In the previous episode, we addressed the issue of taking profit in the target area when speculating on a technical rebound against the direction of the overall trend. Now let’s look at the situation if the investor has bet on the continuation of the overarching trend.
While the expectations with regard to the possible profit from speculation are naturally limited from the outset to a mere technical counter-movement, the starting point for a trend-conforming trade is completely different. The old Wall Street maxim »let your profits run ( and cut your losses short)«. The aim is therefore to participate in the envisaged trend for as long as possible and, if possible, to only exit when there are reliable indications that the trend movement could be over. In trend trading in particular, it is important for profitability that investors can take the major trend movements with them as often as possible in order to compensate for the false breakouts that occur primarily in sideways movements and the associated losses. From a psychological point of view, the investor must resist the temptation to realize small book profits too quickly and thereby miss the big trend movement. On the other hand, the challenge is not to let a position that has already turned into a profit no longer turn into a loss position, but to successively secure as large a part of the book profits as possible. This is done by systematically trailing the protective stop, which was initially a stop-loss to limit losses, over the course of the trend (trailing stop to secure profits).