5 Tips To Help You Capture As Much Profit As Possible

by Greg Rieben March 10, 2019

If you've been trading or investing for more than a few months, you will more than likely have experienced the frustration of selling a stock way too early or hanging on far too long.

The most successful traders and investors get the absolute most out of their winners. As the saying goes, cut your losses short and let your winners run.

A profitable investment or trade is great, but maximizing your profits by riding a winner as long as possible increases your odds of achieving above average returns.

Here are 5 things you can do to increase the odds of capturing as much profit as possible:

1. Don't Arbitrarily Sell: Randomly selling a stock to realize a quick gain or because you think you'll be able to buy it back at a lower price, is a very common mistake among new investors.

Stocks that make new highs (especially all time highs) have the potential to attract more buyers pushing prices to loftier levels. An object in motion tends to stay in motion.

However, if your thesis for owning the stock is no longer relevant or the position has grown too large for the size of your account, it's probably time to take partial profits or trail a stop to make sure you lock in those gains.

2. Apply Simple Technical Analysis: Simple moving averages like the 10, 20, 50 and 200 day can be helpful in monitoring short and longer term trends.

Once you're in a profitable trade you can use these moving averages to differentiate between minor and more serious, deeper corrections.

Understanding the difference will allow you to stay in a position longer because you'll be able to identify when your stock is experiencing a minor setback vs. a fundamental shift.

Areas of support and resistance are also helpful for deciding where to set stops and can be used to determine if there are more buyers or sellers at different price levels.

Remember, stocks don't go up in a straight line. They need to rest by consolidating or pulling back to areas of support. These sell-offs are needed in order to attract new buyers who have been waiting to buy shares at lower prices.

3. Ask Yourself If You're Making an Investment or a Trade?: Why did you buy the stock in the first place? Did you buy as a speculation? A swing trade? A long term position trade? You should know the answers to these questions before you buy any stock.

For longer term positions eliminate the noise by looking at the big picture (daily, weekly or monthly charts). Don't get caught up in the daily fluctuations. Intraday volatility can cause irrational decision making, provoking investors to sell their profitable positions far too early.

Longer term investments are probably better off managed on a end of week or end of month basis.

4. Position Size According to The Volatility of The Stock: The amount of shares you buy should coincide with the historical volatility of the stock. The more volatile the stock the more "heat" or drawdowns you will have to endure as a shareholder.

If you own too many shares and the stock moves against you, the more prone you'll be to panicking and selling too quickly.

If you need a refresher on position sizing you can find what you need to know here...Position Size - Avoid Account Destruction

5. Have a Plan: Not having a plan will cause confusion and second guessing when it comes to taking profits and risk management.

There's no one size fits all plan. Everyone is different when it comes to tolerance for risk and what they're trying to accomplish in the markets.

Create a plan before you enter a position and follow it no matter what happens. Review the plan once you're out of the trade and make notes on what you could've done better.

If you do this for every trade, your profit taking strategies will improve from experience and will end up adding to your bottom line.