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Fear vs Greed – Taking Profits in Stocks and Staying Profitable Ep 39

Here’s another question specific regarding fear, greed, taking profits, and making more money on the stock market.

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Today’s question:

Hi Sasha. I have noticed that every stock position that I close for a small profit and then get into it again for more turns into it and makes me lose all that profit and even worse. Is it just bad timing? Or is it the old-fashioned greed that gets in my way, and what should I do?

Talking about Fear & Greed in Trading

It could be both. It’s all about emotions. When you look at accounts, some of these are profitable, and some of these are not profitable. Others are coming up to be a losing position soon. I’ll show you one of the trades we talked about this last week – Amazon.

I set this up to be more of a sweet spot. Here’s an options trade. I’m not sure if you trade options or not. But in this option trades, it’s getting outside the range. We were up a lot more. It was over here now. It’s over here. If I had five contracts, I probably should have been taking off one into strength. With time if you already have profitable positions and then they turn into losing positions, then you’re trying to hold things longer than you should.

This business is about taking money off. You make money when you sell. In this case, you have to take it off.

If you start with five, you take one off, and you take another off. If you’re doing something else (Microsoft), this one’s profitable about $7,000, it’s got 300 shares right now remaining, but I started with about 500. There are ones up about 7456 right now.

Taking Profits in the Stock Market

Here’s the way you approach this. In this case, let’s say you start out with 500 shares. Then you can take off a hundred. After it goes up a little bit, you take off maybe another 100 a month or weeks later. It depends on your trading style. If you’re a day trader, there’s no difference. You’re just compacting that into six and a half trading hours.

When it goes up a little more, take off another 100. Let’s say you have a major crash that happens, and it drops back down. Now you have those 300 shares. I might add 200 of those – not the full 300. If drops a little more, maybe I’ll add another 100.

That’s the point of money management. This business is about risk and money management. Know what you’re putting on the table. Know what you’re putting on the account and manage your money. That’s what you need to do is take money off. If you did 20 trades, eventually, one is probably profitable. And if those profitable trades are turning out to become losers eventually well, you’re just not taking money off into strength.

Your goal, in that case, is to take money off. If you’re starting with a thousand shares, take off 200 every time. Do it 3,4 times, and you’re out of your position. 

It’s different if you did 20 trades, and they’re all losing. 

In that case:

  • you’re probably not picking the right stocks
  • you’re not getting in at the right time OR
  • you’re trading too large for your capabilities

In either way, if you’ve done 20 trades, I would assume by then at least two are probably profitable because you’re trying to make smart decisions. By then, you need to be taking money off as those are profitable as they are working in your favor.

Here’s Coca-Cola. 

As they move in your favor, you take off a few shares. If you’re starting with even 50 shares, then take off 5 or 10. That’s just learning basic money management and risk management.

If you’re trading options or you’re starting with two contracts, you take off one contract. Maybe you have one contract. Then you take it off when you’re somewhat profitable. You might need to do it earlier. If you’re tight and you can’t take off half of a contract, then you take off the whole contract. But if you can do two, you take off one contract. And you let the rest ride a little more, and you take off the other one. But at least then it gives you that little extra cushion.

Final Word

I hope that makes sense. Fear allows you to stay safe. If you’re afraid of a bear that’s coming in, it allows you to protect yourself. It’s a defensive mechanism for you.

Greed – it’s also useful for you. A lot of people say greed is bad. In my opinion, it’s good for you because it craves and desires things. I’m greedy; I want to have kids. I’m greedy; I want to have great times with my family.

Is that a bad form of greed? It’s a desire. It’s a want now. If you want money to have money, that is a bad thing. But if you want good quality time with a sick loved one, there is nothing wrong with that kind of greed.

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