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Why it is Sometimes Good to Ignore Your Own Profit Targets and Take Your Gains Early
Quick thoughts on when to take profits before letting them hit your target price
I’m going to book my gains in Markwest Energy (MWE) before the close. Now the move today in the stock has definitely been bullish but the question becomes, with me only being $0.20 from my profit target, why would I risk $1.67 that has already been made by holding this stock one more day.
You have to look at it from a risk/reward stand point. In essence, I am putting at risk 1.67 possibly (OR MORE) in profits to hold on for on $0.20 in return (but possibly more). So on the surface, i’m holding on to a trade with an 8:1 risk to reward, which in my opinion isn’t favorable.
When it comes to trading, you have to think along these terms, because its what saves you at the end of the day from constantly seeing your winners turn into losers.
In order to do this, I have to give up gains that i might otherwise have and do so consistently, because in th end, my goal as a trader is to be consistently profitable.
An alternative would be to book half the gains today and hold the rest until tomorrow
But for me, it isn’t a style that suits my personality very well (though it works great for others).
Just some background info on MWE – Bought it on Friday at $48.00 and plan to sell today before the close and before it hits my target at $49.90.
In any case, just some food for thought.
Ryan Mallory is the co-founder of SharePlanner Inc, a financial website devoted to Day-Trading, Swing-Trading (both long & short) and exchange-traded funds. Ryan makes a strong emphasis on risk mitigation strategies, trading transparency, and trader education – not to mention a great set of stock screens as well.
Be Sure to Check out Ryan’s Site at Shareplanner.com
2012-11-19 14:50:18
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