Partial Profits or Trailing Stop?

There are two ways to lock in profits in my opinion. You either take partial profits, until you are all out of the position OR you use a trailing stop. Now, how do you decide which strategy is the best option to maximize profits safely? This is where technicals and intra-day fundamentals come in.

Here are a list of things I look at in order to decide how I will protect my profits.

  1. Volume: To me this is huge. If I see volume, it will give me a lot of confidence to stay in the trade longer instead of taking profits early. You would move the stop higher (or lower if short) after every time a new leg is established.
  2. Relative Strength/Weakness: If I see a stock outperforming (or underperforming if you are short) the market,its sector, or its peers, then it will give me more confidence to not take profits and move my stop slowly up.
  3. Above VWAP/Moving Averages: If I get long a stock, and it is below its VWAP or the Moving Averages, then it will cause me to be cautious and take profits early and into the VWAP/MA’s.

The Charts

Below you will find examples from today (Feb 28) of both taking partial profits and using trailing stops.

1) $HOC: I was watching HOC at the very important $57 support level that was not only held the day before but was also holding intraday. So I got long there. However, I was playing the support off of a failure to hold new highs. That usually is not bullish. So I knew my upside was limited. If I saw volume, it would’ve gave me enough confidence to stay in the trade and use a trailing stop. However, I took profits (in 2 transactions) for an average of about +1. The volume as it was going up was abysmal to say the least. Yes, it was being bid up, but I did not see anything to give me conviction for a longer trade2hold.


2) $NBL: Now, I did not trade this, but I saw it early and passed it up for no reason whatsoever. However, this is how one would’ve traded it. You get long initially as it breaks above 90 with a 0.20-0.25 stop. As it makes new highs, you would move your stop up. After the first leg, I would move my stop to break-even.  After the second leg I would move my stop up to +0.50. After that, you watch the tape and see if you see weakness. If you don’t, then you just keep moving your stop up to below the most recent support.  This consolidated nicely for 2-3 hours and then finally made its last leg up in the final minutes of trading where you would have taken profits (if you are day-trading this).


Final Thoughts

To maximize profits, a trader needs to know when to take them and when NOT to. We all struggle with taking profits to early or to late. However, by using the aforementioned strategies, we do the best we can to lock in the most profits possible.This also can easily apply to swing trading, however, with swings, there is the issue of gap ups/downs and overnight risk. One would need to adjust size and stops if you are going to hold overnight.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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