The fine line between success and greed

[#1]

You hear a lot on this forum about exit strategies. But while they're actually pretty easy to implement when you're losing money, I'd be interested to hear from some of you how you decide when to exit a winning share. Other than the long-term investment approach, I'm guessing the safest way is to set a profit target and get out when you hit it. If so, what percentage gain do you reckon constitutes a 'balanced' profit target?

[CHATTYCHAT]

Just an opinion - maybe to trigger more scientific responses: answer to your questions depends on your time horizon. Ex: should concensus expect a 30% rise within 12 months and you reach it within 6 months, some fluctuations will follow, which might lead you to sell off half the holding, then buy in again when there is a drop. However a 'Winning share' will most probably fall into your investment portfolio and is excluded from the trade scenario. As to a 'balanced' profit target, I believe there is no such thing, it's like asking 'what is the reward for risk?'

[john_1]

It takes 8 trades with a return of 10% or 5 trades of 15% to double your money.... I say this because when I stated trading warrents all I took was 15% at a time. no matter what, and I have never been as profitable.

[scandal]

Assuming that a stop loss is in place at purchase. I tend to let it run past the forecast profit and let the stop loss take me out (should have done that with NHM - bahhh greed)but on some ocassions i get stupid and want more (my vice there it is out)...

[saash]

I've been battlling with this dilema myself. Yes, was easy with the losses. Then I kept holding too long, and missing the trend. Then I got frustrated and set a very low % return target and kept selling too short. Now I started learning a little Technical Analysis and I plan my exits at the next anticipated resistance and that is working the best so far. But I'm still trading shares, not derivatives - yet.

[SimonPB]

point is to try and squeeze as much profit as possible. Selling too soon is a problem, one gets a few massive trades a eyar and these make a decent year into an excellent year. Easier said then done - but I never just sell, I wait for an exit signal and that's generally at stop loss (often lower low on EOD data).

remember the silver story, two brothers were bullish on silver and got in around $5 and exited at some $11 - but silver peaked at over $50!

[#7]

I find it easier to exit trades when they have reached levels of significant resistance; that way the exit is governed by where the trade is, rather than what your actual profit is. There's little point in following a share up, and down again unless you take a fairly longterm view. The trick is to have your exit target level pre-planned. Usually, the resistance level must correspond with a worthwile risk/reward ratio. Anything between 15-30 percent is, I figger, a good target, but smaller bites will also do, provide the risk justifies it. ie - small exposure, modest gearing, and high probability.

[555]

Worth a read.... http://thebullandbear.com/articles/2005/1105-selling.html

[john_1]

Gravy you are spot on, but how many of you doubled your money last year? How many of you made, and gave back 10% =8 times, I know I did.

[JohnnyCash]

Recently finished Trading in the Zone by Douglas again. Im forcing his suggestions into my trading plan and it is all based on -
at any given point in time anything can happen! So I now look towards trying and selling in the following stages.
1. As quick as possible after entering a trade to sell engough to cover all trading costs after which my entry price becomes my stoploss.
2. Let the balance ride it out with a stop moved up to the next lower low.
That way you get out of all risk in a trade as soon as possible and then your mindset changes completely and allows you to objectively ride it out all the way....

[#11]

That sounds fine cash but what do you do in case of losses

[JohnnyCash]

The nature of the question was around when making profit so I just felt it unnecessary to cover a concept that's not under discussion. Levels of reading leave a lot to be desired mmmm??

[#13]

Problem with Dougie's system is that it is labour intensive - you need a lot of things to go your way, and you have to spend a lot of valuable gardening time watching shares and making your exit and entry trades, to take your initial profits.

[JohnnyCash]

Agreed. Am just saying there are concepts worth applying in his book and using alerts on ost works fine for me? So no forcing into watching positions like a hawk, that just comes voluntarily!

[john_1]

Thing is you are always most at risk at the point of entry. as you are the furthest away from your stops and your profit target.

[JohnnyCash]

Agreed, and it is setting an adequate stop that is soo important! A stop that will not shake you out unncessarily but will take you out if your trade is wrong! That's the dilemma! U enter a trade and the prices starts to drop all the way down by 10%. Is it just noise, or is it a new trend or bad news coming? A stop of 8% would take you out and a stop of 11% would keep you in. Subsequently the share reverses and shoots up.....
Just happened to me recently on Aveng. Got in last week on signal @ 5340, stop 4920. 2 days later 4920 alert triggerered and by the time I got to the site was back at 5100, so just a blip. AVeng then continued to slip back to under 5000 and on Tuesday rallied 8% and even more today......

[john_1]

This is a tough market.

[JohnnyCash]

One of the biggest problems with taking profits and taking profits to soon is that you then automatically start selling your winners and holding on to your losers. A mentality which is also doomed to failure.... Balance is the holy grail.....

[john_1]

True that. If there was one simple answer the market would be our bank account.

[SimonPB]

John, the market is our bank account. We just don't know the pin.