May 14, 2006 at 11:24 pm | | Comments 7

The Other Side of Discipline

The “D” Word is for both sides of a trade.

While taking small losses is widely accepted as the way to survive in trading, good discipline will serve you well on the profitable side of a trade too.

TGB is a little stock which just gave us a huge upside pop in spite of it’s low share price. I recently listed this small gold stock in the “Momentum Movers” portion of The Bandit Broadcast stock newsletter with a buy point of $3.50.

TGB Buy Point $3.50 Click to enlarge.

The following day, TGB triggered for an overnight hold as a swing trade. It never looked back, running straight to my Minimum Profit Expectation level of $4.20 in just 5 sessions. That’s a 20% move in a week, and once it got there I knew just what to do.

TGB Take Profits Click to enlarge.

I had an intraday notice sent out to subscribers that I was taking profit into strength, stepping aside from the stock which had gotten extended and was due for a rest. The advance had been quick and constant, but it was too far too fast. I wasn’t interested in enduring a pullback which appeared imminent.

Taking profits there proved to be a good move.

Just 3 sessions later on Friday, TGB had pulled back 25% off the highs. What a nasty retracement! I was certainly glad to be out of this stock and so were subscribers. Let’s hear it for taking profits!

Here’s a look at TGB as of Friday’s close:

TGB Retracement Click to enlarge.

Trading will always bring both successes and failures our way, but our job is to manage them properly. We all know to keep losses small, but sometimes it’s hard to take profits when a trade is working so well. It was tempting to stay in TGB and really try to push it to the limit to see just how much of a gain it could provide in a short amount of time.

But then I was reminded of my recent motto in the choppy market: Take Profits Into Strength.

So, I let my discipline determine my exit. Riding winners and cutting losers is the ideal way to approach the market, but remember that even the winning trades must be closed out too in order to pay yourself. When your stock reaches a profit target, take some profits there and consider whether an all-out exit is best. It may be that you’ve already nailed the trade and it’s time to move on to the next profit opportunity.

Jeff White
President, The Stock Bandit, Inc.

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  1. Jeff

    What is your rule for triggering an overnight hold? Thanks.

  2. Hello Vladimir,

    For me to take home a position overnight it must not be a loser by the closing bell or have scheduled news prior to the following session. I have additional criteria for holding positions at which you might find helpful. Thanks for your comment!


  3. thanks for the advice, Jeff

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