It is not about winning every battle. It is about winning the War.
Win the War, Not the Battle
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Syuee
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