Take Profits Like ‘Big Box’ Stores

2021-07-22

At some point every trader wonders when to take profits.

This is generally very individualized, but there is a basic formula traders can follow.

Consider this…

Be like a “Big Box” store (pick any name brand you’re familiar with). What Big Box stores do is they anticipate consumer demand into the future.

At Simpler Trading we consider the example of Memorial Day. Because so many people will be grilling hot dogs the next Memorial Day, ‘ole Big Box anticipates this and buys hot dogs ahead of the holiday and takes advantage of cheaper prices at a time of less demand.

For this example, let’s say they get hot dogs for one dollar. Big Box stores up lots of hot dogs and then waits for the inevitable holiday demand to spike.

Big Box is then ready for the consumer surge and flips those tasty hot dogs for three bucks and pockets the profits.

Traders need this same mindset — getting into a trade at a good entry point.

That means not chasing moves (this week is a strong example). Traders who are chasing are like hungry consumers buying the hot dogs on Memorial Day at $3. There is no profit to be made at that time, only downside risk.

Prepare and plan to find a trade setup where there's some nice consolidation. Like when a stock has pulled back to the 21 period moving average in an uptrend.

Traders can anticipate demand will increase because the trend is to the upside. Once that happens, there is opportunity to sell into that next up move like Big Box sells hot dogs at a premium on Memorial Day.

Don't chase the surge in price. This is a plan to buy when the price is quiet, when it's pulling back. Then when the next wave of demand surges, there is the opening to offload “inventory” to the hungry buyers.

Preparing, planning, taking entries, and then “feeding” the hungry buyers offers a good way to make a living in the markets.

At Simpler Trading, we’re all about helping traders know more about how to time entries and exits, as well as overall market philosophy.

Why trade alone, when our community works to find those hungry buyers?

We Saw: Shaky action across the market —

  • Rumblings of oil crisis in the next few years
  • U.S. manufacturers reveal inflation costs at hand
  • Irony of more jobs yet jobless claims rise again

We’re Watching: How market handles wild price action —

  • Not so fast with any “dip buying” decisions
  • Which honey badgers look good into next week
  • Setups in: SPY, TWLO, WHR, LUB, CLF