There is no greater feeling than taking off a winning position and putting a chunk of money in your account. Most of us do this without a second thought. A quick cheer and your back to work planning your next entry or stock that you hope to conquer. The problem is that taking a profit can be one of the most psychologically damaging things you can do and not even realize it. So today we will talk about 3 things you are doing wrong when you take a profit.
1) Why did you take the profit? Now, some of you may have a very logical reason for taking a profit. Maybe there was a specific return you were looking for. If you are a technical trader there may have been some reason on the chart that you decided to walk away and these are both fine.
The problem is that many of you ( I am guilty too) walk away from a stock for no reason at all. If you have any experience with this then you know what I'm talking about. You may have set out for a 7% return only to find that you talk yourself out of the trade when it gets to 5%. You are still happy because you have a profit but you have just taught yourself to get out whenever you feel like it. How would you like it if your pet used the restroom anytime they felt like it? They were hoping to go outside but they talked themselves into going in the bedroom. Have a reason for your exit and try your best to hold until your trigger has been met.
2) Taking all your profit in one shot. This one is not so hard to master but study after study shows that if you take a portion of your position at a target that you have and then let the rest stay in the stock you actually end up with more in the long run. This is assuming that you then use a stop at your break even price.
This works from the day traders all the way up to the long term investors. Just because you think it's a great profit target does not mean the stock does. By holding some you are teaching yourself to look at other targets all while being in a strong, comfortable frame of mind.
3) Selling on the way down. This is, in my opinion the worst thing you can do. You will always be selling from a position of weakness and you will always be reacting to movement rather than controlling it. When presented with the opportunity to sell into your target do that. Do not be the person that says "well, lets see if it will go a little further", and then when the stock pulls back you run for the hills. This is a very "rookie" way to trade and you should avoid it as much as possible.
