Managing Your Profitable Position

During the fourth of July weekend I wrote about oil being ridiculously overpriced (see the blog entry here:Wicked oil). Over the next 2-3 sessions after blogging about it, oil sold off hard ($144 to the low $130s) but it didn’t necessary top off the way I had expected. It was a good sign but I did not have confirmation for me to get short, so I waited.

A few days later (7/11) oil futures rallied back up to those highs, tried to break out and failed misserably. A failed breakout at the ridiculous highs was enough for me to put in a couple of small trades. I placed smalls shorts on CHK, HK, USO and oil futures. So here we are 2 weeks later and I’m sitting pretty on those positions.

This brings me to the point of this entry. Managing a profitable position is tricky, every trader has its on way of doing it. Personally I like to scale out of my position, others like to close the entire position all at once when it reaches their target, and then there is the average investor that just refuses to get out of the position.

Obviously we all have our preferences when it comes to managing a profitable position. There just isn’t one perfect way to do it. What is important is that you develop a plan when you first enter your position if the stock trades against you and if it trades in your favor. Not having a plan for booking profits is just bad trading.

It does not matter if you exit your trade too early or if you get stopped out and then the stock hits your ultimate target. You cannot question your trading plan and violate the fundamentals. You are better off locking in your gains and missing the rest of the play. Not locking in gains is a huge mistake most investors make. Do not let a big winning trade turn into a non profitable one.

As for my positions, I have already covered 50% of my shorts and I have stops above resistance levels to cover the rest of them if the market turns around. Here are my stops and ultimate targets respectively for each of my trades. $51.50 and $36 in CHK, $37.25 and $20 in HK, $107 and $70 in USO, $133 and $100 in oil futures.

Get in the habit of developing a good exit plan and sticking to it. You will not suffer from the common: “I wish I had gotten out at that time for a big gain instead of taking a loss”. We always say on our desk: “nobody ever went broke for booking profits”.

I’m out to enjoy the NYC night life and spend some of those hard earned trading bucks.

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