Taking Profits by Selling Half Your Position
Posted by Blain Reinkensmeyer
June 26, 2007 at 5:48 pm
Most investors never consider selling half their stock positions because they simply never thought of it as being a strategic play. When the circumstance are correct though, like for instance taking profits, you can help yourself effectively make more money trading stocks.
Stock Trading Tip
Learn to consider selling half your position in a given stock as a part of your strategy.
The typical investment strategy involves simply “buying stock xyz, holding stock xyz, selling stock xyz for a profit.” This is wonderful if you are holding for long periods of time (6 months or more) and want to sit through all the price swings, but the experienced trader knows otherwise.
The most common ways to implement selling half your position into your strategy include:
- selling half to take profits off the table
- selling half to minimize downside risk (losing our unrealized gains)
- selling half to minimize risk while taking profits off the table
- selling half to take profits off the table, then re-buying the shares at a more competitive price
Selling Half to Take Profits
Let’s say you are in Google right now (posted a chart earlier today) with the stock at new all time highs, and you bought at the break of $490. Well, you now have a decent unrealized gain under your belt. You could sell half your position at these new highs and seal some of your short term gains.
Minimize Downside Risk
Stuck in a position that you are unsure about? Instead of just selling out completely or tightening up your stop loss, selling half your position can minimize your concerns of the downside.
Minimize Risk + Take Profits
You are already up on your position but are unsure of the short term future, perhaps the company is set to post earnings or some big news soon, so instead of risking your profits and the added volatility, sell half your position.
Take Profits then Rebuy
This greatly depends on the situation and your own personal opinion of where the stock is going next, but let’s say the stock has a big day and you feel some retracement is due in the short term (next 2 - 5 days). If you want to hold the base of your position long term for perhaps long term capital gains, then you sell half that position and see if you can rebuy the stock 2 - 5% lower.
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I must say that I was never crazy about taking half off the table. When I make a trading move, whether right or wrong, I try to make it with conviction. I find that this strategy actually takes me away from the laser beam focus that I really need to be a successful trader or investor.
Taking half of the table in many ways is analogous to playing the tables in Vegas and being up 50% and saying well I’ll just play with some of my winnings. I usually walk out with less than I started.
Of course, there are times that you would want to employ this type of strategy if, for example, liquidity was an issue. Other than that, I’m not a big fan of this strategy.
Proponents will say that you minimize my risk. My feeling is that if the trade was successful, there is no better way than to minimize my risk than to close out the position. It’s just a matter of style.
[...] the up. With prior buypoints A and B being very cautious in this area should have been a must, and selling perhaps half our position and/or tightening our stops would have been a good way to go. Sadly, this is an example of how [...]