When to Take Profit and Run

The market moves up over time, but during the time, there are many little upward and downward movements. Many times there are more downward movements than upward movement. Some say the market takes the stairs up and the elevator down. There are opportunities in both directions and sometimes the same day with the same stock.  It might not be profitable to play both directions as you might miss an entry or exit point killing profit.

When you do have the right trade, it is important to take your profit quickly as you

can not assume the stock will reach a similar level later in the day. Some of the most profitable trades only take 15 to 20 minutes as was the case with Apple on Friday. I was expecting a quick drop as it ran into resistance on the upside in the morning. I made the perfect entry as you can see on the first chart.

Expecting further downside instead of reading the price movement, I did not sell on time. I held until it turned into a slight losing position. After looking at the total picture, I don't know what I was waiting on since the put option actually doubled in value in that short time from 10:20 to 10:40am.

You can't expect it to go up for ever and you can't expect it to go down forever. 

There are signals that indicate a stock has made it's full run up or down and will change positions. This goes back to the point in my blog the other day in taking your profit and don't look to give it back. The house always wins in the stock market too. Your broker charges a commission and not a percentage of gains or losses. Maximize your money, because they are going to make money either way. The longer you trade successfully, the more money they make which is a good thing as long as you are making more money than you are paying them. When you invest properly, you should always make far more than what you pay them.

Reflection

Friday is the same day I made the great day trade on the stock that broke out. I knew that was going to be short lived and should expect other trades that make sharp movements to be short lived too. Apple moved just like that stock I don't care to remember the ticker symbol of with the exception that Apple moved in the opposite directions.

Sharp movements will have some spring back movements from the bottom to the

point they might not revisit that bottom. Based on the signals, you could have bought in the opposite direction with call options on Apple and I would have bought call options that expire next week instead of this week to allow the opportunity to hold over night if I wanted, but also because 205 calls were not going to be worth anything unless Apple broke well above 205 which was not expected at the end of a holiday week. And 202.50 calls expiring 7/5 cost too much. Therefore I would have bought 205 calls with 7/12 expiration date and here is the chart for illustration of entry and exit points.

The 2 charts of Apple are the same, just written up different. You can see how Apple took the elevator down quick and slowly worked up for the afternoon only to take another short trip on the elevator downward. One more chart I could have drawn up would have been when it capped at the top and made the movement downward. At the top, a 205 strike put could have been bought for around .20 and when it was at the relative bottom near close it was worth 1.11 approximately. There was a risky, but nice 5 to 1 return on your money in 30 minutes.