Elements of a Successful Trading Plan--Let Profits Run

The next part of the plan involves a more pleasant alternative: when
to exit a trade that is profitable. The cardinal principle involved is Let
Profits Run. In other words, stay with your profitable trades as long
as possible because the trend is likely to continue and make your
profits even larger.
Again, this is easy to understand but not so easy to do when real
money is involved. The difficulty is that although your profit may
become much larger if you stay with a trade, it may also decrease
and even disappear. Human nature is such that it values a sure
profit much more highly than the probability of a much higher profit.
Thus, traders are inclined to take their profits too soon. This can be
fatal to long-term success because big profits are necessary to
overcome the inevitable collection of small losses.
There is a good way to let profits run while still guarding against the
possibility that prices will turn around and take away much of your

accumulated profits before the trend actually reverses. It is called a
trailing stop. You include in your plan a method for moving an exit
point along some distance behind your trade. As long as the trend
keeps moving in your favor, you stay in the trade. If the market
reverses direction by the amount of your trailing stop, you exit the
trade at that point. You would also offset your trade and reverse
position if the trend reversed.
One way to set a trailing stop is to protect a certain percentage of
the accumulated profit. That will always insure that you keep some
profit on a good trade.