Protecting profits and capital in a long position

[meganut]

Being totally new to this, I was after some ppls ideas on protecting profits once they rise and protecting capital if they fall in a long position.

I have read "Trading your way to financial freedom" by Van K Tharp (one of the most confusing books I have read, not really related to Australia, not enough examples, who cares about corn bushells in the US and is really for traders not those of us who prefer to go long and invest) but I need ppls ideas on where to set stops to protect losses and if I have a freak that runs (like a bull) how do I protect my profits?

Being a nut I just bought a bunch of shares with the amount of cash I had, but being the technologist I am I am big on research, so I spend countless hours researching commodities, markets, companies, EPS's P/E's and so on, so I believe I have picked some fine companies for future growth and profits in the right areas.

I am not prepared to just sit back and check on my investment in 12 months time, I like to keep tabs on my dough and if the timing is right and flog it of and buy back in (which I could have easily tripled my money since my first buy in mid December).

My shares are doing fine but if I had not been so loyal I could have made more money. Do I ned to buy a program worth 1750 bucks to do long positions and set stops or are we really just in it for the long haul (5-10 years) and hope for the best. I'd like to get the best out of my dough, as we all would, so how should I be tackling this for long positions and what can I read in order to enlighten my noggin ( in retard language) to help me along.

Cheers
FMG, BHP, FDL, MGX

 

[So_Cynical]

Re: Protecting Profits and Protecting Capital in a Long Position

U have "given back" profits same as me and pretty much all longer term holders.

I think the only real way to protect the profit is to take it...other wise your just
hedging against losing it via CFD's or Options.

The profit is still gone if u don't take it out...i reckon a conditional order
(stop loss) is the go when XYZ gets to the point where u start to think
u really should be taking a profit.

 

[Trembling Hand]

Re: Protecting Profits and Protecting Capital in a Long Position

I like to keep tabs on my dough and if the timing is right and flog it off and buy back in (which I could have easily tripled my money since my first buy in mid December).

My shares are doing fine but if I had not been so loyal I could have made more money.

Meganut.

There is nothing easier than looking at a stock in the past and seeing all the opportunities where you could of got in and out to make a killing. It all looks obvious in hindsight.

BUT there is not many harder activities than timing the market once you are in there trading live. You need to do a lot more reading as you have mentioned. You also need to figure out what kind of trader you are. You have mentioned Fundamentals but also about buying a charting package and trading your positions. You need to get a broad based of knowledge, by reading heaps, then specialize on something that interests you.

Do a search of threads here for recommended books. And be willing to spend some time learning. If it looks all to easy now don't worry that will change

 

[Trembling Hand]

(which I could have easily tripled my money since my first buy in mid December).

Tripled

Are you using leverage??

If you are and asking the questions that you have just asked. You could/will be running into some serious problems??

 

[meganut]

Tripled

Are you using leverage??

If you are and asking the questions that you have just asked. You could/will be running into some serious problems??

No, no leverage, just the stocks I picked took off at the right time, as I haven't been in the market since I got burnt in '87, I never sold when they took off thinking that they may go higher but now I'm not so sure I want to be along term holder but take my profits when I can like So_Cynical says.

 

[chilliaa]

Being totally new to this, I was after some ppls ideas on protecting profits once they rise and protecting capital if they fall in a long position.

I have read "Trading your way to financial freedom" by Van K Tharp (one of the most confusing books I have read, not really related to Australia, not enough examples, who cares about corn bushells in the US and is really for traders not those of us who prefer to go long and invest) but I need ppls ideas on where to set stops to protect losses and if I have a freak that runs (like a bull) how do I protect my profits?

Being a nut I just bought a bunch of shares with the amount of cash I had, but being the technologist I am I am big on research, so I spend countless hours researching commodities, markets, companies, EPS's P/E's and so on, so I believe I have picked some fine companies for future growth and profits in the right areas.

I am not prepared to just sit back and check on my investment in 12 months time, I like to keep tabs on my dough and if the timing is right and flog it of and buy back in (which I could have easily tripled my money since my first buy in mid December).

My shares are doing fine but if I had not been so loyal I could have made more money. Do I ned to buy a program worth 1750 bucks to do long positions and set stops or are we really just in it for the long haul (5-10 years) and hope for the best. I'd like to get the best out of my dough, as we all would, so how should I be tackling this for long positions and what can I read in order to enlighten my noggin ( in retard language) to help me along.

