This particular system enters a trade and, if price moves in the profitable direction, then starts scaling out of the position, shedding (40% of the remaining contracts) at each successive profit target, until finally it's left with one contract. The system then holds that last contract to the bitter end (exit signal), no matter how many more profit targets are hit.
... but, I decided, not this time. Having scaled out a few times already, I'm down to one contract of Cotton. And I decided to exit that little booger today (26 Oct), in violation of the rules.
I figure there are four scenarios:
- I don't exit my long, and price continues to rise
- I exit my long, and price continues to rise
- I don't exit my long, and price falls
- I exit my long, and price falls
Scenario 2 produces (remorse of not gathering further profit) while scenario 3 produces (remorse of seeing today's profit disappear). I decided that the remorse of scenario 3 would be more painful than the remorse of scenario 2; for me, at this particular time in this particular trade, the maximum-remorse scenario is #3. Using the minimax optimization protocol (link), I took the action which minimizes the maximum remorse. So I exited my long.
EDIT - added link to minimax