The term managing winners refers to closing a trade prior to expiration and prior to max profit.
We tend to close our winners when we reach 50% profit, or lower for certain strategies like calendar spreads, diagonal spreads and iron flies. For these, we look to manage between 10-50%. So why do we manage our winners? There are a few reasons:
We have found that managing our winning trades prior to expiration can improve our probability of success. If we consistently enter trades with a probability of profit of 70%, but we close them when we reach a certain percentage of profit, we can increase our overall percentage of winning trades higher than 70%. This is because we’re taking risk off the table and we’re also decreasing the time that we’re in the trade.
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