“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).
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
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)
- 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.
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