Short Term Profit Taking Considerations

by nycxjz

Profit taking. You’re up a large percentage and you’re afraid that the market will take your profits away as it’s done many times. You’re also afraid of selling too early and watching your position rise shortly afterwards, like it’s done many times. How can you decide whether to sell or hold? Well, here are a few things to think about.

1- Selling on the news- Some good news comes out for your position and your stock pops 6 percent in the premarket. Now you should consider selling. Why? Look at a recent examples- Boeing’s positive 737 Max news on Nov 18th. There was a large buildup in price in the days prior. (buying the rumour) The stock opened much higher at 223 and ended the session around 203. Example 2- Pfizer’s positive vaccine news yesterday. The market sold the covid recovery stocks on the news. Cruises, airlines, and hotels all got rocked.

2- When your position has run up an insane amount in a very short amount of time and may be due for a pullback. Example- snowflake- in 4 days this stock went from 280 to 429. Now it’s trading at about 317 a few days later. Any big moves like this should be viewed with suspicion. Example 2- XPEV- After nearly doubling in about 3 trading sessions, the stock plummeted from 74.49 to a low of 42.84 over the next 11 trading sessions. Example 2- Big Tech’s massive rally from March to September. It eventually got too hot and corrected. It’s December now and MSFT AAPL AMZN and others still haven’t recovered. (google is an exception).

Also note that big upward swings attract the attention of short sellers (think Citron and PLTr) and momentum traders just looking to pump and dump. When this happens, don’t think of it as an investment. You should be pumping and dumping too. The bigger the top, the bigger the drop.

3- Going into earnings or some big event that could have a big effect, especially highly anticipated ones and ones that could possibly go wrong. Example- (SPCE) Virgin Galactic’s failed space mission. It dropped about 16% or something afterwards.

4- When the uptrend in your position breaks. (technical analysis) Example- NIO- The uptrend broke around the 50 dollar mark. This happened a couple of days after the high of 57. About a week later, it reached its low of 38.43.

5-When your position changes to a consolidation period. (technical analysis) Example- Tesla- spent about 2.5 months consolidating from September to mid November. You would have been better off taking profits at a higher level of the range and either getting back in when Tesla broke out again, or buying back in at a low level of the range and just holding and waiting (for patient people) Example 2- Amazon and MSFT are still consolidating since September.

6-Consider selling when Goldman Sach’s upgrades a stock.

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Please note– I understand that many of the buy and hold investors here will be offended. But I also know that profit taking is something that many people here are interested in doing better. As I am.

With profit taking, there may also a time to get back in. Example- if you got out of tesla during it’s consolidation period, you would have rightly got back in when it broke out again.

With profit taking, you can try to get every dollar. But your focus should be on catching the big move. Worry more about catching the big move, rather than getting out at the very top. It’s more efficient.

Obviously there are plenty of counter examples to what I’ve said. And I’ve cherry picked examples to express my point. However my point is that these are things to consider in profit taking, not any hard fast rules.

I’m not a professional and I don’t have a lot of experience. I’m an amateur trader with a shorter term mindset who spends a decent amount of time trying to figure these things out.

There will still be many times when you sell too early or don’t sell when you should. It’s all part of the game. Don’t beat yourself up too much and try to learn from it.

Good luck with your trading.


Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.


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