Successful Trading ? Taking Profits - Part 2

Suppose your position has made a big move and you moved your stop to your purchase price as recommended. Then let's say your stock continues to make a big move and now we're asking again the questions we asked back in the first paragraph. The first profit taking technique you can use is a trailing stop. If you moved your stop to your purchase price, then you've already used a trailing stop. Now you can continue to move your stop up as the price rises until the market "stops" you out of the position. So in essence, what you're doing is letting the market decide when to take profits.

Bear in mind that you don't have to use the same price gap that was used when you first set your stop. That initial move was done to protect your account ? once you've taken the threat of a losing trade away from your account, you can do most anything with your stop after that. One approach that some traders use is to place their stop at the half way point between their purchase price and the present price. This approach is giving half of your profits back to the markets, but it'll keep you in the market longer giving the stock plenty of room to move. A variation of this approach is to move up your stop to the 75% profit level after a period of time has elapsed.

Another profit taking technique for traders is to use a reward/risk ratio. This is a sound approach that is used more often in short term trading. The way it works is that you determine what amount you are going to risk on a given trade and then set a profit objective expressed a multiple of that risk amount. For instance, suppose you've bought 100 shares of IBM at $50 per share and you've determined that your stop will be placed at $47.50. This position has a total risk level of $250 to your account. If you've set your reward/risk ratio at 4:1, then this means that when the price reaches $60 and your profit is $1000 (4 x $250), you will take profits. Note that using this approach with a 4:1 ratio would only require you to hit one trade in five to break even ? a 20% winning percentage.

One last profit taking approach you may want to consider is taking partial profits on that first strong move. In other words, when you get that first move in your favor and you move your stop up to your purchase price, you may want to sell half of your position and take some profits early. You then let the remaining position run using trailing stops until the market stops you out. This approach is used by many swing traders and will result in more winners, but the profits will be smaller. But remember, smaller profits mean that you need more winners.

Chuck Cox is a Technical Writer and Industrial Scientist by professional with a background in statistics. He has used mathematical and statistical methods to invest and trade in the stock, futures, and options markets. Chuck has owned various businesses and presently operates several websites. To learn more about trading the markets, visit his website, http://www.earncas hathometoday.com/trading-stocks.htm

Stock Trading - Daddy, Why Arent We Rich?

One Saturday morning, while he was sitting at his computer studying the market, David's 7... Read More

Advisory News Letters

Several times each month I am solicited by various market touts who have a newsletter... Read More

Oil Stocks As A Long Term Investment

The demand for world oil is increasing while world reserves are decreasing. This is a... Read More

Hill of Hope

Just about now everyone is confused as to which way the stock market is going... Read More

Dont Lose All Your Money

That sounds like good advice doesn't it? Don't lose all your money.After all what is... Read More

This Market Is Different

All of the talking heads have been telling us that this market is different. You... Read More

Protect Your 401K

Checked your 401K lately? Going back to about a year ago many of these retirement... Read More

A Personal Stock Market Investment Philosophy

∙ Make every investment in the stock market a long-term investment.My Mother worked as a... Read More

Evaluation I

An insane person cannot evaluate an insane evaluation system.As you know I have been trying... Read More

How to Pick Winning Stocks

There is nothing more exciting than finding an undervalued stock and seeing it explode out... Read More

Stock Market Investments

If there is one term over-used when talking about making investments in the stock market... Read More

Investment Clubs

Because you don't feel too sure about which stock or mutual fund to buy you... Read More

401K-itis

Are you one of those many people who dread reading their 401K statements? You have... Read More

Performance Funds

Mutual funds are doing more and more to discourage investors from leaving them and taking... Read More

Online Broker Trade History Not Doing the Job

Let me start by saying that...Most online brokers do not make it easy for their... Read More

True Investment Road Maps

If you don't know where you are going any road will get there. After you... Read More

Stocks & Oil, Sat Jun 18th, 2005

Both the stock market and oil prices rallied recently, which seems to be a paradox,... Read More

Long-Term Investment In Todays Market?

The stock market is very unstable at this time going up and down while interest... Read More

Money, Insanity and Wall Street

Money: the most charged word in the planet. It means something to everyone. For some,... Read More

One Way Street

Ever turn down a street, get half way and suddenly realize it is one way... Read More

Bottoms Ups

If you have talked to a stock broker or financial planner in the last few... Read More

Stops Make Money

During the day I watch CNBC-TV, the stock market channel. Fortunately, I keep the sound... Read More

10 Tips For Creating Wealth From the Stock Market

1. Do not spread your money too thin.My friend has a little over $200,000 invested... Read More

Wal-Mart: Discount Store, Discounted Stock?

As GuruFocus updates the stock buys and sells of gurus, Wal-Mart (WMT), the discount retail... Read More

Stock Market Insanity

Let's first define insanity. It is doing the same thing over and over and expecting... Read More

What is a Trading Plan ? and Why You Need One?

How do you make money without picking tops and bottoms?I am glad you asked...Successful trading... Read More

Municipal Bonds

Because there are so many stocks that are NOT paying dividends and also going down... Read More

Where Is The Rabbit?

We need a rabbit!This was a pretty horrible week for the market with two 100-point... Read More

Your Job

There are so many kinds of work that needs to be done and you are... Read More

Size Counts!

What the heck am I talking about?It is often said that to grow mentally, spiritually,... Read More

Your Trading Objective: Why is that so Important?

You've decided to try your luck at trading stocks or commodities, but so called experts... Read More

Traders, Defend Against the Dreaded Death Spiral.

It has often been said that there is only two ways to get hurt really... Read More

Trading Stocks ?Never Forget About A Past Trade

We all know that emotions control every decision that an investor makes in any type... Read More

Choosing a Stock Broker

If you were to find that you had some severe illness that required surgery, would... Read More

Overvalued & Underbought

With all the bad news that has been dumped upon the economy for some reason... Read More

Paddle Your Canoe

At some time in your life you have been on a river in a canoe... Read More

Planning Your Dive and Diving Your Plan ? Trading!

A colleague of mine just returned from a scuba diving trip in Cozumel, which just... Read More

Trading as a Business

What can I expect to make my first year of trading?We get questions like this... Read More

Mousetrap

The spring-loaded rat catcher is the ultimate low-tech device invented more than 100 years ago... Read More

Trade Stocks for Real

I read a comment by a forum member on another site earlier today that suggested... Read More

NASDAQ 800?

In November of 2000 when the NASDAQ was trading at 3000 I wrote in this... Read More

Trend Trading - Trading Stocks Using Technical Analysis and Swing Trading Strategies

Peter is a professional trader, Paul is not. Peter has a tested, proven, written trading... Read More

Advisory Service for You?

It depends on your level of understanding of the market and the amount of money... Read More

Duct Tape

Did you run out to buy that duct tape yet? Don't forget the plastic sheeting,... Read More

Big Buildings Can Mean Big Economic Disaster

AS BUILDERS BEGIN WORK ON THE FREEDOM TOWER in New York City, to be the... Read More

Stock Market Volatility

In my opinion, due to the volatility of stock market prices (the rise and fall... Read More

Patterns

The Law of Chaos is the theory of random unpredictable action applied to the cosmos,... Read More

I Love To Lose Money

Well, not really. What I mean is I don't mind losing a small amount when... Read More

How To Buy And Hold

One of the most believed bits of conventional wisdom from Wall Street is to Buy... Read More

Online Investing & Stock & Share Trading: 4 Reasons Why Most Online Investors & Traders Go Broke

Are you attracted to the idea of being in control of your financial future, but... Read More