Protecting unrealised profits?

[korrupt_1]

My trading plan:
Invest 10% of capital on any one stock
Stop loss of 20%
Target 50% profit level

So I enter a trade and buy 1000 XYZ shares at $1.00. This represents $1,000 of my $10K capital. I also set a stop loss of 20% meaning that i set to close out the trade if it hits $0.80. I will also realise my profits when it hits $1.50.

Ok, so XYZ goes up to $1.10.. i'm now sitting on an unrealised profit of 10%. What do I do now? Should I set a stop at $0.90 or $1.00 or do nothing. What if it dips below $1.00 again, I just turned a profitable trade into a losing one.

What happens when XYZ gets to $1.49 - 1c short of my target, then it tanks? Is there a strategy or trading plan to protect my unrealised profits?

What if it hits $1.50, should I close out - as per my trading plan - or let a 'winning trade run' and risk the fact it could go belwo $1.50 again?

 

[Timmy]

Hi korrupt_1

The answers to all of those questions you asked are all a part of your trading plan.

 

[fallenangel22]

Korrupt,

I agree you said it yourself in your plan. I am probably telling you something you already know but look up the term trailing stop loss.

 

[nioka]

Are you trading on a fundamental or a technical basis. Personally I would continue to update a fundamental analysis and make a decision to sell or hold on that basis. My guess is that the tecs would say to put in a trailing stop loss. Whatever you do stick with the plan unless the plan has let you down in the past. I'm not sure you have given enough thought to the plan or you would not have asked the question you have asked. Then again I'm sometimes wrong (as are most other posters.)

 

[tech/a]

Valid questions.

I think K is trying to devise the plan--hence all the head banging.

This is what I do,with my general method.
Once a trade reaches either 2/R or makes a higher pivot low,I'll move to B/E or the pivot low.That takes care of the initial risk problem.
However if neither occurs I leave it there provided the reason I took the trade in the first place remains valid.
If at ANYTIME a trade negates the reason I took it in the first place I exit.
(This can be any number of reasons).

Locking profit.
I do 2 things.
If a stock rises 30% in one day or 50% over 2 then I move the trailing stop to 2 ticks below the close.
If all is normal I will place a trailing stop,normally a pivot low if not to far away. But there are others I also use.(Parabolic etc--various settings).

 

[korrupt_1]

Thanks for the input so far.... really appreciate it.

So what you guys are saying is that i should trail my stop losses 20% below my curent unrealised profits? That explains what I should do if it hits $1.49.

In my hypothetical example, XYZ hits $1.10 with a 10% unrealised gain, I now should set my stop loss to $0.90 - limiting myself to a 10% loss only? how does this protect me from turning a profitable trade into a losing one... i mean i was up 10%... and now I run the risk of losing 10%? that's gotta suck cos I just commited an offence of rule #2 - never let a profitable trade turn into a losing one.

What would you guys do? leave stop loss at $0.80, move it up to $0.90 or move it up higher to break even?

tech/a: yes, i'm trying to devise a trading plan. for years, i've been trading without one - must be lucky or something cos it has been working fine (really fine!), but after talking, reading and listening to people in the industry, everyone is saying GET A TRADING PLAN OR YOU ARE TOAST!!!

 

[Boggo]

My trading plan:
Invest 10% of capital on any one stock
Stop loss of 20%
Target 50% profit level

So I enter a trade and buy 1000 XYZ shares at $1.00. This represents $1,000 of my $10K capital. I also set a stop loss of 20% meaning that i set to close out the trade if it hits $0.80. I will also realise my profits when it hits $1.50.

I see a number of problems here.

1. You are going to struggle with a $1000 investment, brokerage alone is probably going to eat 5% of that.

2. You need to look at a win:loss ratio of 2:1 minimum in my opinion, this means that if you are risking 20% you need to be expecting to make 40% on every second trade, believe me, it aint gonna happen.
Do some figures on a 5% stop loss and let that determine how much you invest on each trade.

Ok, so XYZ goes up to $1.10.. i'm now sitting on an unrealised profit of 10%. What do I do now? Should I set a stop at $0.90 or $1.00 or do nothing. What if it dips below $1.00 again, I just turned a profitable trade into a losing one.

In my opinion (and my method) the aim is to get the stop loss up to your breakeven (including brokerage) while maintaining a safe (ATR x 2 or similiar method) distance from the actual price.
If you can get the stop loss to breakeven you cannot lose (except for slippage maybe).

What happens when XYZ gets to $1.49 - 1c short of my target, then it tanks? Is there a strategy or trading plan to protect my unrealised profits?

Move your stop loss point up as the price rises.

As an exercise, have a look at the charts of both BNB and MRE, now lets say you bought both in August 2006, are you still holding them or have you made a profit and are out of both.

Anyway, thats my

Mike

 

[tech/a]

Some good points Mike.

So what you guys are saying is that i should trail my stop losses 20% below my curent unrealised profits? That explains what I should do if it hits $1.49

No.

 

[Boggo]

korrupt-1, go to the Stator site and download their free "Money Management Calculator"

http://www.stator-afm.com/downloads.html

 

[So_Cynical]

My trading plan:
Invest 10% of capital on any one stock
Stop loss of 20%
Target 50% profit level

Hey Korrupt_1...I'm following a very similar plan to u....i'm not worried about giving back a
10% profit, it only starts to hurt at above 20% for me, u know "don't sweat the little stuff"

I have a trailing stop from 19% and will sell at above 25% depending on many factors...and
leave the profits in, also my position size is a minimum 4k, this way i "build" a position in
stocks i like while protecting my capitol and locking in profits as shares.

In the past ive given back big % profits and i swore to never do that again.

 

[disarray]

use the chart. identify lines of support, resistance and trend, and base your stop loss based on market movement. only move it up, never move it down. the timeframe you wish to trade is also very important - wider stops for a long term view, tighter stops for short term.

once the stop is at break even you can take the opportunity to experiment, it may cost you some but learning experience is good. i am stuffing around with my stop losses at the moment trying to find what suits me and i'm having a lot of fun.

if you want to maximise your investment you MUST watch the chart and have at least a passing knowledge of technical analysis, but you really only need the common sense stuff. you're playing a chaotic system, it pays to be flexible, don't be too rigid with your numbers.

 

[MRC & Co]

I personally, use a discretionary approach to trailing a stop.

As said above, using lines of support and resistance (I also use both these for price targets occassionally), along with range of the bars, close and volume. Only real other thing I look at are RSI divergences. Also take note of traditional chart patterns forming as the trade ensues.

However, I am looking at trying out an ATR (Average True Range, look up Van Tharp, Korrupt) stop at the moment, based on a short period MA (maybe 10?), to take into account the rapid changes in volatility seen at the moment.

Focusing mainly on swings at the moment.

Cheers