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How to exit trades

QuestionsCategory: QuestionsHow to exit trades
Ivan Getov asked 5 months ago

Good morning Pat, I am so happy and grateful I found you from Trader Lion interview, and after some time observing your work I have decided to join Mission Winners. Your way to explain things about the market is extraordinary thanks for that. I have been trading Pivots for around 3 years with Dan Shapiro Mentorship, so the way they work I am supper familiar but the way you select the stocks is super unique and I would like to learn a lot, I have no problem to enter the stock at the right pivot point but where my problem comes is where to take the profits, and here is where my  question starts, now after entering a CLEAN AND SIMPLE BASE where should I take first, second and so on profits and what percentage of the original size I should be scaling out of the position. I would like to use PHM as an example with an entry 89 from 12/01/2023, and a size of a 100 shares. And Patrick I have a daughter she is turning 6 in April and if you could explain this as you were   expaining to her. Thank You very much Sir.

1 Answers
Avatar photoOwen Staff answered 4 weeks ago

Good morning,

Thank you so much for your kind words and for sharing how you found Mission Winners through the Trader Lion interview. I’m thrilled to hear that you’ve decided to join our community and that you appreciate the way we approach the market. Your experience with trading pivots is invaluable, and I’m excited to help you fine-tune your profit-taking strategy.
Let's dive into your question about taking profits using PHM as an example with an entry at 89 from 12/01/2023 and a size of 100 shares. Here’s a step-by-step guide to explain this, as if I were explaining it to your 6-year-old daughter:

Explaining Profit-Taking at Technical Points

  1. First Profit Taking:
    • Imagine you have a toy that you love. As the toy (stock) becomes more valuable and reaches a high point that might not be sustainable, it’s a good idea to share a little bit of it with your friends.
    • When PHM runs up from your entry at 89 to a point where it looks overextended on the chart (such as reaching a key resistance level or showing signs of slowing momentum), sell 20% of your current holdings (20 shares). This way, you lock in some profits while still holding most of your toy.
  2. Second Profit Taking:
    • As the toy continues to increase in value and reaches another high point that might be difficult to maintain, it’s wise to share a bit more.
    • If the stock continues to trend higher and hits another technical resistance level or shows signs of a pullback, sell 20% of the remaining shares (16 shares). This ensures you’re enjoying more of the gains while still holding a good portion of your toy.
  3. Third Profit Taking:
    • If the toy's value goes up even more and hits yet another point of resistance or shows exhaustion, sell another 20% of the remaining shares (13 shares).
    • By this stage, you’ve locked in a significant amount of profit while still keeping some of your valuable toy.
  4. Letting It Trend:
    • For the remaining shares (51 shares), let’s continue to enjoy the ride. Imagine you’re flying a kite, and as long as the wind keeps it up, you let it soar higher. We hold on to the rest of the shares as long as the stock is trending well, allowing it to reach its full potential.
    • If at any point the stock shows signs of reversing or breaking below key support levels, you can decide to sell more shares to protect your profits.

In Summary:

  • First Profit Taking: Sell 20 shares at a technical resistance level or when the stock shows signs of slowing momentum.
  • Second Profit Taking: Sell 16 shares if the stock continues to rise and hits another technical resistance level or shows signs of a pullback.
  • Third Profit Taking: Sell 13 shares if the stock reaches yet another point of resistance or shows exhaustion.
  • Letting It Trend: Hold the remaining 51 shares as long as the stock continues to perform well, selling more if it shows signs of reversal.

I hope this explanation helps clarify how we take profits based on technical points in the chart. By focusing on key resistance levels and signs of momentum shifts, we can strategically lock in gains while giving our winning stocks room to grow.

Thank you for being a part of Mission Winners, and I look forward to seeing your continued success in the market.