To take profits or not

Hi all, Investor's Business Daily recommends taking profit at 25%.

According to them, even if the stock goes higher than 25%, my return will much higher if I take profits and reinvest it in another stock that has a buy signal.

According to one compound calculator I used, my theoretical return after getting three 25% gains is close to 95%.

I could double my money every year (in theory).

What are your thoughts?

When do you take profits on position trades?

Thanks

 

25% hits different for different stocks.
Better reach for a multiple of the ATR or Risk.

If you’re 100% invested then you will make 25% if the stock hits your TP. But if you’re only 10% invested then you’ll only make 2.5%.

Some have fixed TPs while others wait for the stock to breach a moving average. You can also take partials with multiple exits strategies.

They also say don’t risk more than 10% !

Wait for a good correction before to buy stonks.

 

25% seems short sighted but it depends on the prospects of each company. If you buy stodgy companies like IBM or CSCO, 25% is a gift. If you bought Carvana , nVidia, Supermicro, etc., a 25% exit would seem like you lost money.

IBD is based in part on the work of Nicholas Darvas who only exited based on weekly lower lows aka violation of the Darvas Box.

 

Use trailing stops, at a distance of that 25% i.e.

That way you don't have to worry about the exit.

 

There is no ideal solution.

This is one possibility :


Let's say you trade with a quantity of 2 million stocks.

1st 1 million - take profit at reward : risk ratio of 3

2nd 2 million - hold it for a longer period of time.

 

When the trend changes.
Let your winners run.
If your stock doesn't give you a reason to sell you might as well let it keep going.

 

(Not specifically for you, but for all readers...)

2 Technically sensible ways to take profits, long example..

1. Aggressive sell... when issue/mkt rallies up to significant resistance, sell into it with the expectation the upmove will stop (you can always rebuy if breaks out to upside)

2. Defensive sell... when issue moves against you "enough" to make you think the move might have run its course... like breaking a nearby support. Again, you can rebuy if wrong.

Taking profits is part art much like setting stops...

FWIW...

 

Thank you for posting a relevant question with a reasonable expectation of logical answers.

(As opposed to so much click bait and bs)

 

Your thoughts on where you find resistance if you are buying breakouts to new highs?

 

Look to the charts for some prior resistance or significant high... "double top" kind of thing*... or maybe "backtest from the underside"... like if the issue had been below the 200 day average and bounced... now approaching the 200 day and it has a down slope... I'd be watching carefully for a failure/reversal. It's either going to fail/reverse there or breakout. Whichever, watch and play.

The best part about support and resistance... they are always action zones with the best info and risk/reward.

*Right now I've got the 10/25 QQQ 499 Put... its' a double top resistance play with the high from 10 days ago @ $.88. Worst case, I lose the premium. If market follows through on the "double top" scenario, could be worth $2-$3 or more by the end of the day. Favorable risk/reward with technical support for the play.

FWIW...