Cheers
FMG, BHP, FDL, MGX

Please dont take offence at this but are you sure you have the correct mindset to invest in shares. The first suggestion i think you should do is work out if you want to be a trader or long term investor. If you try to be both you will probably be neither.

 

[tech/a]

Please dont take offence at this but are you sure you have the correct mindset to invest in shares. The first suggestion i think you should do is work out if you want to be a trader or long term investor. If you try to be both you will probably be neither.

Good point.
Many long term investors have a short term trading mindset like the nutter here.
Most however short term traders become long term investors when Losses are so great that the pain of taking them is too much.

You only have 3 options.
(1) Win far more often than you lose.
(2) Win far more in aggregate than you lose in aggregate.
IE 10 loses at 5% and 1 win at 200% = happy.
(3) A combination of both.

(1) Is a short term strategy.
(2) Is a long term strategy
(3) Is a medium term strategy

None of the above is a zero strategy---the easiest and most commonly implemented.

 

[meganut]

No offence taken, I have the cash and I have the skills but I don't think I want to be a trader all i want to do is maximise my profits and protect my capital whether it is a long, short or medium position. I am already considering giving BHP the flick cos they are just going nowhere where other companies are.

And it is all about making money if i am not wrong!

And believe me, i can take losses, i just want to learn how to cut them short and let those profits run to quote about 900 books.

 

[Trembling Hand]

Good point.
Many long term investors have a short term trading mindset like the nutter here.

 

[meganut]

Good point.
Many long term investors have a short term trading mindset like the nutter here.

Now I'm offended!

But not one of all these smart people have really given me examples and ideas for the question I have asked!

All I ever wanted was plain, practical examples, I didn't need a lecture of how I am not worthy to invest/trade my money. I am sure 98% of all people on here are not software using day traders/swing traders, my bet is most are just like me, buy, hold, and set up some protection along the way!

 

[Trembling Hand]

Being a nut I just bought a bunch of shares with the amount of cash I had, but being the technologist I am I am big on research, so I spend countless hours researching commodities, markets, companies, EPS's P/E's and so on, so I believe I have picked some fine companies for future growth and profits in the right areas.

so how should I be tackling this for long positions and what can I read in order to enlighten my noggin ( in retard language) to help me along.

Nutta your question is full of contradictions. That is why you haven't been given an example.

You say that you choose your stocks on countless hours researching commodities, markets, companies, EPS's P/E's and so on.

Then it would seem that you are in for the long term. But then you are asking about trading out of your holdings on a short term time frame. Makes no sense considering you criteria that triggered your entry.

With that aside as for an answer to to Q's about stops do a search there is a lot on this already here.

 

[hangseng]

I use minimal software except advanced charting learnt literally through hours of rote, mistakes and wins.

I consider the use of software to make my decisions as a loss of control if not balanced with your own knowledge and intuition.

I balance my individual stock decisions with overall market movement and the stocks fundamentals. Market movement though is my main driving fore and since dong so has enabled exponential returns.

Don't fight the market, it is always right. Even if wrong, it is always right.

Holding forever I don't regard as sound. Just look at VRE right now or AED, if you sold 6 months ago you did well, if you still hold you may be close to broke.

I trade and think long term, that doesn't mean I don't sell to protect my profits. I do cut losses quickly (and I mean quickly) to protect capital where required.

 

[ROE]

I use minimal software except advanced charting learnt literally through hours of rote, mistakes and wins.

I consider the use of software to make my decisions as a loss of control if not balanced with your own knowledge and intuition.

I balance my individual stock decisions with overall market movement and the stocks fundamentals. Market movement though is my main driving fore and since dong so has enabled exponential returns.

What the hell is this? exponential returns?
so you make 10 percent this year...next year 10*10 = 100% return
the year after 10*10*10 = 1000% return? ... ridiculous

Don't fight the market, it is always right. Even if wrong, it is always right.

So believe in efficient market theory? why the hell buy stock? just buy the index

Holding forever I don't regard as sound. Just look at VRE right now or AED, if you sold 6 months ago you did well, if you still hold you may be close to broke.

These are not real investment stock, they just speculative exploration stocks
with no real moat, market penetration or capital to withstand a storm.
try holding these for last 10-15 years, WOW, CBA, WES, BHP,WOR

I trade and think long term, that doesn't mean I don't sell to protect my profits. I do cut losses quickly (and I mean quickly) to protect capital where required.

