Profit Taking

DEFINITION of Profit Taking

Profit taking is selling tradables that have appreciated since initial purchase in order to take advantage of the appreciation.

WHAT IT IS IN ESSENCE

Profit taking is the procedure of selling a security in order to catch gain after it has jump appreciably. It affects an individual stock, a specific sector. Or the broad market. If there is an unexpected decline in a stock or equity index that has been growing, it can often be attributed to many investors taking profits.
Profit taking is the act of selling stock to take advantage of a sharp rise in the stock price.
Occasionally, investors will sell off their shares in a stock after the stock rises sharply.  It may occur as a result of an event that triggers a rise in the stock or when a stock just follows the broad currents of a bull market.  It may also occur when traders are looking for the opportunity to sell and even a small surge in the market brings new buyers willing to pay sellers’ prices.

HOW TO USE

Sell half on the double!
This is probably by far one the simplest approach to taking profits. This method works buy you waiting for your initial investment to double, go up 100%, before you start taking profits.
Now, this can be applied in many different ways. But the most common approach is that you start to take off your initial investment out, sell 50% of your holdings. In order to recoup the investment that you put into the trade. This is where this method shows promise. Now you have your initial investment back. And you are basically on a free ride to the top or the bottom. This strategy is good to reduce your exposure to the ever-volatile market. At the same time, it leaves you with enough holdings to make a decent profit as the market continues to move.