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Removing positions. As you all know we are big proponents of selling
half positions when you get
some room under you, but we want to chat about other ideas for a
minute. Our game plan is really
pretty basic. We find stocks and sectors that have a reason to move
higher and then try and jump on
them as the move happens, but as you know, when the market is
choppy, you can often be up 2 dollars
one day, and down a dollar the next in the same stock! So, unless
you want to use really wide stops
or do some other similar stunt, the best way we have found to
protect ourself is to remove half the
position from the portfolio once there is some built in profits.
Well, as you can guess, if you take half off the table one day and
then the stock blasts higher the
next day, if you remove the balance, you are then out of the play.
Well, what if it runs 8 bucks in
like five sessions? You'd have been out before the end of the run
right? Yes, and that stinks.
So what to do? Naturally you can use "trailing stops" but they don't
seem as effective as selling
portions at a time. Often when you are using trailing stops, you
just get stopped out of the entire
position and that hurts when the stock keeps going! So, here is a
suggestion. Try selling thirds, or
even quarters. Let's say you had 1000 shares of XYZ and the next day
it's up 2 bucks. Why not sell
250 shares and lock in that 2 bucks? Then, if the next day, XYZ
gains another buck or more, scale
out another hundred shares. Do you see the idea here? It lets you
lock in gains, while keeping you
in the play.
Look it's not perfect, nothing is. Sometimes you will sell a quarter
position or a half position and
then pout about it because the next day the stock crashes and you
wish you had sold it all, but I
have found no better way of nibbling at profits, while giving me the
best shot at being in the play
in a trending market. Just don't think you 'have" to sell half's.
You can sell half's, quarters,
thirds, 100 shares at a clip, what have you. Design it the way it
works best for you.
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