Successful Trading - Taking Profits - Part 1
So you're started trading, you bought some positions with your online broker, you've set some reasonable stop-losses to protect your account and all of a sudden one of your positions move strongly in your favor - so what do you do now? This my friend, is probably the hardest situation to deal with in trading the market - believe it or not.
Do you take profits? Do you hold on for more profits? Do you take partial profits? There is no textbook answer to these questions as it depends on your trading objective. That's why you need to determine your objective BEFORE you start trading. No matter what you do, there will be regrets if you trade long enough. If you decide to take profits, there will be times when the market makes a huge move without you, if you decide to hold on for more profits, there will be times when you'll lose the profits you had. However, the important thing is that you decide on your objective and stick to it no matter what happens.
With that said, let's discuss some profit taking options that you might consider.
When you've bought your stock, option or commodity and then placed your stop, you must first try to prevent that position from losing money. We recommend that you move your stop right along with the price movement. In other words, if your stop is placed one point below your purchase price and your stock moves up one point, then we recommend you move your stop up to your purchase price. After doing this, you now have a scratch trade at the very least and the position poses virtually no risk to your account - only "gap downs" at market opens can hurt you. And of course, the golden rule with using stops is that they can only be moved up and must NEVER be moved down.