Day Trading World

Protective Stops while Day Trading - Part 2

Protecting Profits

The first thing we look for in a stock is a place to protect partial profits. These are most commonly at price resistance, either previous price resistance, whole and half number price resistance or moving average resistance. Most often partial profits are taken after a large morning price movement or in the last half hour of the trading day. Usually this will cover the stop. The rest of the position is held until reasonable expectations are met (such halfway to a new high from the entry price), at which time a trailing stops is initiated. Another way to take partial profits are after huge moves in a short period of time. After a large move in a stock you will typically see a pullback (or bounce in the case of a short), sometimes this pullback is short-lived, at other times it serves as the best price the stock will have that day. So to best optimize this move we want to get out of partial shares when this move appears to be nearing an end. This is usually when the pace starts to slow and even pause. Often the first time the stock will take a break before moving again in the same direction, but with each break the more likely the next will turn the stock around, at least temporarily. Often these pauses will occur at resistance and I usually protect partial profits at the first or second time I notice a stock will have trouble, depending on how strong I view the resistance as being. Let's say a stock is nearing a whole number like 75 and I am already up point or so in it... before it has even traded there I will place an order between 74 7/8 - 75 to sell part of my lot. By entering the order earlier I have a better chance of getting a fill.

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