Stick with the Trading Plan
It goes without saying that every successful speculator has a trading plan. Some are better than others. Regardless, most speculators find themselves at times forgetting or ignoring that when they initially entered the position they had a goal. That goal often is forgotten as the speculation reaches its target. That's when greed sets in and more often then not, the speculator regrets that they didn't stick to their original plan. Greed and fear are the speculators worst enemies and one should constantly be on guard to make sure they don't become part of the trading plan.
One of the most frequent errors is entering a trade with one time frame in mind and then changing your mind as the trade progresses. If a speculator enters a trade for the short term (days to weeks) then stick to the short term. Suddenly changing one's mind and deciding that it could be a intermediate term (weeks to months) is wrong.
To guard against this situation, you should make a determination to exit the trade when the target is reached. Can there be an exception? That depends on the individual and the amount of time that they have to monitor their position. It also depends on the actions of the stock and the market.
If there is a second phase target that offers the opportunity for greater profit then many assume that by holding on to the stock they are making a wise judgement. Is it a wise judgement or is greed raising its ugly head?
In this case, here's what I do but it should be emphasized that what I do and what you should do are two entirely different things. First, speculating is my profession, so I'm in front of a computer for most of the day. Second, I've been doing this for a long time. That doesn't mean I don't make mistakes. I've made a lot of them and everyone of them was apparent in hindsight.
If I've entered the trade on a short term basis and the first target is reached I sell half my position regardless of how strong the stock and market appear. If the market and stock appear to be showing a great deal of strength then I'll hold the other half but I move my stops (exits) closer to that days closing price. In the following days if the stock continues to do well, I'll continue to move my stops (exits) assuring more profits. This procedure assure me that I'll be getting most if not all of the profits that I originally planned for and in some instances I'll attain higher profits. In the majority of instance, however, I'm exiting my entire position when the initial targets have been reached.
By exiting the entire position or a least half of it when the targets are reached I have capital for other speculations. There is a tendency for many traders to enter a position that reaches their goal and think that by holding on they will get a little more. More often then not they don't but in many cases when they do, the profit isn't much more.
As the targets or counts are achieved in many instances they don't go much higher. Holding on to make another couple of percent when funds could be used in a better speculation isn't a good plan. More often, by holding on, the speculator finds themselves having to exit the position with substantially less profits when it turns against them, which happens much more frequently when targets are attained.
The best way to manage the exit strategy is to have one in place when you initiate the trade. |
