Ask Colin

I would like to ask regarding how to set a profit target once I have entered into a trade. I have often lost my potential profit where I sometimes get out to early or stay too long in the market. How do you manage this kind of situation?

I manage this by having clear rules of when to take partial profits and when to exit trades in my trading plan.

More importantly, I know that perfectionists make bad traders. You can never buy exactly at the best place and sell exactly at the best place. That is unless they let us trade with hindsight. We have to accept that it is reasonable to be able to take 50 to 80% out of a trend. This is a matter of having realistic expectations.

I do not believe in profit targets, or anything else that relates to predicting the market. It is dangerous psychologically to lock yourself into targets. You either hang on for your target when you should get out, or you get out too soon when you should have held on. More importantly, you tend to rationalise the evidence - or see what you want to see to protect your ego.