How to Tell When It’s Time to Sell and Take Your Profits
Have you ever been in a great trade that was up a ton, but suddenly the market turned against you, and you lost your profits before you could sell?
If it hasn’t happened yet, it will. It happens to all of us.
A buddy of mine is a prime example. He’s been a trader for years. He has a real knack for racking up nice “floating profits” and then handing those profits back to the market.
He called me last week to ask my advice on this. It was then I realized that he had absolutely no idea when he was pushing his luck on these trades…
He’s not alone. Knowing when to sell and take your profits can be one of the toughest things to learn for new traders.
But the good news is… it doesn’t have to be hard. I taught my friend one easy way to know when to exit his trades. And I’ll teach you how to do this too, in just a moment.
How the Market Works
Like most young traders, I learned early on that a “the trend is your friend.” But it wasn’t until years later that I figured out, “the trend is your friend until it ends.”
It’s the last one that gave me (and now my friend) fits. If you don’t understand when that great trend is going to end, you’re likely to lose all your profits.
To avoid this, you need to know how the market works so you know when to take some money off the table.
A brilliant man named R.N. Elliott actually mapped out how markets work. You can see how markets rise and fall in his diagram below…
Three Pushes Higher…Two Pushes Lower
In my own research, I’ve found Mr. Elliott’s diagram works in all trends – stocks and currencies alike.
As you can see, a trend has what is called “5 waves” to it. However, it really boils down to something even simpler: a market trend has 3 pushes higher and two pushes lower.
We call those waves “Elliott waves” after R.N. Elliott. But what I like about this simplified approach is that you don’t have to know how to count Elliott Waves in order to be successful in your trading.
How to Tell If the Trend Is Leaving You Behind
Anyone can see a major move on a chart. You can take a quick look at the DOW chart and see when stocks are rallying or falling. You can do the same with a currency trade.
Now just keep track of those moves. It doesn’t even matter what timeframe you’re looking at. It works on them all.
If you see two major pushes higher have happened from the last major low, then you know you’re starting to push your luck on your “great trade.”
If you see your trade correcting higher, then you know to only expect two pushes higher.
If it’s a bonafide trend move higher, then it will have three pushes higher.
(A “bonafide trend” simply means that it will have “5 waves” or “three pushes higher.)
For example, say the currency pair that you’re trading has had two major pushes higher. That’s when I would say “take some profits off the table.”
In currency trading, the easiest thing to do is close out half your trade, and then move up your stop-loss to your entry point. That way, you’re officially playing with the market’s money instead of your own.
My buddy Evaldo and I constantly recommend our subscribers move up their stop-losses to lock in profits on our Forex plays in both Currency Cross Trader and Exotic FX Alert. You really have to because currencies move so much faster than your average stock play.
Now say you’ve seen three pushes higher on the chart. That’s when you know it’s time to sell and take your profits.
So that’s one way to know when you’re pressing your luck in a trade and you need to start exiting part or all of your position: two pushes higher or three pushes higher. It’s that simple.
I told my buddy this, and he’s finally started adopting this strategy, so he’s not constantly earning and then losing profits. I hope the strategy is helpful for you too.
Have a Nice Day,
Sean Hyman, Editor
Currency Cross Trader
P.S. For more on when to buy, when to sell, and when to take profits in the foreign currency market, check out Exotic FX Alert. This elite publication is the only one of its kind that explains how to buy and sell emerging market currencies in the $4 trillion spot Forex market. For a limited time, this research can be yours for a 65% discount. Click here for details.