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Taking profit is often avoided for fear that one would miss out on
large price movement to the upside. However, nobody ever regretted
having put some money into their pocket even when the market
continued to trade to the upside. On the other hand, taking profit to early defeats the purpose
of reaping the benefits of successful stock trading. Though, what to
do?
When in doubt, take profit! It's better to lose out on profits than
to lose money.
Most times you won't find the perfect entry or
exit, so don't worry about it. Many traders waste too much energy
looking for that perfect trade. What I like to do is partial buy
and partial sell, that is, when a stock looks good, buy some and
you can average up and down as warranted. When you have a gain, you
can take profits on the way up and down likewise.
Raise cash:
when the ETF trades close to the resistance level, I usually
sell 1/2 of my positions.
Here is the rule I apply when to pull the trigger:
I take profit when the market starts trading sideways for 3+
consecutive days (see chart below). |
