How to scale out of your winning trades.

Updated: Nov 19

When & How to take profits.

How to scale out of your winning trades in swing trading.

Mastering entry techniques and following a stop loss plan is one part of trading, and serves you well by exposing yourself to the upside while limiting losses. The other part of trading, which is taking profits, is what makes you money.

It’s an emotional challenge dealing with profits. You are thinking about exiting too soon, leaving too much on the table, or giving back the profits if the stock turns.

In that light, this article helps clarify some basics of how you can scale out of winning trades and make the most of your winners to keep your account equity trending up.

It is what I do and allows me to forge a stable equity curve.

How to Scale Out of Your Winning Trades

(August 2022)

Know your math

Swing traders should know how much, on average, they lose on losing trades and how often they lose. The residual in the latter is the proportion of time they win.

My long term numbers look like this:

Once you have these numbers you can go on to calculate how much you need to win on an average to achieve the desired return after a set number of trades.

For example, in the table below, you can see how the returns change as your win rate and the Gain/Loss Ratio change. If you lose half the time on an average with a 5% stop loss and win 2x that average loss in your winning trade, you end up making 37% returns after 50 trades (not adjusted for trading costs). If your average return is 3x, you end up with a much higher 86%.

Knowing this math can help you determine how should you manage your winning trades so that you don’t end up taking profits too soon and also not hang on too late on to your winning trades.

Know how your winners move.

Each swing trader will have winners that will move varying amounts once they are in the money. Accordingly, the average loss will also wary.

For example, if you trade small-cap stocks, your winners will move much quicker than when you trade large-cap stocks. The stop losses in small caps could also be wider due to their natural higher volatility.