When Do You Sell A Winning Trade?

Getting yourself in the position to take profits is the main goal of everyone who trades the markets.

There’s just one problem…

Many traders find it very easy to get into the market — and very difficult to exit.

A number of factors influence this phenomenon, and some are based on a mistaken gambling psychology. That’s why it’s so important to invest with a plan and methodology, rather than gamble with the hope that results will fall in your favor.

A disciplined plan includes a selection process for identifying trading candidates and allocating an investment portfolio and risks appropriately. A major part of this is having a money management plan for both positive and negative outcomes. Know what you want to risk and what is a realistic goal based on what fits your trading personality!

The question of when to take profit varies based upon many factors. There is no one right answer. Investment strategies, time horizons, and personal goals will all impact your exit plan. Some don’t plan an exit at all and “let the winners ride” (whatever that exactly means). For others, it makes sense to lock in gains and protect profitable positions.

Some investors may be looking for a small $100 profit on a trade to exit. This modest expectation can add up with a $100-a-day profit, totaling nearly $25,000 in the course of a year. Others may have higher goals and will not act at all when their position is up only $100.

Developing your risk/reward ratio before you buy impacts the execution of an exit strategy.

Many traders do not want to sell simply due to the fear of missing out. Traders seem almost willing to lose rather than missing that potential home run play. Being out of the market is as uncomfortable as losing money!

Experienced investors often talk about how important trade management is in their plan.

One of the most successful investors of all time, Fidelity’s Peter Lynch, measured investments in baseball terms. Singles were modest profits, while a “ten-bagger” was that elusive, once in a lifetime profit. Here’s the trick: Frequent consistent winners can often give you a better chance of being in position for that big winner.

Once you’re sitting on gains, you have many possibilities to adjust your risk. Many traders move their stop losses closer or to break even to lessen exposure. Others take some profit by exiting part of the position and let some of the trade continue for greater returns. When trading options, hundreds of combinations of adjustments are possible to minimize further downside.

You best bet is to take some money off the table. Moving a stop or exiting some of the position is part of remaining disciplined. With the advances in electronic technology, opportunities are abundant for those with the skills and patience necessary. As hard as may seem at the time, there is no financial harm in missing out on an investment.

A focus on managing a successful trade to maximize the results is the final part of your trading plan. The answer of when to exit is personal. Traders have different account sizes and risk tolerances. But we all have the same goal: to make money!

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

Chart of the Day: Another week, more gains for the S&P

Greg Guenthner

Today begins out last week of “summer” before Labor Day weekend and a return to more (potentially) wild market action.

As I’ve noted for the past couple of weeks, the market is getting frothy and the popular tech stocks won’t rocket higher every day until eternity. They will eventually correct, and we will hopefully see some rotation into some other areas of the market.

Don’t get me wrong — I have nothing against the mania in the mega-cap tech stocks. But as traders, we can’t just blindly buy an overextended stock simply because it’s blasting higher.

That’s a “strategy” that will eventually lead to disaster…

Still, the large-cap stocks are putting on quite a show. The S&P 500 marched higher once again on Friday to cap off a strong week. The week began with a gap to new all-time highs, and the momentum continued through to the weekend:


As of Friday afternoon, the S&P had posted gains for five weeks in a row. That’s an incredible streak — and another reminder that we should prepare for volatility as the new trading month approaches.

— Greg Guenthner

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Alan Knuckman

Alan hails from the home of options trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT). Beginning with his days on the floor, Alan’s worked with all aspects of the options markets for the past 25+ years.

Transitioning from a clerk to a floor...

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