While so many traders focus entirely on the entry for a trade, profits are only made at the exit. While randomness and luck can allow a trader to enter a trade that is a winner, it requires skill to know when to exit and lock in gains. Making money and keeping money are two very different things. Open profits are only paper profits until the trade is closed.
Stock Profit Taking Strategy
Here are ten profit taking rules traders can consider adding to their trading plan.
- Selling into strength: When a chart moves strongly in your favor on unexpected news or on a large gap up in price it is usually time to lock in profits.
- Profit target: When your trade has achieved your original profit target it is time to lock in your reward.
- Gaps: When a chart gaps strongly in your favor, many times it is time to take the gains before a gap fill.
- Volatility spike: When a chart average trading range increases (ATR) dramatically it could be time to lock in gains as the risk has changed.
- Trailing stops: When a trend bends in a meaningful way technically it could be time to exit with remaining profits.
- Trend lines: When a chart loses a key trend line it could be time to exit with remaining profits.
- Moving averages: Exit a winning trade when price breaks a meaningful moving average.
- Fibonacci: Fibonacci extensions are a way to establish price targets for exits.
- News: Buy the rumor, sell the news.
- War: “Buy to the sound of cannons, sell to the sound of trumpets.” – Nathan Rothschild
A trader must know when to get into a trade, but more importantly when to get out of a profitable one.