How can you trade and think long term? the sentence seem to be contradicting each other.

 

[meganut]

I use minimal software except advanced charting learnt literally through hours of rote, mistakes and wins.

I consider the use of software to make my decisions as a loss of control if not balanced with your own knowledge and intuition.

I balance my individual stock decisions with overall market movement and the stocks fundamentals. Market movement though is my main driving fore and since dong so has enabled exponential returns.

Don't fight the market, it is always right. Even if wrong, it is always right.

Holding forever I don't regard as sound. Just look at VRE right now or AED, if you sold 6 months ago you did well, if you still hold you may be close to broke.

I trade and think long term, that doesn't mean I don't sell to protect my profits. I do cut losses quickly (and I mean quickly) to protect capital where required.

Thankyou hangseng, finally someone who can just give me great POSITIVE ideas without the fancy rhetoric or indignation.

 

[hangseng]

I use minimal software except advanced charting learnt literally through hours of rote, mistakes and wins.

I consider the use of software to make my decisions as a loss of control if not balanced with your own knowledge and intuition.



What the hell is this? exponential returns?
so you make 10 percent this year...next year 10*10 = 100% return
the year after 10*10*10 = 1000% return? ... ridiculous



So believe in efficient market theory? why the hell buy stock? just buy the index



These are not real investment stock, they just speculative exploration stocks
with no real moat, market penetration or capital to withstand a storm.
try holding these for last 10-15 years, WOW, CBA, WES, BHP,WOR



How can you trade and think long term? the sentence seem to be contradicting each other.

Then you still have a lot to learn. There is no wrong or right way for everyone, learn to know ones self and you will begin to understand.

Flexibility and the ability to be restrained, nimble and to control your emotions when trading is imperative, along with being quite mental at times (that comes easy for me ).

If you can't comprehend long term thinking but the willingness to protect both capital and profits along the way then that is not my problem. There is nothing contradictory about that statement. My way is also not necessarily the way for others, it is definately not perfect and I am the first to admit I take risks. I not only trade stocks, I also trade indexes and forex.

Works for me, you don't have to like it nor do I particularly care if you do.

 

[bvbfan]

Looking to protect profits.

1- Depending on the stock you could buy put options on it
2- Work out the relative performance (beta) of your portfolio and hedge accordingly. This however is hard to calculate.
If on average your portfolio moves 2% for every 1% move in the XJO then you could buy put options against XJO (x2) upto the value of your portfolio.
eg if you portfolio is worth $50000 and XJO is 5000 you'd need 10x2 (20 contracts)

I hope my calcs are correct, its been a while since I did portfolio theory/hedging

 

[MRC & Co]

To answer the question, I sort of do take a longer term and short-term approach.

I firstly look for sound long-term fundamentals, I then try and use T/A to time my entries and exits (once the stock I like moves below "fair value"). Setting stops at nearest support and taking profits if I beleive the stock has reached "fair value". In moving my stops up as the share price rises, but still doesnt break through resistance (becoming support), is the part I find hardest to guage and is really just a guessing game I beleive. Any comments on this? (i.e. methodology used in moving stops upwards after the share price rises but still doesnt break a resistance point).

They are the very basics of my approach.

Any feedback welcome.

 

[korrupt_1]

Thought about hedging?

Short trades your stocks... if it goes down... well you're current long trades will lose value but your shorts will gain... likewise otherway around... this way you have 'locked' your profits in and doesnt matter what the market does...

Once the market has decided on a direction, you can release the hedge and continue trading from that position...

Although this idea would mean you to need to outlay the same amount of capital you've already invested... perhaps using CFD to hedge FPO's may be an option?

 

[MRC & Co]

This is becoming my most frustrating thing in this current environment.

I usually set stops at a pivot point or support. However, recently I have been making good profits without my stocks actually crossing through any resistance point (becoming my new support). Looked into setting trailing stops, but there appears no obvious way that really jumps out at me and appears reasonably safe without too many whipsaws. ATM Im only looking at using the trading range as support, however using this can be erratic and trigger a stop just from a large quick drop out of the trading range, which then seems to move back up into the trading range and continue on the trend...........

Any thoughts or simply one of those catch 22s? Leave stop at support/recent pivot and potentially loose capital or ensure you keep profits but are more prone to whipsaws?

Cheers