Trading profits

[Medici]

As a newbe i am looking for some advice/information with relation to stock trading.
Appreciate if i some may advice on profit satisfaction (stop - sell trade).
Say, i have a stock trading for $10 and i am purchasing 100 shares. After a while (next day or end of the day) i can see that the stock is rising to $11.50 and possibly above.
Do i, sell the stock at $11.50 and be happy with the profit, or keep going to the point where the stock is start going down.
Should i introduce stop/profit line or introduce percentage profit on investment (say 5 %) ?

Another thing. Is there any program which i may use to track my investments so i can try dry run before jump into dip waters?

Regards - Medici

 

[Mr J]

You should know what you want to do with it before you enter the trade. You should have an idea of how the trade will play out, and how you will react to how it does actually play out. If the market suggests that it will continue to rise, you hold. If it doesn't, then you sell. You can always re-enter a trade, and you should always be in it for a reason. If that reason disappears, then you should no longer be in the trade. My opinion of course.

 

[esolano]

I'm a nube myself. Been trading for the past 6 months with only 20 trades under my belt so I wont go into too much detail as I don't really know much myself but this is how I would approach it.

1. Firstly, you really need to understand the reason behind the price jump.
2. Look at the history of the stock, go back 1, 3, 6 months or even 1 year to see if you notice a trend.
3. Deciding to pull out also depends a lot on whether or not you've reached your target and are satisfied with your profits.

 

[Trembling Hand]

1. Firstly, you really need to understand the reason behind the price jump.

That is irrelevant. And makes no diff to a $ gain.

 

[esolano]

That is irrelevant. And makes no diff to a $ gain.

I believe it is relevant as it might make a difference when deciding whether or not he should keep the stock. It's probably not a good idea to blindly hold a stock just because the price went up by a certain amount. Good to know the reason behind it. It might just be temporary market sentiment.

 

[Mr J]

1. Firstly, you really need to understand the reason behind the price jump.

The market pushed it higher, that's all that matters to me. The reason may be important for some trading styles, but it is completely irrelevant for others.

2. Look at the history of the stock, go back 1, 3, 6 months or even 1 year to see if you notice a trend.

That won't be of much use since he's talking about a day later, so he's probably swing trading, or perhaps an investor blinded by shorterm movement. This is the problem with not trading on a certain timescale with some sort of plan.

3. Deciding to pull out also depends a lot on whether or not you've reached your target and are satisfied with your profits.

For some perhaps, but I do not think that is ideal. We should take what we can get, so if the market doesn't want to play, we should accept less. If it wants to give us more, then we go along for the ride. A plan is important, but it should also be flexible. Being satisfied with profits is nice and all, but we would be leaving quite a lot on the table. I don't know about you, but I trade to profit, not to feel satisfied. Besides, greater profit gives me greater satisfaction!

 

[esolano]

I guess its all subjective and also depend a lot on the individual's personality. As I said, it's my approach and so far I've been lucky enough to have had some success with it.

 

[Krusty the Klown]

As a newbe i am looking for some advice/information with relation to stock trading.
Appreciate if i some may advice on profit satisfaction (stop - sell trade).
Say, i have a stock trading for $10 and i am purchasing 100 shares. After a while (next day or end of the day) i can see that the stock is rising to $11.50 and possibly above.
Do i, sell the stock at $11.50 and be happy with the profit, or keep going to the point where the stock is start going down.
Should i introduce stop/profit line or introduce percentage profit on investment (say 5 %) ?

Another thing. Is there any program which i may use to track my investments so i can try dry run before jump into dip waters?

Regards - Medici

From what you have written, it sounds like the best approach for you would to read some books on trading, it will help you clarify the above points, and help you identify exactly what you are trying to achieve - profit wise.

Everybody trades and invests differently and you have to work out what makes you feel comfortable, if you are not comfortable with something, or it makes you nervous or anxious - don't do it.

Your local library is a good start if you don't want to fork out some cash. Also spend a lot of time reading through the threads on this site, it will also answer a lot of questions.

For testing, I think www.tradingroom.com.au has watchlists or portfolios you can use to paper trade. If not google "watchlists" and see what you get.

 

[Medici]

So far i am with Mr J.

I may have a stock already for a while and when it is going up, probably this would be my closely monitoring movement as i trade for profit (is this what day traders are doing - concentrate on profit ?)

 

[beamstas]

I guess its all subjective and also depend a lot on the individual's personality. As I said, it's my approach and so far I've been lucky enough to have had some success with it.

I think im a little slow
Can you explain to me how knowing what caused the price to move makes you more money?

You can go broke taking profits and you can't make a big profit by taking a small one

 

[MRC & Co]

I think im a little slow
Can you explain to me how knowing what caused the price to move makes you more money?

