When Should You Take A Profit?
Booking profits is a
pleasant problem in the world of trading, but it still presents a dilemma all
its own. Taking a piece, or the entire position off the table is as
intricate a part of making money consistently, as the money management skills
needed when cutting one’s losses.
12:36:48
Intraday Setup Alert
The semiconductor HOLDRs (SMH)
have formed an extended intraday 5-minute chart double bottom. With the
sector proxy off .47 at 36.90, session lows are testing a daily support zone
that comes in between approximately 36 – 36.80.
If you had actually taken a position on the initial Kings and Queens retest
(while most certainly a reversal long in this guy’s humble opinion)–the trade
was not made easy, as another test soon thereafter came along in the form of a
hammer low. If you stayed the course with a stop below pattern lows–congrats,
but the ensuing price action raises another interesting problem. When does one
take profits on a trade without going broke or chopped away, as our winners are
supposed to compensate us for those positions that require the use of a stop
loss?
In this particular situation, I’d say that maybe one-third of the position
might have been considered for taking some off the table. Personally though,
given the technical pattern, the initial risk assumed in the trade, the daily
chart emphasis on the trade, as well as the oversold nature of the market in
general –and I’d say the best strategy would be to move up the stop to
breakeven, but consider holding the course as these situations don’t happen
every day of the week.