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Stops, Taking Profits, and Earnings Season

Jul 19 2008

Stops, Taking Profits, and Earnings Season

This was a difficult week for bears of financials as financials shot up 11% on Wednesday for next to no real reason minus a less than terrible earnings report from Wells Fargo and the federal government threatening short sellers.

Stops

            A week like this past week reminds everyone that placing stops on volatile positions is always a good ideal. Place a stop 10% against your position on stocks and place a stop 20% against your position on options and adjust those stops every night or in the morning before the markets open. But only adjust the stops when your position increases in value. If your position decreases in value, leave the stop where it is so it will get you out if the position moves more against you.

Taking Profits

            Taking profits is never a bad thing. That won’t be the first or the last time you’ll hear someone say that. When running with a momentum position, taking profits on a regular basis is a very good ideal. If you schedule every Friday as a profit taking day, you can cut back on all your profitable positions and evaluate over the weekend what is your next move. If a day of the week doesn’t suit you and you would prefer to take profits when a trigger is reached, have you broker notify you by email when your position becomes 10% more valuable.

Earnings Season

            There’s nothing like earnings season to kill a trend. I always get out of positions prior to earnings season. Analysts tend to follow the trends and what other analyst have already done. All the analyst upgrade and downgrade in similar fashion. But earnings season is the time when companies have their opportunity to put their spin on their financial situation. And a trend can easily be broken when a company defies what analysts have been saying for the past three months. Get out of positions prior to earnings and get out of index positions before the whole earnings season gets under way.

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