There have been times in the recent past where I saw a stock in my portfolio shoot up and then within a few days go negative. I want to start using stop losses on stocks in order to protect profits. I know, you are all saying, why is this idiot not using stops always. Well, I used to always use them and get stopped out once I hit a specific percentage. Then, the stock bounces back either later in the day or in a couple of days. The question is how much room do I give in order to protect myself from just a stock shake-up?
Taking profits is one of the hardest components of trading in my opinion. What I normally do is find my price target, then try to hold until it reaches there. I trade a bit longer term, so I will experience my profits diminishing quite often. When the market feels like it's going to retrace a little I will find a support/resistance area then watch and see if the market breaks though there. If it does, I'll take profits (or losses) and then look to reenter. Ideally I would like to be able to hold my position for the duration of the move, but nothing works out perfectly. Good luck, hope that helps a little.
If you are talking about long-term holding, then adding long puts to your stock positions after significant moves will lock in a profit while still allowing for upside room until expiration. If you use longer-term puts, the cost is higher but you get nice long-term protection. If you are talking about 2 or 3 day swing trading, then current month puts would work only if you had a nice large move. In other words if XYZ jumped from $50 to $60, you could then buy $60 strike puts in the current month and let the position run a little longer. For smaller moves, the puts will eat too much into the profits and is not worth it.
i agree this is one of the hardest parts of trading. if u take profits, it keeps going. if u dont, it comes back to ur entry price. worse, comes back to ur entry price, dont scratch it, and end up losing alot on the trade- very emotionally damaging. must come up w/ a systematic way. i find the 'holy grail' of exits is piecing out. systematic example- using a fast and slow ma's. exit 1/2 on violation of fast ma, and exit 2nd 1/2 on violation of slower ma. keeping some lets u participate if turns into homerun. u can also add back in on consolidation phase. just 1 example of countless styles. i find if i take off a full position all at once- i usually regret it. first exit can be discretionary, but i make the price take me out on remainder.
You can determine your stock direction by looking at MACD weekly, and daily charts. Most of the time the stock will move a couple of days max and then pull back. I would take profit at the turn rather and than waiting for it turn back around.
For instance, I placed a late trade on Friday for 600 shares of JST. Today, for whatever reason, the shares spiked at 25.64. It is very rare I am only in a stock for a day, so did not pay attention to it. Nevertheless, I was up about 11% so I sold at a little under 25.00. It is going down now, so it looks like I did OK. Normally, I would had waited until the stock went back up to sell the shares. What I've been doing over the past couple of hours is add a .50 - .70 margin from a profitable stop loss on all my stocks in the green. Therefore, I still make a few hundred off of every stock even if it hits the stop loss. I seem to mostly trade low to medium vol. stocks. The bigger ones are hard to pull a nice profit out of. After all, I cannot by a block of 10k shares in CVS or MSFT.
Here is how to take profits. First, print out the chart. Then from the chart derive a floor and a ceiling or resistance and support. Then when you have established your position, place a sell order a little bit before the ceiling or the resistance and then let nature take its course. Lets take for example, MRVL. Mrvl seems to want to dance between 19 and 21 dollars. I would establish my position based upon the chart and then set my sell order for 21 dollars. Then once it shoots through 21 dollars, we will see where it goes from there on the chart and re-establish the position. I dont have a chart of mrvl in front of me, so this is just an example. Dont forget the stops... The machine will perform the trades for you as long as you place your stops and limit orders according to the plan. Make this emotionless and go by what you see on the chart. Do not sell when you feel like it or based on your gut, sell strictly according to the chart and the calculated support/resistance.