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10/31/2007 Archived Entry: "Stress, and alternative Fibonacci profit exits?"

Abel M. wrote:
> Hi Neal,
>
> Yes, I understand that you are a DiNapoli expert and the work you did with Joe previously. Thank you for clarifying.
>
> Neal, you teach that on an uptrend we should buy dips and sell on rallies. I have practiced this and made money. However, most of the time I have a problem that needs further clarification. Let me outline the situation step by step below:
> 1. I have an uptrend in the 60'
> 2. I enter on a pullback to significant fib levels on a bullish TRSI crossover in the 15'
> 3. I place stop loss below the significant fib levels in the 15'
> 4. I calculate LPOs using the swing high and low points in the 15'
> 5. I place take profit orders based on the calculated LPOs
>
> Things are fine as per the above, and normally I would exit half of my position at the LPO and the other half when price fell below the 3x3 and/or there is a bearish TRSI crossover in the 15'. But later on, the uptrend continues and I miss re-entering and thus also miss the bigger moves. Given that, please kindly share your thoughts and the pros and cons on not exiting on the crossing of the 3x3 and/or the TRSI in the 15' but on such crossings on the 60' which actually is trend that I am playing and the context of the trade.
>
> Thank you.
> Kind regards,
> Abel

Hello Abel,

There is a mental battle between taking profits and missing the bigger move. We all have to make decisions and accept that we made the best decision for the moment. We can't hope to get every penny out of the market, without increasing our risk. As long as we are ahead, we are on target.

Here are some options, things you can do;
1) Accept that you must leave some money on the table for other traders, not capture the bigger move.
2) Re-enter after the exit (if conditions merit this), to capture more of the bigger move.
3) Adjust your exit strategy to be in the market for a bigger move (ride the counter-trend moves against you).

With the latter option, you might want to use a 30-minute exit strategy instead of 15 minute. Or 60-minute instead. There are advantages and disadvantages (potential loss increases).. Your stops will have to be adjusted too.

The 3X3 exit is great for a quick fast move, but will get you out of the bigger move quickly as well. So perhaps eliminate that exit, and use that portion of your trade for a longer-term exit (as above).

In the end, you need to adjust your strategy so that you can accept the risk/reward ratio. If you are making profits, and you can tolerate the stress, you are doing well.. There will always be stress, from losses, or leaving profits on the table, or many other sources.

-Neal.

Hi Neal,

Thank you for the detailed reply. What you wrote is very true and from experience. I can certainly relate to that. I think I am now in that phase whereby I have to start learning to accept and feel good about taking a portion of the ride and leaving money for other traders.

Thank you for being a true mentor.

Kind regards,
Abel