Taking profits is extremely important when trading. After all, you only make money when you actually close the position and take money off the table. The key question is: when exactly do you take profits? So, right now, I want to talk about my favorite profit taking strategy for trading stocks. So, let’s say that you have a stock, and let’s say that the stock right now is trading at a price of $100.
So, you’re buying the stock for $100. And now, let’s say that you want to limit your risk to $200 because that is if you have a $10,000 account. You know me, I like to limit my risk to 2% of your account. So, if the stock goes down to $98, you’re getting out. This is your stop loss. So, this means that you risk $2, right? And if you’re trading… Let’s say, let’s just say… Keep it easy, you’re trading 100 shares. I need to move this a little bit over so that I’m not in the way. Here we go. OK. So, if you’re trading 100 shares, this means that your risk would be $200. When you risk $200, you want to make at least $400. For example, you know that right now I’m trading SLCA. For SLCA, my profit target is actually that I want to make $10.
So, I want to risk $2 trying to make $10. So, if it goes up to $110, that’s where my profit target is. So, the profit target here is $10 per share. And if you are trading 100 shares, this means the profit target is $1,000. Now, for me, that is a good practice. I need to move myself a little bit out of the way here. Here’s what I’m going to do. I’m going to make myself smaller or actually…I’m going to disappear. So, the idea here is obviously that this stock here is going up. But here’s the deal. What happens if it doesn’t go all the way up? So, here is what I personally like to do.
If you’re trading 100 shares, as soon as I see $4. So, if you’re going up to $104. So, if I’m risking $2, as soon as I make $4, I take half of the position off the table. So, here’s what I’m going to do. I am… Let me erase this here. So, as soon as we go up there, I sell 50 shares, half of the shares, and I’m making $4 per share. Meaning that I’m making $200. So, $200 I’m already taking off the table and this means that nobody can take these $200 away from me. What I also do now since I sold 50 shares, I have only 50 shares left. And here’s what I do with the 50 shares. I cut my risk in half. So, for the remaining 50 shares, I now only risk $1 per share.
Now previously, I risked $2. Now, I’m moving this, so I’m moving my stop loss to $99 and now I’m only risking a dollar. And this is only on the remaining fifty shares so $200, I already took off the table and now the remaining risk here is $50. So, what does it mean? I now have another 50 shares where I’m trying to make $10. So, on the remaining 50 shares, I’m trying to make $10, meaning that I want to make $500, but you see, right now I cannot lose on this trade anymore. And this is extremely important, right? Because I already took $200 off the table and now, I reduced my risk to only $50. So, in the worst-case scenario, if now the trade turns around, and I know it’s a lot of math, but trust me, money is math. So, if I took $200 off the table, and I reduce my risk to $50… If this trade turns around, I still make at least $150. I cannot to lose on this trade anymore. Now if everything goes right, this is when I am making an additional $500 in addition to the $200 that I made.
So, I am now trying to make $700 risking only $50. And you see, this is the key to making money with trading. When you see profits, you’ve got to take it off the table, and then you start reducing the risk. This is exactly what I did with my trades. And we have been talking about this previously, so you have seen me exactly doing this: taking half of the position off as soon as I see twice my stop loss.
So, if I’m risking $2, as soon as I see $4, I’m taking half of the position off the table. Now I am reducing my stop loss from $2 to $1, and at this point, I cannot lose any more on this trade. Now I can relax, sit back, and don’t have to worry about this trade anymore. If everything works out, I’m making $700 on this trade. If it doesn’t work out, I still make $150. So, now, anywhere between $150 and $700. Now, keep in mind, this example is for an account of $10,000. So, $10,000 means that on one trade, you make anywhere between one and a half to 7 percent of your account. How are you liking this? And you have seen this happening this week.
I’ve shown you how I personally traded CRC, where exactly that happened. I was able to take half off and then the remainder. SLCA is another stock that I’m trading, and if you have been following me and my videos, you have seen me doing the same thing. Took profit off the table and then started reducing my risk. So, right now, I can’t lose anymore.
And for me personally, this is smart trade management because this way, I personally think it’s a very relaxed way to trade because now you don’t have to worry about it anymore and you still know exactly when to exit. This is my favorite profit taking strategy. Multiple profit targets. That’s what I like to use. Taking money off the table and reducing my risk.
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