Registered User
Joined: 3/12/2006
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When do you start taking profits on your stock holdings? Does anybody have any rules for taking profit?
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Registered User
Joined: 6/6/2005
Posts: 1,157
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When do you start taking profits on your stock holdings?
Answer #1: Too early.
Answer#2: Too late.
LOL. I used to worry too a lot about this until I started looking at the performance of the stocks after I took profits. Some were up in a big way, some were down in a big way and some were flat. They were a wash.
Now I take profits in 1 of 2 ways -- at a target that is 2.5x greater than my initial risk, or if the stock is strong and really moving, then based on a moving average suitable for the move. AKA, skyrocketing move gets a 5 period MA or an intrada support level, a strong move gets the 10 period MA, a leisurely move gets the 50MA.
I used to scale in and out of positions but I also found that the scaling in and out really did nothing for my dollar gains -- it just kept me happy knowing I was in a moving stock. But happiness without financial gain (at least in the market) really doesn't do much for me. LOL So now I'm an all in all out trader. Less thought = less room for error.
Do you have any rules?
David John Hall
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Registered User
Joined: 12/31/2005
Posts: 2,499
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Having backtested many approaches the best from a backtesting perspective is Price Target with a timed exit. For example 20% or 10 days. Pick you % and duration carefully.
Be aware this is totally dependent on the type of stratgey being traded. Also that following the exit rules in a backtest is substantially easier to do than in real life.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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Basically your profits work with your risk to determine your returns.
(you cant look at profits in a vacuum)
Lets say you use an 8% stop, than in 8 trades you get greedy
and take profits at 1%, your next trade hits its 8% stop.
(one trade wiped out 8 because you took profits early)
Risk/Reward also determines how correct you have to be.
If you use a 10% stop and a 20% target. (2 to 1)
You have to be correct approx, 33% of the time to stay even.
(the irony is the lower the ratio the easer it is to be correct)
The size of you Risk/Reward will also tend to determine
Trade lengths. 3%/6%, 10%/20%, 30%/60% are all
2 to 1 ratios, however if you use a 3% stop and a 6%
target you will be in the trade a shorter time than a
30% stop and a 60% target. (which will be more like buy and hold)
Thanks
diceman
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Registered User
Joined: 3/12/2006
Posts: 5
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Should have I take some profit off the table on some of these stocks? Example: bought "vlnc" @ 1.52 on
12/27. High price 1.83, now 1.59. Bought "atec" 12/17 @ 2.48, high 2.86, now 2.59. Bought "chtp" @ 5.6, now 7.84. Bought "ssn" 12/29 @ 1.28, now 1.44. Bought "sify" on 12/30 @ 2.25 now 2.31.
Thanks,
prhymer
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Registered User
Joined: 10/7/2004
Posts: 426
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And if you wish to use a simple rule that can be used with alerts.
On daily charts, use price breaking down thru the 5 simple moving average. This will also give you the max profits if price exceeds the reward calculated using Diceman's method.
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Registered User
Joined: 12/2/2004
Posts: 1,775
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Excellent question and one of most asked and always sure to generate varying opinions. Excellent replies already and here's my two cents. There are so many variables to consider on when to take profits, but every trader definitely needs some rules and guidelines. My method says to take partial profits off the table if 20% gain achieved, about 1/3 or 1/2. But the strength might be impressive enough to take none off and instead place a really tight stop on partial. The remaining position I will move the initial stop loss up to breakeven or slightly better. If price continues to run I will raise my stops each time but keep them gradually looser. Discretion comes into play eventually where I want to let the chart tell me when to get out which could be before the literal hard stop, clues might be a candle signals indicating topping action or a break below a moving average that had held weeks, maybe the 10-day or 20-day. And if lucky enough to have ridden a huge winner it might be break of the 50-day. IBD's William O'Neil in his classic book (How to Make Money in Stocks) offers excellent guidelines for taking profits and my method incorporates some of those principles. A hot new book out on the market is authored by two of O'Neil's former top employees, titled "How to Trade Like an O'Neil Disciple." They fine tune O'Neil's profit taking strategy by using the 10-day moving average and 50-day in addition to a seven week rule. I really like their method a lot and am considering using it or at least using some of the strategy that fits my style. I've read many of the classic books on trading that studied some of the greatest traders and the one rule preached over and over again is never to have predetermined profit exit points for the entire position (exceptions such as daytrading), but to let the chart tell you when it's time to exit and/or let your stop take you out. It's the best of both worlds imo; partial profits taken ensures peace of mind for not letting a winner turn into a loser and then letting remainder of position run til it quits running.
