The danger of taking quick profits.đ€Ź
The goal of every trader/investor is to make profits out of their trading endeavors (business). However, fear may cause most traders to take quick profits.
By taking small profits (e.g. 0.5R) and not allowing winning trades to achieve their fullest profit potential (i.e. 2R), your system may no longer have a positive expectancy. The profits on your winning trades may not be able to cover the losses on your losing trades.
For example, if you take eight (8) trades with 5 wins and 3 losses as shown below;
Win 0.5R
Win 0.2R
Win 0.8R
Win 0.3R
Win 0.4R
Loss -1R
Loss -1R
Loss -1R
Even with more wins (5) than losses (3), you still end up with a negative expectancy in the long run.
In conclusion, I am not in anyway saying DON'T TAKE PROFIT but for each trade your profit and risk ratio should be at least 2:1. So if your trading system tells you to take profit at 2R or 3R, have the discipline to allow your winning trades to achieve their full potential. That is how we can stay profitable in the long run.
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