February 13, 2007 at 7:11 pm | | Comments 3

“Knight” Writer

I am humbled and honored to now be a member of Don Worden’s Roundtable of Knights Who Think for Themselves. Tonight when I made my final TeleChart download, I saw that I have been dubbed “Sir Psychological Capital” by Mr. Worden!

As I’ve noted before, Mr. Worden often presents submitted notes from TeleChart Users along a variety of topics, and they always seem to get my wheels turning. A few recent Worden Reports prompted me to send him a few thoughts of my own, and I’m hopeful it will in turn help some other traders. Here is the note I sent to him:

Mr. Worden,

I am a long-time user of TeleChart and feel that your nightly report alone is worth the price.  It’s great to have your insights to blend with my own ideas, so thank you for always sharing your hard-won experience of the past several decades.

I also enjoy reading the nightly Worden Report for the submissions of other TeleChart users.  While many of them are more detailed than I may prefer to use, some of them are surprisingly simple and therefore easy to put to use.  They also add to the user experience and value of your product, so thank you for sharing those as well!

Sir Smalltiger’s submission on January 3rd was an excellent example of how one should implement a trading plan, and I am in full agreement that each of us should have such a plan in place which fits our needs – whatever those may be.  He touched on a number of topics which each trading plan should include, and in that regard his submission was very thorough.

I do feel that an added layer to the topic of exits would be of benefit to any trading plan, and that is the concept of managing positions in a scaling fashion to “peel off” profits on the way up.

Why not include in a trading plan a method for reducing risk and paying oneself along the way as a profit builds?  When we catch a good move, we often battle our inner demons to either “let it all ride” or “swipe the winner off the table,” neither of which are ideal.  This all-in-or-all-out approach rarely results in satisfaction!  Inevitably, the trades which we press will pull back and cause regret, as does the alternative of jumping ship too early, only to see the stock continue higher without us.  It’s the ever-present conundrum we face as traders.

I have found that my own solution to this ongoing battle is to book partial profits along the way.  I prefer to pay myself when I catch a good move, but retain some portion of my position in order to participate in continued upside should the momentum carry forward.  I then raise my stop for remaining shares to reduce risk while maintaining some exposure.

This accomplishes two goals, the first is financial and the second is mostly psychological:

First, I free up more trading capital to allocate toward a new idea.  I am a trader, and that means I like to keep the money funneling into areas with the best (perceived) potential.

Second, I sleep easier because I don’t have as much (psychologically) riding on the big winning trade – I’ve paid myself and now have a win/win scenario – barring a gap – in that my raised stop will result in a net gain or that my trade will continue higher and add to my previously booked profits.  This also addresses the preservation of “psychological capital” which I believe we each have a limited amount of.

The current market has been good for this approach as numerous times strength has been sold as prices migrate back toward trading ranges.  Booking some gains into such advances has provided me with some good profits as well as opportunities to reload my favorite positions on pullbacks.

Every trader should have a plan that suits their own needs, and Sir Smalltiger’s plan is an excellent foundation from which to build.  It can be adapted as conditions or situations change, but having some profit-taking method in place is better than the all-or-nothing approach which so many traders employ with limited success.

Thank you again for such an excellent product,


Obviously money management is crucial to the success of any trader, but as I write here so frequently, a trader must also protect his psychological capital. Keep that in mind when formulating your trading plan, and you’ll always be on the right track!

Jeff White
President, The Stock Bandit, Inc.