 |
|||
| |||
 |
 |
 |
 |
|
|
| ||||||||||||
| ||||||||||||
|
Successful Trading - Taking Profits - Part 2
Suppose your position has made a big move and you moved your stop to your purchase price as recommended. Then let's say your stock continues to make a big move and now we're asking again the questions we asked back in the first paragraph. The first profit taking technique you can use is a trailing stop. If you moved your stop to your purchase price, then you've already used a trailing stop. Now you can continue to move your stop up as the price rises until the market "stops" you out of the position. So in essence, what you're doing is letting the market decide when to take profits. Bear in mind that you don't have to use the same price gap that was used when you first set your stop. That initial move was done to protect your account - once you've taken the threat of a losing trade away from your account, you can do most anything with your stop after that. One approach that some traders use is to place their stop at the half way point between their purchase price and the present price. This approach is giving half of your profits back to the markets, but it'll keep you in the market longer giving the stock plenty of room to move. A variation of this approach is to move up your stop to the 75% profit level after a period of time has elapsed. Another profit taking technique for traders is to use a reward/risk ratio. This is a sound approach that is used more often in short term trading. The way it works is that you determine what amount you are going to risk on a given trade and then set a profit objective expressed a multiple of that risk amount. For instance, suppose you've bought 100 shares of IBM at $50 per share and you've determined that your stop will be placed at $47.50. This position has a total risk level of $250 to your account. If you've set your reward/risk ratio at 4:1, then this means that when the price reaches $60 and your profit is $1000 (4 x $250), you will take profits. Note that using this approach with a 4:1 ratio would only require you to hit one trade in five to break even - a 20% winning percentage. One last profit taking approach you may want to consider is taking partial profits on that first strong move. In other words, when you get that first move in your favor and you move your stop up to your purchase price, you may want to sell half of your position and take some profits early. You then let the remaining position run using trailing stops until the market stops you out. This approach is used by many swing traders and will result in more winners, but the profits will be smaller. But remember, smaller profits mean that you need more winners. Chuck Cox is a Technical Writer and Industrial Scientist by professional with a background in statistics. He has used mathematical and statistical methods to invest and trade in the stock, futures, and options markets. Chuck has owned various businesses and presently operates several websites. To learn more about trading the markets, visit his website, http://www.earncashathometoday.com/trading-stocks.htm
MORE RESOURCES:
Stocks-Mutual-Funds - Google News |
|
|
|
RELATED ARTICLES
Online Broker Trade History Not Doing the Job Let me start by saying that.. Where Is The Rabbit? We need a rabbit!This was a pretty horrible week for the market with two 100-point days and Friday closing on the lows.During these past few days Sir Alan told us things are looking up and the economy is basically strong. DIY Portfolio Management Exchange Traded Funds (ETFs) are growing. Investors are choosing low annual expense and market return over high annual expense and promised performance. Dont Buy Stocks based on P/E Ratio alone I use the P/E ratio as a secondary indicator for buying and selling stocks but I don't use the ratio in the same a manner as many value investors teach. I will explain the difference in my methodology for using the P/E ratio to your advantage. Making Outsized Returns in the Stock Market - Using the Dow Theory The Dow TheoryCharles H. DowRobert RheaE. Buying New Issues Has your broker been calling you recently with the "great opportunity" to get in on a new Initial Public Offering? With friends like that you don't need any enemies.I don't care how good this new stock offering sounds. How to Pay Less and Get More: Discount Broker vs Professional How do you invest? What do you really pay? At the end of the day, what are your real results? These are questions smart investors should be asking themselves (but usually don't). In this era of more fees, misc. Tips to Finding Other People's Simple Trading Plans Did you know you can make money (and a lot of it) by simply modeling someone else's trading plan? Yes, it is true. Unbelievably, there are many of trading gurus doing it RIGHT NOW. Online Investing & Stock & Share Trading: 4 Reasons Why Most Online Investors & Traders Go Broke Are you attracted to the idea of being in control of your financial future, but confused about how to start investing in the stock or share market, while avoiding costly mistakes?Or maybe you're disappointed with your performance so far?Does it sometimes feel like every time you take the plunge and buy into the market, the price goes down?That's understandable.. Catnip of the Stock Market I have watched my cat play with a bag of catnip. At first he is having fun and slowly he becomes drunk with pleasure and then finally he becomes so tipsy he falls over to sleep it off. Buying Mutual Funds It looks like the market is ready to start up again so it is time to buy mutual funds, but you only want to invest your money in funds that go up. First, you don't want to start with a loss so be sure to purchase no-load mutual funds. The Three Little Pigs Went to the Stock Market Three little pigs went to the market to stockup for the future.The first little pig liked chips so he went tothe DOW market. Stock Valuation using the SMP Model Disclaimer:Please note that I do not necessarily purchase, own, or partake of any of the securities or other financial instruments mentioned in this article. I also do not take any responsibility for any actions resulting from any actions taken by anyone who reads this article. Small-Cap Stocks: The Beginning of the Journey When an individual investor wants to roll up his sleeves and do some research in the pursuit of the next big winner in the stock market, the place many start is in the small cap sector.As with the other capitulation sizes (capitalization is a stock's market value), no one can completely agree on a precise definition, but corporations under $2 billion are often considered small caps. Mid-Cap Stocks: Asset Class with an Identity Crisis Much like the middle child, mid-cap stocks have long struggled to find their identity. Carved out from the upper echelons of the small caps and the lower end of the large caps, the mid-cap sector has a rough definition of stock with a market capitalization of greater than $2 billion, but less than $10 billion. Understanding a Stocks PEG Ratio A PEG ratio cannot be used alone but is a very powerful tool when integrated with the basics (price, volume and chart reading). You must enjoy crunching numbers and have a calculator handy to estimate your own PEG ratio. Chart Reading As an investor you will want to check out any equity before you buy it. Many investors go to Morningstar that is one of the largest providers of mutual fund information in the world. Overvalued & Underbought With all the bad news that has been dumped upon the economy for some reason the stock market is going up. Why?The SEC (Securities and Exchange Commission) has just set up new guidelines for core earnings. Investing in the Stock Market - When To! Is really not as important as to how you invest in the stock market. And how you invest in the stock market should take into consideration what goals you are setting for that stock market investment. Dividend Paying Stocks I would like to share with the reader an article printed in the financial section of U.S.
|
| home | site map |
| © 2006 |