When a target is hit, can we protect our gain with a tight stop or must we sell? (June 26, 2002)

  There are not absolutes in any position or with most things in life. A target is a projected point to where a stock will rise or fall based on the pattern, support, resistance, the overall market, etc. When it is hit there could be other factors that warrant letting a position ride. With that said, we also like to avoid changing the game plan during the heat of battle, particularly in this market. We have seen stocks rise to hit the target just to turn and fall back down. Today we saw puts hit the targets early and we closed out a lot of the positions that did hit the targets. Later in the session the stocks rallied as the market continues its pattern of selling to new lows and then covering up positions. Those are some good reasons to close out positions in this market.

What we also do, however, especially if the stock is really outperforming the market and showing great resilience, is sell at least part of the position when the target is hit and let the other part ride. This depends upone how fast the stock has risen as well. If it shoots up like a rocket, we are less inclined to let it come back on us; they all test the move to some extent, and in this market the tests can be steep as well. If support is near at hand we can take some money off the table, move the stop (we prefer mental stops to avoid market maker games where possible) and see if the stock will hold and continue its move. If it does we can add to the position then: the test has been successful and the stock is showing us it is worthy of our money. In more stable markets we can let more of the position ride. In this market we are usually happy with a nice gain that hits the target; if the stock pulls back and sets up again, we can play it again with that profit already tucked away.


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