Let's say you expect a stock, that trades at 50, to reach 55 within a week. You buy the stock and put a stop at 48. The stock touches 55 after 3 days. Do you sell?
If you have a target based on a technical reason (previous high/resistance, Fib extension, MA resistance, etc.) - yes. You can always re-enter if it sets-up again. If you arbitrarily picked a target (which I would never do!), I would use a trailing stop.
How do you reconcile the above answers (not saying they're wrong) with the adage "let your winners run"?
These are questions I struggle with all the time. I've tried to test different scenarios on tradestation: take profits, take 1/2 profits, trail stops and still have nothing conclusive. Many times the results are very similar. Anyhow, would be interested on others thoughts here. Obviously, a large portion of this can be psychological for some people. Great discussion.
That's a good question, but it goes to the issue of what "run" is. In my mind, a 10% gain in a few days qualifies as "run", especially if one is trading a system that maximizes profit at that level. If you are trading a system that specifies an exit, and you elect to extend beyond that exit, then you are, by definition, into an area of increased risk. So basically what I am saying here is that for a system trader to let his profits "run" is not in general a wise thing to do. God knows I've left a tremendous amount of money on the table by taking profits at a predetermined level. But that's the price of a system. Hit singles and doubles, and let the homeruns go.
On my planet, for one. Almost all my sell signals are based on Fib projections (extensions), or a combination of Fib projections and other resistance. My accuracy rate is pretty damn impressive, if I don't say so myself!!!