Very often when the market is going through rapid up and down movements, where a large down day is followed by a big up day, it becomes confusing as to what exactly to do with some of your stocks. So let's say you buy something today and by the close it is a few dollars. You hang on to it and "hope" that tomorrow brings more? Do you sell it out, that "a bird in the hand is worth two in the bush?" Well no matter what you've read through various financial sites, your travels, the answer is: There is no right answer. How often have you been a few dollars just to see the futures red the next day and you lower than you bought to open? Many I'd bet. In the same way, how many times have you dumped with your $ 3 gain only to see the stock go for three more the next day? Many I would dare to guess!
In reality, it is only "safe" to hang on to a position in the overall market is in a full blown trend. But as we know them have not come very often. So just what we can do about the daily ups and downs? Well one thing you can do is basing some of your opinion on "support levels" and that will definitely help. For example, if you bought XYZ for 100 and it was 104 for you. If 100 was a recent support, you could feel pretty safe that in the worst case it should only get that support back. But if so, that wipes out your profits right? Yup.
The next logical thing is of course to your "trailing stop" where you
might in a stop order to sell it as it goes down to, say 102. That
will help, but again, if the next day the overall market is in a pout, the
open lower than that. That is not very attractive.
I've found over the years that keep themselves without a way in the game
giving up all your "potential" is the "take half" concept. The idea is not very deep, it's just one that has helped me over the years. The idea is simply this: At the end of the day, if you neatly on a position, sell half of it at the end. Remember folks, I'm talking about a turbulent market where you really do not have much idea about whether the market can still keep going or if it was a day not move.
So let's look at our example above. When we bought XYZ at 100 and it went to 104, let's say we have 500 shares. If we sell half
it, that's $ 250 X 4 = $ 1,000 profit per share profit. But, we still own 250 shares. So if XYZ goes up a few dollars the next day, we have just another $ 500. At that time we were still able to sell a half and lock in those profits or "let it ride" so to speak. But the best part of the idea is this, you have never cheated out of a profit.
Let's say that on day one XYZ is 100-104 and you sell your half. (250) shares. That gave us a 1K dollar profit. But let's say the next day XYZ not go up, but instead opens at 102 and head straight down. We can sell out against our original price of 100 and our profit is still safe. We could even let the past our original buy point decline a little bit like we had confidence in the stock, and we would not have a "losing position." (Remember that we are still a thousand dollars profit, so we "can" let XYZ fall down to 96 before the whole trade is a loser)
Even when the overall market goes up and down by various contortions, there are files that are on the way up. If you happen to be lucky enough to be in one of them, try using the principle of "selling half" near the end of the day and you have been "locked up" a guaranteed profit. If the market goes up the next day, you're still in the game, as the head down, you can sell your other half and still have a tidy profit on your hands. I find this works really well if you're doing 200 transactions in shares or 1000 shares trading, shares or options. When times are tough, give it a shot, you will not be disappointed!
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