When we started off trading, many of us came across the phrase “take your profits and run.” If you’ve ever been burned by a trade you may be thinking this is right on point. It’s a great way to protect your capital, but sometimes you’re only grabbing a minnow profit and end up missing the huge school of fish. If you do this often and combine it with losses you may have taken, your account may barely be growing. It may even be losing money because your losses are bigger than the profits you take in.
If you find this happening for your account, you may be letting the fear of those prior losses affect the new trade entries you’re in. A great way to not let emotion take control is to set profit target and loss levels both on the trade price and on the chart. Once you see the price hit a target, you could then look to take off a portion of the trade and allow the rest of the trade to keep going if the chart is continuing to show a move in your favor. A great example of a trade you may have taken profits too soon in is NFLX.
NFLX has seen a nice move to the upside recently, and on that first day of movement you might have already taken all your profits off the table. However, was there anything on the chart to tell you NFLX was going to reverse in trend.? If the answer is no, then why would you want to take the full trade off here. Instead continue to monitor the charts until you see a point where that reversal could occur. If you’re worried about losing the profits you hold, you can always look to set up a trailing stop order. This would allow the stop to trail higher with the price, but if we start to see it reverse or theta decay hurt the trade, the order will then trigger still leaving you with an overall profit. Hopefully this profit is better than what you would’ve taken if you closed out of the trade on the first day. So if you see an nice profit on a trade, and the chart still looks to be in your favor, adopt the mentality of our favorite blue fish Dori and sing to yourself “Just Keep Swimming, Just Keep Swimming.” Meaning, if the trade still looks good, allow it to continue to build a profit in your account until the chart reverses or a stop triggers.
John — As I write this from the airport, the Nasdaq is down 50 points and I’m watching the current buying off the morning lows fizzle a bit. Will it go positive by the end of the day? Or is it time for the markets to take a breather? While waiting for my flight, I read about the passing of celebrity chef Anthony Bourdain and remembered one of his many memorable quotes. “People who order their meat well-done perform a valuable service for those of us in the business who are cost conscious: they pay for the privilege of eating our garbage.” As it relates to the markets, traders who are maxing out their accounts to buy extended stocks here and hoping it all works out for the best are performing a valuable service for those of us who prefer to load up on the next reversion to the mean: they provide the weak handed panic driven liquidity that will drive price to our next entry points. With the markets extended, the SKEW high, and the 10 day moving average of the put call ratio showing that everyone and their mother in law is long, this is the time to protect what you have, not swing for the fences. Be patient and wait for the next good pitch.
David — For the past several weeks I have written about my bullish scenario for the S&P 500 considering the possibility that a downward correction ended on May 3rd. I continue to look higher and trade with that in mind. 2700 is the critical support level to be maintained for an immediately bullish view, but 2740 is key support, a break of which would be a strong warning. Closer by, the Voodoo skyline near 2761 has been touched and is mostly holding. Staying above this level will keep the focus immediately up.
Perhaps more interesting right now is Crude, which as I write just took a dive from its intraday high. There are still several scenarios in Crude, but one of them is very bearish and so long as today’s intraday high (66.24 as I write) holds, then I am going to look downward. Even more so should the June 5th low be broken.
Bruce — I am cautiously bullish on the market. If the S&P is able to make it above 2800 and hold then I think we will be seeing higher highs from there. Only time will tell, I look forward to what next week brings us.
Danielle — This week has been a great week, and I’m happy to say I’m out of most of my positions as of Friday. The Nasdaq made new all-time highs, and that gave us several solid moves in MSFT, INTC, ADBE, CRM, AAPL and XLK. At this point, the NQ is extended, and I am shifting my focus to the S&Ps and the Dow, which both have daily squeezes. The S&Ps are shaky because only certain sectors are participating, but I am focusing on a little bit of strength in oil and the IDB50. The darling of the Dow has been BA, which came through to make new all-time highs yesterday. From here, there aren’t a whole lot of new entries I’m stalking. I’m long MU and ADBE for a run into earnings. What I really need is a steady retracement in the NQ to the 21 EMA so that I can load up all of my favorite NQ names prior to their earnings reports in July. Until then, I’ll be on the lookout for pockets of strength and honey badgers, as well as the weekly squeeze candidates we discussed last week.
Henry — Indexes traded well the past few weeks and we really had a nice combination of all my favorite setups. We had daily and 4 hour Squeezes that powered NFLX and AMZN. High short interest plays like SHAK that has been paying us and closed well then the addition of run into earnings plays like MU. This won’t last forever, but it’s great to be able to capitalize on it when it does. Next week is witching expiration so I’ll be looking for markets to be a bit more choppy and sell spreads at range extremes.
Bruce Marshall says:
See the original setup HERE
Expert: Bruce Marshall
Setup: Setup on BIDU
Update from Bruce: The Butterfly I have suggested for BIDU is already holding a nice profits. We still have plenty of time left on the trade and are still trading in between the wings. If you have not taken profits off here I still think this looks good to hold into next week.