Do Not Preset Profit Targets

Do Not Preset Profit Targets

Analyzing profit targets and setting profit targets are two dramatically differ­ent functions. To arrange taking profits at a specific percentage gain is like cutting off your nose to spite your face. Unless an extensive statistical study has been made upon a specific trading entity, discovering what the average/median price move has been historically, then a lot of effort may be wasted. For most investors, it is difficult to find positions that will move in a profitable direction. If a trading program has been devised to identify high probabilities of a trend direction, then it should be utilized to its fullest potential.

When analyzing a reversal from a chart pattern, profit targets should be utilized for anticipating what the potential gains might be. That will be taking into consideration where the next resistance level might be. This analysis would involve trend lines, moving averages, Fibonacci numbers, or any other techni­cal indicator that might reveal the potential end of the next trend. Logic dic­tates that a bullish signal or pattern that has a potential of a 15% return is much better than a chart analysis that reveals only a 5% return. Use that analy­sis to decide which trade to enter.

Once entering the trade, do not let the target be the sole ‘sell’ factor. The candlestick signals remain the main factor for when to sell. A signal to sell the position may occur well before the target is reached.

The candlestick signals identify when a price reversal has occurred. Indi­cators can project the potential strength of the price move. Other technical factors can project potential targets. However, the majority’ of the time the signals simply indicate that a new trend is in the making. To interject a self-­imposed profit target greatly reduces the benefits that candlestick signals pro­vide. Once a price trend moves, which was bought based upon a candlestick buy signal, it becomes a relatively simple procedure to analyze when to sell. Identifying the candlestick sell signal should be the determining factor.

The time and effort of finding positions that are going to move in a profitable direction should not be compromised by a preset function that has abso­lutely nothing to do with how far the price will move.

Take Windfall Profits

The major benefit of interpreting candlestick signals is drat it tells you when buying or selling is coming into a position. You may not necessarily know why buying or selling is coming into the position but apparently somebody does. The smart money, or the money that has knowledge of a company or a trading entity, will be making buy and sell decisions based upon their knowledge. The graphics of the candlestick signals is the representation of that knowledge.

The results of that knowledge will create candlestick signals. Information from candlestick signals becomes a source of recognizing where buying and selling is occurring. They visually portray what is occurring. This often leads to being able to participate in situations where the signals indicated something major is about to happen. Essentially the signals position an investor to be in the right situations at the right time.

When a big price move does occur, do not be hesitant to take some profits immediately. Most investors are happy when their portfolio or a position pro­vides a 10% return annually. Getting a large price move, in a one or two-day period, warrants taking some profits. If stock price moves up 10%, 20%, 40%, or 100% in one day, sell half the position. Moving profits into your account was the purpose of being in the position in the first place. Could the price move higher? Certainly, and you will still make profits with the remaining half of the position. Will there be profit-taking after the first big move? Certainly, if so, you can formulate your strategy for exiting now with half a position. If you get a big move fast, take profits. Remember, greed has killed more men than lightning.