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Registered User
Joined: 10/7/2004
Posts: 264
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You really need your profit taking objectives laid out before you get into the trade. Your objective will depend upon your purspose and style. For example, if you a scalper you're looking for quick profits -- pennies and nickles. If you're a swing trader, you hold on for a little more, maybe scalling out. Trend traders hold on for as long as the trend lasts. Investors hold on "foreever." We really can't answer your question because we don't know what your doing and why?
With that said, seems like your into the low priced issues. If it where me I playing those issues I would be looking for quick profits (ie; less than a week scalps) due to the volatility. Good luck.
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Registered User
Joined: 12/2/2004
Posts: 1,775
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QUOTE (Golfman25) You really need your profit taking objectives laid out before you get into the trade. Your objective will depend upon your purspose and style. For example, if you a scalper you're looking for quick profits -- pennies and nickles. If you're a swing trader, you hold on for a little more, maybe scalling out. Trend traders hold on for as long as the trend lasts. Investors hold on "foreever." We really can't answer your question because we don't know what your doing and why?
With that said, seems like your into the low priced issues. If it where me I playing those issues I would be looking for quick profits (ie; less than a week scalps) due to the volatility. Good luck.
Good points Golfman. It's like I said, so many variables to consider. Different methods can all work, the key as always is finding a method that fits one's personality which can take years. I'm still trying to perfect my method to my personality, getting better, but I wish I could go back to the beginning over a dozen years ago and correct some early mistakes that weren't necessary. Wish I had read the classic books from the beginning. Wish I had subscribed to high quality training services, such as Martha Stokes or Tina Logan type quality. Wish I had NEVER tried out Cramer's service, makes me nauseated to think about. What I did instead was read bits and pieces on the web, listen to talking heads on CNBC, and hang out on yahoo stock message boards. And wish I had started using Telechart from day one instead of Yahoo charts!
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Registered User
Joined: 11/1/2005
Posts: 240
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sell at a sell signal, same as a buy signal. have a set of sell signals same as your buy signals, except on the top end of the trade that works out. look at previous signals in the past of this stock, for the time frame you choose. and it can go on to say sell when your index gives a signal, then that brings up, does the stock signal at the same time as the index or earlier, or later. good stuff.
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Registered User
Joined: 12/2/2004
Posts: 1,775
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No position in BSQR but it's a good example of employing a profit taking strategy using the 10-day sma tied to the seven week time period mentioned above that the former O'Neil traders use. These multi-baggers in short time periods don't come along often and to ride one up you need a guideline/method that keeps you in. The thinking is that these rare high flyers often times don't violate the 10day for quite a few weeks or even months.
The rule works like this: If price has not violated the 10day at the seven week mark you don't exit until the 10day is finally violated. Violation has a two day component. First day price closes below the 10day the trade is not exited, only if the next day price drops intraday below the low of first day do you immediately exit. Discretion comes into play because the first day violation might be of high enough percentage that another moving average such as the 20day is violated, or another key level; in that case out the first day. Note that price closed below the 10day on 1/3, the next day intraday low did not violate intraday low of first day, so you stay in the trade. If price had violated the 10-day one or more times inside of 7 weeks during uptrend then they use violation of the 50-day as exit point. Letting a parabolic price drop to the 50day before exiting gives up a whopping lot of gains, but that question is answered in detail on their website and in the book. I do like that they also pay attention to the 20-day at times which is one of my key moving averages. The exit/profit taking method of these two true super traders might not be THE best way to approach profit taking, but they certainly lay out a method worth studying imo.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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CVS
ROG
SIGM
ALR
DEPO
SEE
FEIC
LRN
ENTR
SFI
PZE
MVO
Thanks
diceman
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Registered User
Joined: 12/2/2004
Posts: 1,775
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More great examples of strong 10-day, thanks diceman.
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