ES Emini Day Trading: Setting Profit Limits and Loss Limits a Good Idea

This particular topic is one that is sure to stir up some traders, and rightfully so.  The question is a simple one, really, and I am asking whether you should stop trading when you hit a pre-set profit goal.  The argument is a tough one to respond to, and I suspect that as I get older I am getting more conservative.

Here is a fact about my trading:  When I am between $500-$1000 in profit I generally get overly conservative or stop trading all together.  Now this number depends upon the size of the account you are trading, so the benefit of clarity let’s say I am trading a $20,000 account.  Yep, I usually stop trading when I hit my profit goals mentioned above?  Even if I am knocking down every trade, I usually am reluctant to take another trade.

Sound crazy?  It might be, but it is the way I view trading.  Along the same line, I always like to have my first trade a winner, so it is not unusual to see me cut the first trade, if I am in the money, on 2 points just so I start the day with a positive balance.  Then I work to trade into my profit target, and then I relax.   Once I am well up for the day I like to lock in my profits.  I don’t want to infer that I make money every single day, but most days I am in the black. 

There are many days I have far exceeded my profit target.  For example, I may enter a trade with a 12 tick bracket and get into a nice trend and keep pushing stops and limits upward as the trend continues, but even then I get to a point to where I am content to book a nice profit.  And some days it makes for a very short trading session.  I learned to target profits early in my career, when I was prone to a much more aggressive trading style.  I can’t tell you how many times I have been up 20% for the day, and then I decide to take one fell swoop with a knock out trade and loose all or a good portion of the profit.  No, these days I like to book a nice profit and smile.

I also pride myself on being consistent in my trading, so limits are a natural outgrowth of of a trading system, especially one like mine that is particularly effective in trending markets.

What about losses?   First of all, I have to lose, and work very hard at managing my trades to avoid losing money.  Alas, some days it is inevitable, and when I get down $1000 I throw my cards on the table and walk away.  Not out of anger.   I have learned that some days are not conducive to my trading style, and some days I am just plain a bonehead.  If you keep a trading diary, as I have suggested many times, you can go back six months, a year, whatever time period you prefer and see your boneheaded days and scratch your head in bewilderment.  You think, “How in the world did ever think those trades were going to be profitable?”

At the time I took the trades I obviously thought they were good ones or else I would not have executed the trade.  Like I said, there are times when I don’t feel as comfortable with the market as other times and it shows up in my trading.   I also stop trading if I cannot muster total concentration.  If there is something that has occurred that causes me worry and I cannot devote 100% of my brain power to trading, I stop.  So when I am down a grand, that is all the farther I will let the account fall.  My father is a conservative man and considers trading to something comparable to a combination of Roulette and Texas Hold 'Em is always happy to go golfing with me, and I am glad not to be trading.

I know a lot of traders who find this system of profit targets and loss targets ridiculous and just trade the chart and take or lose what the market hands out, but I guess I am very sure about what I want to do on a given day.  Incidentally, I quit trading about one day a month due to hitting my loss limit,  and seldom miss my profit targets.

Would you keep trading or would you book your profits and risk incurring more losses?   It’s a question every home based day trader has to ask himself.