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  • David Yocum

Maximizing your profits in trading: When to take profits, sell into strength, give it a longer leash


Trading and technical analysis are important tools for making informed decisions about buying and selling stocks. One of the key considerations for traders is knowing when to take profits, when to sell into strength, when to give a position more time to perform, and how to manage risk through stop loss orders.

Here we will dive into multiple strategies to maximize your profits as a trade works in your favor.

 

The Basics: Taking Profits


Taking profits is the process of selling a stock that has increased in value in order to realize the gains. There are a few different strategies for determining when to take profits. One popular strategy is to set a target profit level and sell the stock when it reaches that level. Another strategy is to use a trailing stop loss, which is a type of stop loss order that is set at a certain percentage or dollar amount below the current market price. This allows traders to lock in profits while still giving the stock room to continue to increase in value. In the following $NFLX chart, I use an ATR trailing stop loss indicator. Later, we will dive into other stop-loss strategies. Note: ATR (Average True Range) trailing stop is a type of stop-loss order that is based on the average true range of a stock. The average true range is a volatility indicator that measures the degree of price movement over a given period of time. The ATR trailing stop is a dynamic stop-loss order that changes with the volatility of the stock.

Advantages:

  • Allows traders to lock in gains and realize profits

  • Can be done through setting a target profit level or using a trailing stop loss

Disadvantages:

  • If done too early, traders may miss out on further potential gains

  • If done too late, traders may see profits turn into losses


 

Selling into Strength


Selling into strength is the strategy of selling a stock that has been performing well in order to realize gains. This strategy is often used when a trader believes that a stock's price has reached a peak and is likely to decrease in value. For example, if a stock has been rising for an extended period of time and is showing signs of reaching a resistance level, a trader may choose to sell into strength to lock in gains before the stock's price starts to decrease. Using basic trendline resistance on the same $NFLX chart, here is how a trader could sell into strength.


Advantages:

  • Allows traders to lock in gains before a stock's price starts to decrease

  • Can be a good strategy for short-term trading

Disadvantages:

  • If done too early, traders may miss out on further potential gains

  • If done too late, traders may see profits turn into losses



 

Giving the Position More Time

Giving a position more time to perform is a strategy that is often used when a trader believes that a stock has potential for long-term growth. This strategy involves holding onto a stock for a longer period of time, even if it is not performing well in the short-term. This strategy is often used for growth stocks or for stocks that have a long-term trend of increasing in value.


Advantages:

  • Allows traders to capitalize on long-term growth potential of a stock

  • Can be a good strategy for growth stocks or stocks with a long-term trend of increasing in value

Disadvantages:

  • Can be risky if the stock's price does not increase as expected

  • Requires a longer time horizon and patience

 

Raising stop loss orders


Raising stop loss orders is a strategy for managing risk in a trade. A stop loss order is an order to sell a stock when it reaches a certain price. As the value of the stock increases, the trader may choose to raise the stop loss order in order to lock in more profits. This helps to protect against potential losses if the stock's price starts to decrease. This is my personal favorite strategy as price moves in my favor. Utilizing key pivot points and/or moving averages allows you to stay in the trade as long as the stock continues to trend in your favor. Here I will share the same $NFLX chart from earlier that shows raising stops via pivot points followed by using the 55EMA to exit the trade on the same chart. Coincidently, these two trades stops out at almost the exact same spot.

Why do I like the 55EMA? Find out here. Pivot Points:

55EMA:



 

In conclusion, there are many different strategies for determining when to take profits, when to sell into strength, when to give a position more time to perform, and how to manage risk through stop loss orders. Each strategy has its own set of advantages and disadvantages, and traders must decide which strategy is best for their individual needs and risk tolerance. It is always important to have a well-defined trading plan, and to stick to it, also to do your own research and not rely solely on others' opinions.


 

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Please note that the information provided in this blog post is for informational purposes only and should not be taken as financial advice. It is important to do your own research and consult with a financial advisor before making any investment decisions.

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