I'm going to book my gains in Markwest Energy (MWE) before the close. Now the move today in the stock has definitely been bullish but the question becomes, with me only being $0.20 from my profit target, why would I risk $1.67 that has already been made by holding this stock one more day.
You have to look at it from a risk/reward stand point. In essence, I am putting at risk 1.67 possibly (OR MORE) in profits to hold on for on $0.20 in return (but possibly more). So on the surface, i'm holding on to a trade with an 8:1 risk to reward, which in my opinion isn't favorable.
When it comes to trading, you have to think along these terms, because its what saves you at the end of the day from constantly seeing your winners turn into losers.
In order to do this, I have to give up gains that i might otherwise have and do so consistently, because in th end, my goal as a trader is to be consistently profitable.
But for me, it isn't a style that suits my personality very well (though it works great for others).
Just some background info on MWE - Bought it on Friday at $48.00 and plan to sell today before the close and before it hits my target at $49.90.
In any case, just some food for thought.
Ryan (@shareplanner) specializes in swing trading strategies and is the founder of SharePlanner which he created to help and teach others on how to trade stocks better using multiple approaches and time frames. Each day you can count on Ryan to provide his trading advice as well as transparency in every trade that he makes. Ryan Mallory resides in Central Florida. More >>
Get Ryan's Top Six Trade Setups for Profitable Trading eBook for Free!