As traders it is our job to see opportunities ,take money out of the market while at the same time minimizing risk and protecting capital. Easier said than done.It can be hard at times to follow these rules, especially when the markets are not in our favor. So when the time does come around where the markets are in our favor, we have to take full advantage of that time. When i say taking advantage i mean not just locking in profits, but trying to squeeze every drop of juice you possibility can while still protecting your gains and capital. I have listed 4 ways that I believe are the best way to not just take the meat of the trade move, but to milk it as much as possible.
1). Being Early To The Party
This tip is often looked over or never spoken about with traders. I believe it is because we are taught that the stock should have high volume before we ever trade it, which can be right and wrong. I firmly believe that most people are better off trading a stock when there is high volume because by then there is already liquidity and the ease of getting in and out of trades are extraordinary. The downside, is that often these stocks have already made their significant move to the upside or downside, and by the time it has high volume, you are left wondering if you are buying an overextended chart. Yes it could go up, but buying an over extended chart can be very dangerous and risky. Being early to the party is something i believe in because of the amount of cushion it gives a trader once he or she is in the trade, which is a big deal. This directly links with reason #4.
2) Lock In SOME Profits
What often happens to traders, especially new traders is once they are in a stock and it goes in their favor, they hold the entire position for too long. Its not rare to here stories about traders who were up thousands of dollars only to have it come back to $0 dollars on them because they never locked in any profits. Locking in 50% or 75% gives you satisfaction that you actually made money today, not almost make money. Because at the end of the day it doesn’t matter how much you are up in a trade until you actually sell and put that money into your account.
3) Leave Some Profits and Let It Run
Opposite of Tip #2, you want to get in the habit of letting the remainder of your position to run of you think there is more potential. Just like in Tip #2 how there are traders who don’t sell anything and their position tanks on them, there are traders who sell all of there position way to quickly. Now some will say that is good because you are still locking in profits. But we are talking about milking ever last cent out of that trade that you can. If you want to maximize you profit to the fullest, you cant get out so early. Especially if you close your entire position. The interesting thing is that all 3 points so far have one goal in common….
4) Patience, Patience, Patience
Each of the 3 Tips before this one all result in us as traders having patience to let the stock run further and further. When we are “Early To The Party” you can be patient because once the stock goes in your favor you know that its going to be hard to lose money on that trade. Think of the difference here. A stock goes from $1.25/share all the way to $3.50/share. If you got in at $1.50/share and the volume is pouring in, you have a much more relaxed approach to your position. Do you think you will be worried if the stock hits $2.25 and pulls back? Nope. Because of how far away your entry point is. Now imagine of in this same stock you got in at $2.35. You are definitely more worried. It is possible you could call this stock over extended now. Now you are worried and optimistic. “What if the stock dips all the down”. Its hard to control your emotions when your position is right in the middle of the range, and its if the trade ever makes in past $2.35. “Take Some Profits Off ” and “Leaving Some Profits and Let Them Run” also gives the trader patience. When you are in a trade and haven’t taken any profits off the table, it becomes harder to sit through the pull backs that will naturally occur in the trade. Also when you sell your whole position, you don’t give yourself an opportunity to maximize your profits. Your $200 winner might have been $600 if you sold half and let the other half run. When you take profits it releases some of the pressure of having your whole position go back and fourth on your P&L. You will notice that once you do it you are more tolerant of price swings and dips, and you have more PATIENCE to let the remaining shares work for you.