My cases on taking profit

“Sell when happy” that is the common phrase I hear and see from people in FB trading groups when someone asks for advice on taking profit. While this is a good advice, new traders often take this on an emotional perspective rather than on a logical approach.

What do I mean?

As long as the trade went on their favor and that feeling of contentment on the gains kicked in emotionally, they sell because #YOLO

“what could go wrong? I gained on that trade and didn’t lose”

While that is true that they won’t lose on a winning trade, it doesn’t mean that it would be profitable in the long run because guess what? Everyone will lose from Ms. Market and that is a given fact and every once in a while we would experience drawdowns (consecutive losing trades).

Anyway, selling when happy is not wrong if you take it logically but if not then don’t enter a trade.

If we are here for the long run then we have to be systematic on our trades rather than being subjective right?

So allow me to share 3 cases I use on taking profits as a developing trader.

For the background of my cases, I have to inform you that these applies to different setups

Case #1 : Selling on a TP

I use this case when I determined that the trade I’m going to take on the stock would be a swing trade(my swing setup criteria should be checked first).

Example:

This was my trade with X last march 8 – 10 , 2017. I was watching this stock due to a double bottom pattern that happened. Drew my lines and put my entry trigger.

Determined it as a swing play and measured my Risk:Reward Ratio

My TP wasn’t hit  by the momentum of the breakout and I wasn’t able to sell at the top of the 3rd day candle but I’m really happy with the trade because it was a successful swing trade as what wrote in my trading plan.

That was just a 6% gain but that doesn’t really matter because my position size is calculated based on the R:R ratio, felt short on the TP though.

 

Eventually the stock pulled back and retested 9 pesos and continued it’s rally. I got left behind but that doesn’t matter now because I had followed my trade plan and I could have a re-entry if it is deemed to really reverse. This trade also taught me to refine my expectations with the setup.

Again, I use this selling plan on my swing setup.

Case #2 : Sell some on a TP and let the rest run

Example:

This was a Bloom trade of mine recently and I use this case on this.

I use this case when I’ve distinguished the stock is on an uptrend.

Again, I drew my lines and  put my entry trigger.

I determined this as a TF play and measured a R:R ratio based on resistance.

Sold portions of my position on the resistance area and left behind a few shares to run with the trend.

I will be selling the remaining when the trend bends.

The pros of this approach on taking profits:

  • I have insured a portion of my positions
  • I  can maximize the trend with the remaining shares
  • I can use my booked profits on to the next trade since this trade is now easy to manage(just sell when the trend bends)

The Cons:

  • I won’t be able to take the full Rewards of this trade based on my pre-determined R:R ratio because of selling a portion.

This is a case where I use this selling plan on my TF setup.

Case #3 : Sell on your trailing stops or when the trend is over while adding on continuation patterns.

This for me is a special case, I learned this from ZF’s blog, a variation for my TF setup. To be honest, I’m not yet used to this approach and I’m still experimenting on it but here’s the idea.

http://zeefreaks.blogspot.com/2015/05/case-study-popi.html

In simple terms:

  • Buy on the breakout of a stock that have consolidated and will potentially trigger an uptrend
  • As the stock progress on the upside, buy tranches as you see continuation patterns (flags, penants, triangles etc.)
  • Trail your stops and sell when it’s hit

That’s all folks!

Happy Monday! PSEI back at the 8000  level

 

Leave a Reply

Your email address will not be published. Required fields are marked *