If your a chart trader (or order flow reader), you won't care. Though, many will still trade the news, which will mean they will have to watch not only the data in relation to expectations, but how price moves beforehand to see if it is being factored in already. Add to that, 99% of proprietary scalpers will trade news.

If your a global macro player, that's all you will care about.

Different timeframes, different styles, both work.

 

[beamstas]

If your a chart trader (or order flow reader), you won't care. Though, many will still trade the news, which will mean they will have to watch not only the data in relation to expectations, but how price moves beforehand to see if it is being factored in already. Add to that, 99% of proprietary scalpers will trade news.

If your a global macro player, that's all you will care about.

Different timeframes, different styles, both work.

I disagree
I'll tell you why

Price went from $10 to $11.50

It doesn't matter why it did that, that's old news.

I'd be looking at new news, and trading off that. (If i did infact look at news)

 

[MRC & Co]

I disagree
I'll tell you why

Price went from $10 to $11.50

It doesn't matter why it did that, that's old news.

I'd be looking at new news, and trading off that. (If i did infact look at news)

Yes, new news is what I am talking about.

But old news can be useful if you are trying to put a market into context (which will help you establish conviction of where price will move next, by trying to create a thesis by which the market is operating and apply it). For example, the recent rise in bond yields (fall in bond prices), was bought by many hedge funds. Why? Because it was a sell-off, in a market which was most probably heading higher. Why was it heading higher? Because that is the way sentiment was heading, as revealed by bid/cover ratios, deflationary fears and the FOMC statement whereby there would be no rate rises in sight. If you were just reading a chart, you would see it as more likely a shorting situation or one whereby you should stay on the sidelines.

Different approach, different timeframes. All can turn a profit.

Note: Of course though, most don't have a clue how to trade news and should therefore forget it.

 

[beamstas]

Cheers
Thanks MRC

Brad

 

[dirkdiggler444]

A few people had negative views on Esolano's idea of understanding why the price of a stock changed. I also agree that it adds more value to the trading decision if you understand what caused the move.

A few people here have said it doesn't matter. bottom line is price moved, therefore you take profit. But thats the whole point and the orginal posters question, do you take profit or do you hold out for even higher SP rises and take even more profit......

well if you understand the cause of the price rise (usually only relevant if the SP change is riding the back of a recent announcement) then you can use that to your advantage in deciding when to exit a position.

Example one - AGO - the company regularly made announcements of increasing iron ore resources as they plodded along with their exploration and drilling program. After most announements, the SP would spike briefly, and then fall back. This happened many times, and once you recognised the trend, you knew if you got in and out early, you could take advantage of a quick SP increase before it fell again.

Example two - CTX - announced the purchase of Mobil retail chain - SP went up on the day. It was a big deal to the business community. It was on the news. People saw it, thought they would get in on the action. The price went up the next day, and the next day. sort of herd mentality, but the prospect of CTX growing by acquisition turned many people positive on the company. So once it was on the news, you know it pays to hang onto them till the hype dies to rake in that extra profit, which a move of something like $10 to $13 over at least 3 days of trading from memory.

SO hopefully people can see my point just from those two examples, that by understanding what make the SP move, it can give you more mental ammunition to decide how long to hold before taking a profit. But after saying all that, it only really helps if the price rise is based on news. If a stock jumps 10% for no apparant reason, then obviously knowing why it jumped is of no use, because there is no real "why" except for the fact that buying pressure was greater than selling pressure.

 

[beamstas]

But after saying all that, it only really helps if the price rise is based on news.

Does the share price always go up on positive news and down on negative news?

 

[Sean K]

Does the share price always go up on positive news and down on negative news?

Of course beamstas!

 

[beamstas]

Of course beamstas!

I'm going to watch the news tonight, i'll make money tomorrow!

 

[skyQuake]

Just in case ppl didn't notice the tongue in cheek comments above, trading the news is fickle at best.

Buy the rumour and fade the news.

 

[kam75]

As a newbe i am looking for some advice/information with relation to stock trading.
Appreciate if i some may advice on profit satisfaction (stop - sell trade).
Say, i have a stock trading for $10 and i am purchasing 100 shares. After a while (next day or end of the day) i can see that the stock is rising to $11.50 and possibly above.
Do i, sell the stock at $11.50 and be happy with the profit, or keep going to the point where the stock is start going down.
Should i introduce stop/profit line or introduce percentage profit on investment (say 5 %) ?

Another thing. Is there any program which i may use to track my investments so i can try dry run before jump into dip waters?

Regards - Medici

All depends on what your trading plan says....before you enter the trade! What is the profit objective for the trade? Are you trading long term or short term?