Josh Lukeman, in his excellent book The Market Maker's Edge, reviewable on Investimonials, http://www.investimonials.com/ notes that it is true you can go broke taking profits, because eventually the costs of commissions, slippage, software packages & data fees, etc. will eat you alive. Unless you scalp with a big and possibly leveraged position, you cannot take only a few cents of profit & expect consistent returns.
You can even win less than 50% of your trades if the losers are modest and the winners are pressed until a decent gain is obtained.
Often, headfakes and fear cause traders to exit with smaller gains when MM's and other big players test support and resistance lines with street sweeping buys and sells of large lots to trip stops and cause panics, etc. Further, many minor moves are just the short term randmoness of the markets, and one must always remember that trending stocks normally retrace a significant portion of their gains before resuming the primary trend. Most of these goofs are psychological traps.
Fear causes traders to exit early to lock in small gains, and to hold on too long and turn small losses into big ones holding on and hoping. See the trade recap of 2-12-10 for some of these errors in practice.
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