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"Bulls make money, bears make money – pigs get slaughtered." — Old Wall Street saying
Throughout my life, I've had so many good mentors. At home, I had parents who showed me how to love unconditionally, who taught me the value of a buck, and how to have fun. At school, studying to be a chemical engineer, I had teachers who taught me how to think outside the box.
And when I moved into the corporate world, I had brilliant women and men help me understand how to use all the resources around me to get really big things done.
And in the trading and investing world, I've been fortunate to have sage people help me understand the psychology of how markets work.
That's right – the engineer just said "psychology."
At their purest level, financial markets are just auctions. Multitrillion-dollar auctions – but auctions, nonetheless.
Which brings me to today's "lesson." It's hands-down one of the most valuable profit-taking techniques that I've learned in my 30 years in the markets, and I'd like to share it with you.
It Starts with the Psychology of Managing Winning Trades
I find that for almost everyone, this is the toughest part of trading.
Here's the reason. The "Golden Rule of Trading" says that we have to cut our losses short and let our profits run.
But when we're in the middle of a big winner, the question becomes, "When do I take profits?"
If we take them too soon, we could miss out on that occasional "whale" trade that can make our whole week or month or even quarter.
And for the person who finds it easy to hang onto a winning trade, the problem becomes hanging on too long… and giving back much or most of those profits.
The Stealth Profits Trader answer is to grab profits in stages. This helps us handle the psychology of taking some healthy profits early in the trade and then hanging on to catch those occasional monster moves.
But there's one aspect of many monster moves that most people miss: The final blow-off.
Traders often give back too much profit because they can't recognize the final stages of an extreme move.
About the Author
Nationally recognized technical trader. Background in engineering, system designs, and risk reduction. 26 years in the markets.