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Strategies & Market Trends : Strictly Buy and Sell Set Ups -- Ignore unavailable to you. Want to Upgrade?

To: chowder who wrote (12215)	4/25/2007 4:30:14 AM
From: chowder	Read Replies (1) \| Respond to of 13449

FOOD FOR THOUGHT ... Profit taking .......................... I always have two profit targets and an initial stop when I enter a trade. My second profit target is usually the price that gives me my reward to risk ratio based on my stop. My first profit target is usually about half of the second profit target. I have two profit targets in order to provide a margin of error, or a margin of safety. Based on my experiences, I found that quite a few trades would achieve the half way point of my original profit target, only to reverse and head back down. In the old days, that would have required a long term buy and hold, waiting for price to achieve my ultimate profit target. Now that I take profits half way to my ultimate target, I'm locking in gains and have something to show for my trade. If price reverses after the first profit target is achieved, I can sell off that weakness and still have a winner. I don't have to hold that stock for the long term to have something to show for it. I can move on to something more enticing. Let me use a recent set up to explain. SAFM is a trade that has recently triggered. Here was my set up: >>> Entry target $37.15. Profit targets $3.00 - $6.00. Initial stop loss $35.25. <<< Message 23481287 I am willing to risk $1.90 per share in losses to obtain a $6.00 per share profit target. That's almost a 3-1 reward to risk ratio. My first profit target is half of the ultimate profit target. Most of the time I wait for the first profit target to be hit before I sell anything. Exceptions to this could be deteriorating market conditions or price just not moving after a period of time. But if price is rising, I will wait for the first profit target to hit before selling anything. I usually sell 1/2 of the position at the first profit target. It doesn't have to be 1/2. It can be 1/4, 2/3 or even 3/4. You must find what works best for you. I use 1/2 and then raise my stop after I sell part of the position. Now this is important. As price gets close to the second profit target, don't let 30 cents, or 20 cents or even 10 cents prevent you from selling the position and taking those profits. If it looks like price is turning over, or looking tired, take your 20% or 30% and move on. In recent days I've seen several positions get close only to reverse. You've got to adjust as market conditions change. If the market is looking strong on the day you are approaching your profit target, leave it alone. If the market is showing weakness on the day you are approaching your profit target, take them. That's what I did with TESO today. The last couple of days the market has looked weak. I was close enough to the target to go ahead and take the 34% profit. If the market was up strong, I would have left it alone. Just some food for thought. (This message is linked to other FOOD FOR THOUGHT messages.)