Taking Profit
Taking profit when our stock has moved up has to be one of the most difficult trading skills to master. We become frustrated when our stock surged up after we sold it. The next time we hold a bit longer but this time the stock reversed sharply before we could sell it wiping out all our gain and turning it into losses.
How do we take profit then? We can take profit by selling our position in stages. Let’s assume we have decided to divide our sell order into 3, our take profit tactic could be as follow:
1. Sell the 1st third after the stock has moved up a certain percentage above our entry price.
The question is at what percentage above our entry price should we sell? This very much depends on the stock behaviour. I personally found from trading experiences and observations that our Bursa active stocks on normal market condition would on average move up about 10-20% during their upswing. I used to limit it to 10-15% but more observation suggest 10-20% is normal. Personally I take partial profit on 16% price increase from my entry point.
Some would move up further, some would consolidate, some would pullback and some would reverse after advancing 10-20%. Selling a third of our position would therefore allow us to lock-in profit in the event that the stock reversed.
2. Sell the 2nd third when the stock has reached a technical price target. Alternatively wait for a bearish reversal candle or trailing stop to appear there and confirmation before selling.
The technical price target could be a resistance line, channel line, swing target or projected price target. Swing target is the projected upswing objective based on the height of the previous upswing. Projected price target is the price objective following breakout from bottom reversal patterns, e.g. double bottom, head & shoulders etc or continuation patterns, flag, triangle etc. You may want to visit Chart School website at http://stockcharts.com/school/doku.php?id=chart_school to find out how to determine the projected price target. Sometimes the technical price target is within 10-20% above the entry price. In this case, we should look at the next resistance level to sell our 2nd third.
3. Sell the last third on negative divergence between price and technical indicator or trendline break.
Negative divergence between price and a technical indicator is when price made a new high but the technical indicator did not make a new high. It is a signal that the uptrend could be ending. We can use the trailing stop technique to sell our last third. Alternatively we can wait for the up trendline break.
We can obviously add or re-new our positions in case there is a pullback after selling our 2nd third or last position respectively. In this case, the selling process starts all over again.
Disclaimer:Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or loss profit resulting from trading or investment decision based on my posting and information presented in this blog.
How do we take profit then? We can take profit by selling our position in stages. Let’s assume we have decided to divide our sell order into 3, our take profit tactic could be as follow:
1. Sell the 1st third after the stock has moved up a certain percentage above our entry price.
The question is at what percentage above our entry price should we sell? This very much depends on the stock behaviour. I personally found from trading experiences and observations that our Bursa active stocks on normal market condition would on average move up about 10-20% during their upswing. I used to limit it to 10-15% but more observation suggest 10-20% is normal. Personally I take partial profit on 16% price increase from my entry point.
Some would move up further, some would consolidate, some would pullback and some would reverse after advancing 10-20%. Selling a third of our position would therefore allow us to lock-in profit in the event that the stock reversed.
2. Sell the 2nd third when the stock has reached a technical price target. Alternatively wait for a bearish reversal candle or trailing stop to appear there and confirmation before selling.
The technical price target could be a resistance line, channel line, swing target or projected price target. Swing target is the projected upswing objective based on the height of the previous upswing. Projected price target is the price objective following breakout from bottom reversal patterns, e.g. double bottom, head & shoulders etc or continuation patterns, flag, triangle etc. You may want to visit Chart School website at http://stockcharts.com/school/doku.php?id=chart_school to find out how to determine the projected price target. Sometimes the technical price target is within 10-20% above the entry price. In this case, we should look at the next resistance level to sell our 2nd third.
3. Sell the last third on negative divergence between price and technical indicator or trendline break.
Negative divergence between price and a technical indicator is when price made a new high but the technical indicator did not make a new high. It is a signal that the uptrend could be ending. We can use the trailing stop technique to sell our last third. Alternatively we can wait for the up trendline break.
We can obviously add or re-new our positions in case there is a pullback after selling our 2nd third or last position respectively. In this case, the selling process starts all over again.
Disclaimer:Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or loss profit resulting from trading or investment decision based on my posting and information presented in this blog.
Comments
Post a Comment