Profit Taking Strategy for Stock Market
Strategy for stock market: Taking profits is extremely important when trading. After all, you only make money when you actually close the position and take money off the table. The key question is: when exactly do you take profits?
So, right now, I want to talk about my favorite profit taking strategy for trading stocks.
Strategy for Stock Market
Let's say that you have a stock, and the stock is trading right now at $100. So you're buying the stock for $100, and let's say that you want to limit your risk to $200 based on a $10,000 account. You know me; I like to limit my risks to 2% of your account.
So if the stock goes down to $98, you're getting out. This is your stop loss. This means that you risk $2, right?
Let's say you're trading 100 shares. If you're trading 100 shares, this means that your risk would be $200. When you risk $200, you want to make at least $400.
Here’s an Example
Right now I'm trading SLCA. My profit target is that I want to make $10, meaning I want to risk $2 trying to make $10. So if it goes up to $110, that's where my profit target is.
The profit target here is $10 per share. And if you are trading 100 shares, this means the profit target is $1,000. Now, for me, that is a good practice.
So, the idea here is obviously that this stock here is going up. But here's the deal.
What happens if it doesn't go all the way up?
Here is what I personally like to do. If I'm risking $2, as soon as I make $4 I take half of the position off the table. If I’m trading 100 shares, as soon as I see $4, I sell 50 shares and make $4 per share.
This means that I'm making $200. So now there’s $200 I’ve taken off the table and noone can take these $200 away from me.
Now that I’ve sold 50 shares, I have only 50 shares left.
Here’s what I do with the remaining 50 shares.
I cut my risk in half. So, for the remaining 50 shares, I now only risk $1 per share. Previously, I risked $2.
So I’d move my stop loss to $99 and only risk a dollar. And this is only on the remaining fifty shares. I already took $200 off the table and now the remaining risk here is $50.
What does this mean?
I now have another 50 shares where I'm trying to make $10. So on the remaining 50 shares, I'm trying to make $10, meaning that I want to make $500, but you see, right now I cannot lose on this trade anymore.
And this is extremely important, right? Because I already took $200 off the table and now, I reduced my risk to only $50.
Worst-case & Best-case scenarios
I know this is a lot of math, but trust me, money is math.
So, if I’ve already taken $200 off the table, and I reduce my risk to $50... If this trade turns around, I still make at least $150.
I cannot lose on this trade anymore.
If everything goes right, this is where I’m making an additional $500 in addition to the $200 that I already made.
So I’m now trying to make $700 risking only $50. And you see...
This is the key to making money with trading
When you see profits, you've got to take it off the table, and then you start reducing the risk.
This is exactly what I did with my trades. I take half of the position off as soon as I see twice my stop loss.
If I'm risking $2, as soon as I see $4, I'm taking half of the position off the table. Now I am reducing my stop loss from $2 to $1, and at this point, I cannot lose any more on this trade.
Now I can relax, sit back, and don't have to worry about this trade anymore. If everything works out, I'm making $700 on this trade. If it doesn't work out, I still make $150.
Keep in mind
This example is for an account of $10,000. $10,000 means that on one trade, you make anywhere between one and a half to 7 percent of your account.
For me personally, this is smart trade management. It's a very relaxed way to trade because now you don't have to worry about it anymore and you still know exactly when to exit.
To see exactly what I trade, when I enter and when I exit, visit My Daily Trading Routine now! This 35-minute video is completely free for you to view.
This is my favorite profit taking strategy. Multiple profit targets. That's what I like to use. Taking money off the table and reducing my risk.
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