Knowing when to exit a winning trade is one of the most delicate balancing acts in the stock market…
First, you have to find perfect setups…
Then, you have to enter at the right price point…
But if you don’t exit the trade correctly, all your profits can evaporate.
Ultimately, this comes down to a tough decision every trader will be forced to make at some point…
Do you hold runners, or book profits quickly?
Today, I’ll help you answer this question.
That way, next time you’re green on a position, you’ll know exactly what to do…
Holding Runners vs. Booking Profits Quickly
If you trade long enough, you’ll eventually find yourself in the following situation…
You enter a trade and you’re quickly up BIG on the position.
Then, you’re faced with a tough decision…
Do you hold out for a grand slam, or take the money and run?
I get these kind of questions all the time in Pre-Market Prep.
And the truth is, there’s no one correct answer for every potential setup.
But if you’re in the green and trying to determine when to sell, consider the following…
Not All Stocks Are Created Equal
First, my advice about holding or selling depends on what you’re trading…
If it’s a sketchy penny stock, and you’re up big, you should sell that entire position immediately.
Crappy penny stocks are known for “rug-pulling” traders out of their hard-earned profits.
Most of these companies lose money and have no viable products. The shares get jacked up on pure speculation. Sell it.
On the flip side, if you’re trading a real company’s stock — like, something in the S&P 500 — you should rely on your trading system, technical analysis, and personal rules to determine your exit.
Remember that it’s always safest to book profits while you have them.
But you also don’t have to book all of them…
You Don’t Have To Sell All Your Shares At Once
Most great traders, like Jack Kellogg, are masters at scaling in and out of positions.
Selling off your shares in chunks allows you to take some risk off the table and lock up safe profits while still having some skin in the game.
Don’t think you have to enter and exit your entire position at once.
Start considering a scaling approach to entering and exiting trades.
Base The Decision On Your Initial Price Target
You should always have a price target where you plan to exit … before you enter the trade.
For example, I’ll write in my trading journal “I’m aiming to trade Stock XYZ from $4.10 to $5. If it drops below $4.00, my stop loss will get triggered.”
Then, if the stock hits $5, I stick to my rules and book my profits.
Don’t go against your initial price target, thinking the chart will pull a miracle for you…
Make a trading plan and stick to it.
4 Considerations for Exiting Winners
Beyond the basics, here are four more crucial considerations for your trade exits…
Trailing Stop Losses
When exiting trades, a useful tool is the trailing stop loss.
A trailing stop adjusts with the stock’s price, ensuring that if the stock price goes up, the stop loss moves up too.
This helps you lock in profits while letting the stock move up.
It also lets the stop loss do the work for you, so you aren’t forced to monitor the trade every second of every day.
But if the stock price drops by a set amount, the stop loss kicks in, securing your profits.
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Watching Market Conditions
Keep an eye on the broader market conditions. Breaking news, economic indicators, and market sentiment can all affect your trade.
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But sometimes, outside factors might make it smart to exit a trade earlier than planned.
For instance, if bad news hits your sector or the overall market turns negative, it might be best to take your profits sooner.
Conversely, if the market is absolutely ripping to the upside, you may want to hold your long positions.
Learn from Every Trade You Make
Every trade is a chance to learn.
Record details of your trades, including why you entered and exited, the results, and what you could do differently next time.
Over time, this practice will help you identify your mistakes, improve your strategies, and make better decisions.
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Keeping Emotions in Check
Keeping your emotions in check is one of the toughest parts of trading. It’s easy to let greed or fear take over.
Fear can lead to exiting a position too quickly, while greed can lead to “holding and hoping.”
Try to remove emotions from your strategy. Optimism, hope, complacency, and anger are your worst enemies.
After all, there’s a good reason hedge funds spend millions of dollars on high-frequency trading algorithms … they have no emotions.
Be objective about your setups. Do your best to trade like a robot.
If you start thinking about these factors when you exit positions, the final decision can become much simpler.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade