Three Tips for Successful Take Profits

Take profits… that sounds good. First, because it means you did something right beforehand. Otherwise, the wins wouldn’t even be there in the first place. Second, it secures a profit that was previously only a book profit, a plus that could be quickly wiped out if the price changes direction again. But it’s not that easy if you want to do it right and only want to take profits when it makes sense and/or is necessary.

The three most important tips for taking profits
Every investor should already have had similar experiences. You sell a position partially or completely and then get upset because the price just keeps rising. This turns a positive move into frustration because the only choice you have is to watch prices rise or buy back at a higher price. So how to do it right? This guide will explain 3 tips that will help traders take profits efficiently:

1. Wins take care of themselves, and losses don’t!
Stop loss and take profit are used to lock in profits and limit losses. So, when things get hectic, when you have to expect large and rapid swings, you take advantage of a sell-stop-loss order. But simply dropping out because “20 percent is great” is unwise. Why? Because your gain is not an argument for the rest of the world’s investors to stop buying that particular stock. The stock market doesn’t care where you personally got into at some point. Moreover, your profit size will not break or stop an uptrend. Therefore, never consider the size of your profits from a trade when deciding whether or not to close it.

2. Accept that you don’t have a crystal ball!
Step one of any profit-taking strategy is: the future is unpredictable. You and nobody else can know for sure whether the price of a stock, an index or whatever you currently have in your portfolio is really “up.” Profit-taking is always a decision in an environment of uncertainty. So, you will never, under any circumstances, be sure that you hit the sweet spot to make a profit. If you accept that, you can deal with it more easily when a sale turns out to be a mistake. Thus, you focus on the heart of the matter: Avoid feeling like taking a profit at the wrong time was your fault and not just bad luck by keeping in mind some fundamental factors; these will enable you to achieve the best possible outcome.

3. Take partial profits? Why?
The fear of losing profits also includes the so-called “partial profits,” in which one sells only a part of the existing position. Partial profit-taking results from a combination of uncertainty and fear of a decline in achieved profits.
Either the Charts show enough and/or clear signals to have a relatively high probability of falling prices, or they don’t show them. It makes sense to get out of a trade if the former is the case. On the other hand, if the latter is the case, there would be no reason to sell even a small part.

Taking partial profits is the right choice when you are no longer sure of the trend. But when you are in this “state of doubt” as an investor, there is only one thing to do: make sure you can see the trend clearly again. This can be achieved in two ways:

• First, it is important to get the facts: Why is what’s happening now happening? What are the backgrounds? How can I classify the chart and market situation? Answering these questions and more can remove any doubt about the trend and thus make an informed decision.

• Second, if you don’t get sufficiently satisfying answers and still have doubts, it’s a far better decision to sell a position in its entirety than just a part. It is far easier to objectively analyze the situation from a neutral position. Your own open positions corrupt your perspective. For example, those invested in many transactions tend to follow positive news and opinions and ignore warnings. If in doubt, it is better to get out completely and start studying the market and charts without the pressure of open transactions.